Mr. Himadri Banerji

GLG News by Mr. Himadri Banerji, Chairman and Managing Director

GLG News is now G+ Insights

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Crude Oil Price: OPEC, G20 and Atlantic Basin Oil Inventory

March 16, 2009

Analysis of:OPEC oil exports at 5-year low, analyst says | www.ogj.com

It is reported by Eric Watkins Oil and Gas Journal (OGJ) Oil Diplomacy Editor that Oil that seaborne oil exports from OPEC countries barring Angola and Ecuador and have fallen to their 5 year low. Analysts from Oil Movement predict that, in the 4-weeks to March 28 exports will average only 22.76 million b/d, down 350,000 b/d from 23.11 million b/d in the four weeks to Feb 28.   The implications of the news is that   Considering that the year-ago deficit in Atlantic basin net inflows will reach 0.7 million b/d at end quarter the Atlantic Basin oil inventories which had so far  comparatively unaffected in spite of production cuts by OPEC may now show signs of reducing.   Will OPEC and the Oil Companies meet their long cherished aspiration of raising oil prices beyond the 50$ mark.   In the background of the fact that the OPEC and G20 finance ministers meetings are being held this week end where important decisions to address the rising concerns of low oil demand and prices.

Floating LNG A Boon Towards Energy Security.

March 16, 2009

Analysis of:Keeping floating LNG above water | www.projectfinancemagazine.com

It is reported by Keith Larson, of Hogan & Hartson in the March 2009 issue of Project Finance, that there is a vigorous interest amongst oil companies for developing projects based on the Floating LNG,in place of the highly capital intensive on shore multi train LNG facilities. Not only this allows developers to exploit stranded gas reserves, but also give an opportunity to convert the currently large amount of flared gas from different platforms into value added LNG.In the context, we learn that Shell is installing floating LNG facilities off the coast of Iraq, giving Shell a significant strategic asset to convert flared offshore gas into LNG.The gas will supply power plants and some would be exported as LNG through Basra, also Iraq's main oil export terminal. The terminal would be Iraq's first LNG export facility. Shell is mulling a floating LNG terminal for gas produced from a gas field off Western Australia. That terminal could be larger, with capacity of up to 5 million TPY.

The Petrochemical Companies Face The Heat: Lessons From The LyondellBasell Bancruptcy

March 16, 2009

Analysis of:Learning From LyondellBasell Bancruptcy | www.projectfinancemagazine.com

It is reported by Robin Sayles in an article in the March 2009 Issue of Project Finance that there are major implications in the petrochemical industry from the filing of bankruptcy by LyondellBasell Industries, the world’s third-largest independent chemical company amid plunging sales and a cash crunch. This was following an acquisition only last July costing a whopping 18 billion dollars which led to a huge debt burden which apparently is unserviceable now.The implications of this event as per the article is that companies with lower fuel bills and low cost EPC contracts may weather the present economic conditions with collapsing demand. This is characteristic of the petrochemical industry, always extremely sensitive to shifts in economic activity, is poised for a shake-up. There could be consolidation, M&A and a major shake up. The market will stress operational projects in US, Europe, and Asia. Companies from Middle East may walk in into the space vacated by companies.

To Be Or Not To Be Is The Question: Investors Caught Up Between Opportunities and Cost Of Capital In The GCC.

March 16, 2009

Analysis of:Between MAC and a hard place By Michael Marray | www.projectfinancemagazine.com

The article by By Michael Marray in the March Issue of Project Finance brings out an interesting perspective on investment in GCC considering that hundreds of billions of investment are required in these countries for building Oil Wells, LNG facilities, Refineries, Power Plants and so on. However as of now most of the projects are delayed on account of non availability of debt. The developers are now more concerned that once the debt markets reopen, there would be a steep rise in the cost of capital, making most of the IRR plans awry.

Weakening Energy Demand in a Stalling Global Economy Sends Shockwaves to the Oil Industry

March 4, 2009

Analysis of:MARKET WATCH: Energy prices fall sharply as economy deteriorates | www.ogj.com

Oil prices continued to fall as news of further economic woes continued to hit the world. Even withn OPEC trying to cut its oil production rate, inventory continues to rise, as demand obviously is falling faster on account of a number of factors like growing unemployment and recession. Long lead times in the oil supply chain mean the impact of lower OPEC production will not start to affect surpluses in the Atlantic Basin until later this quarter, when the volumes of oil arriving at discharging terminals should begin to fall. There apparently is an apprehension that recession is deepening and there is no turnaround in sight. The news that the AIG again and even HSBC now is calling for injection of stimulus capital to make up for the sub prime lossses, sent the global stockmarkets spiralling downwards with loss of investor confidence hitting the nadir.

Power Equipment Manufacturing Companies in India See Harder Times

February 17, 2009

Analysis of:Siemens: Low voltage Shobhana Subramanian & Varun Sharma / Mumbai February 13, 2009, 0:58 IST | www.business-standard.com

It is reported by Shobhana Subramanian & Varun Sharma in the Business Standard of 13th Feb that in these hard times,orders though small are like diamonds to companies.This is exemplified by the news that Siemens has won an order worth Rs 212 Cr(the size is minuscule by Siemens standard) from Steel Authority of India to provide a power distribution package to the latter’s Rourkela Steel plant, cheered by investors pushing up the stock by 2 percentage points in the stock markets.The news report mentions that the slow down has affected the revenues which Siemens derives from the distribution sector dropping to 36 per cent from the healthy 47 per cent in December 2007. Fortunately, however, it did not affect operating margins sustained over 9 percent through prudent management of the cost of raw materials. However BHEL in the public sector apparently has done much better, with OPM of 17 percent. Other private sector competitors, like CGL, Thermax, Areva and Voltas having floundered.

Risks Galore as India Inc Pledges Shares for Project Finance

February 17, 2009

Analysis of:Pleadged Shares no Sweat for Firms | www.business-standard.com

It is reported by Ranju Sarkar & B G Shirsat of Business Standard India dated February 17, 2009, that promoters of over 467 companies have so far pledged an average 23 per cent of their holdings with lenders to meet their project finance needs, as it transpires that Banks and FIs are not lending unless the shares are pledged as collateral. The companies which have pledged their shares are a virtual who is who of India Inc. Leading the pack is Tatas, followed by Reliance Communications, GMR Infra, Reliance Infra, United Breweries, JP Hydro(leads with 98 percen of its shares pledged) and many others.There are 114 companies where promoters have pledged more than 50 per cent of their stake, but lenders said this should not be a cause for worry as in most cases, the pledging of shares was driven by institutions, which insist on this for giving project finance.

Economic Meltdown: European Utilities Succumb!

February 16, 2009

Analysis of:Eon to cut costs after charges of €3.3bn | www.ft.com

It is reported by Chris Bryant in Berlin in the Financial times dated 12th February, that Eon, the largest energy company of Europe has announced a big cost-cutting drive on Tuesday, after it was hit by €3.3bn ($4.3bn) in charges related to an expansion of its operations in southern Europe, the US and Russia. On top of this we are already seeing industrial companies cutting back on electricity consumption, threatening profit margins and future investment for utilities. It is probably the first time since the war that we are seeing a significant decline in electricity consumption,” said Per Lekander, head of utilities research at UBS. “I very clearly underestimated this. It is an indication of how extreme this downturn will be.” The move underscores how even utilities – once considered a safe haven by investors – are being hit by the economic crisis as energy consumption by industrial users falls and the cost of refinancing corporate debt rises.

India Story-Adding Gigawatts of Power Infrastructure

February 16, 2009

Analysis of:BUDGET VIEW-Power equipment makers want infrastructure sops | in.reuters.com

In the article which appeared in Reuters India on the 12th of February, by Ketan Bondre it transpires that to help India add 78,577 megawatts of power generation capacity by 2012, major fiscal incentives are available currently available to projects in 500 MW to 4,000 MW range.Income tax benefits are available only to owners of power generation, transmission and distribution projects and not to the turnkey contractors, who supply, operate or maintain the equipment. The industry body wants excise duty on power equipments to be cut further to 8 percent from 10 percent, itself lowered from 14 percent in a stimulus package in December.

ABB banks on China and India for orders in Electric Grids.

February 16, 2009

Analysis of:ABB Quarterly Orders Fall as Larger Projects Decline | www.bloomberg.com

Antonio Ligi reports in the 12th Feb issue of Bloomberg.com that ABB Ltd, the world's largest power system equipment manufacturer, has admitted that there has been a sharp decline in the fourth quarter orders. The 19 percent drop compared to last year according to ABB is primarily on account of the 23 percent drop in power system and 14% in robotics orders. Major concern persists that this trend is going to continue in the coming quarters in 2009. As it appears company is not very hopeful of a recovery shortly and pins its hopes on the year 2010-2011, when significant investments in electricity grids by China and India are expected to bail out the company. 

Rio Tinto Deal with Chinalco: Questions Remain!

February 16, 2009

Analysis of:Chinalco to invest $19.5 billion in Rio Tinto | www.reuters.com

It is reported by Sonali Paul and Eric Onsad in the Reuters dated 12th February, that the Chinese state owned Aluminum group is investing 19.5 billion dollars in Rio Tinto. It is a fact that due to the massive meltdown in the metal commodity prices in markets around the world, coupled with a credit squeeze. With the global credit squeeze making it practically impossible to swap the debt, repayment pressures require difficult decisions to make in diluting their holdings including fire sale of prized assets acquired only last year. Rio plans to use the money to make early payments on $8.9 billion in debt due in October and $10 billion due late next year.The Chinese firm thus agreed to a deal to help to alleviate Rio’s debts which were taken on before the credit crunch led to a foundering world economy. In return Chinalco now gets access to world class management skills of Rio Tinto, besides very attractive tier one assets.

No looking back for India's nuclear power

February 16, 2009

Analysis of:NTPC, Nuclear Power Corporation to Spend $3 Billion on India Atomic Plants | www.bloomberg.com

NTPC Ltd and Nuclear Power Corp. will form a joint venture company and spend as much as 150 billion rupees ($3 billion) to build new atomic plants in the next eight years. In this venture, Nuclear Power will hold 51 percent of the equity. India signed a nuclear pact with the United States last year, giving New Delhi access to civilian nuclear fuel and technology for the first time in three decades, and opening up a potential multi-billion dollar market to global trade.

The Santos Basin in The Atlantic Excites Petrobas to Drill Deep in Strategy.

February 3, 2009

Analysis of:Petrobras releases five-year strategy plan | www.offshore-mag.com

It is reported by staff reporters of the Offshore Magazine dated 2nd Feb 2009, that Petrobas the Brazilian oil company has announced the strategic plan for the period 2009-2013. Shedding light on key details of how much the company plans to spend and where in the years ahead the plan envisages total investments of $174.4 billion to 2013. This represents an annual average of $34.9 billion, 90% of which ($157.3 billion) in Brazil and 10% ($16.8 billion) abroad and 55% more than the previous plan. Though the plan was ready in 2008, however factoring of the present global  macro economic conditions, has delayed the release to 2009. However considering the robust Brazilian economy, the plan looks forward to a realistic projections in oil production and exploration.

Free market mecanism for climate control: Moment of truth

February 3, 2009

Analysis of:Green schemes:Leave green investing to the professionals | www.economist.com

It has been reported in an article in The Economist dated 2nd February that at no time in history as now there is a great expectation from the American Democrats and the European union of a concerted action to curb green house gases and global warming.State level investments to control emissions of green houses as proposed by President Obama and EU have been announced, however there are doubts expressed if the investments would pass the litmus test of cost benefit analysis. The article goes on therefore to recommend strongly on falling back on the free market mechanism to tackle the menace. It recommends that US  like in EU also impose the Carbon Tax and evolve a market for trading in Carbon Credits  

Will the oratorical powers of Mr. Albanese now save Rio Tinto from falling into the lap of Chinalco from China

February 3, 2009

Analysis of:Rio Tinto and Chinalco The big owe:Rio Tinto's hefty debts have pushed it to seek investment from China | www.economist.com

It is reported in the Economist dated 2nd Feb 2009, that many big mining companies the world over have suffered on account of the massive slump in commodity prices , leaving mining firms with heavy debt burdens and requiring difficult decision to make in diluting their holdings  including fire sale of prized assets acquired only last year. On Monday February 2nd the Anglo-Australian mining giant was forced to confirm press speculation, acknowledging that it is in talks with Chinalco, a state-owned Chinese aluminum maker. The Chinese firm may agree to a deal to help to alleviate Rio’s debts which were taken on before the credit crunch led to a foundering world economy.

Feed in tarriffs and not subsidy is the way forward for carbon free future.

January 12, 2009

Analysis of:Germany’s feed-in tariffs set the example | www.power-technology.com

The article in power-technology.com, describes the experience in Germany of an innovative feed in tariffs as one of the well tried measures, consequent to which, there has been a healthy growth in renewable energy projects, to the extent that Germany is even considering phasing out nuclear by 2021. Feed in tariff is linked to performance and results unlike other measures like capital subsidies or tax incentives. It is easier to administer and simple unlike  carbon credits which can become complex involving costly expenses like consultant surveys,analysis, approvals, monitoring or management etc and can become daunting a constraint to small generators. The feed in tariff has helped numerous small generators who play an important role in balancing the energy supply from central generating stations with consequent reduction in transmission and distribution losses, and avoiding costly network upgrades. This pioneering effort in Germany has now been adopted in over 30 countries.

Dynergy abandons construction of six coal plants

January 12, 2009

Analysis of: A coal giant rethinks coal | features.csmonitor.com

It is reported in the 7th of January issue of Christian Science monitor that Houston-based energy giant Dynegy has announced that it is abandoning plans to construct six coal-fired power plants, dissolving the 50-50 joint venture with LS Power, a New York-based energy company.  That venture, launched in 2007, sought  to build coal-fired plants in Arkansas, Georgia, Iowa, Michigan, Nevada, and Texas.The main reasons cited are that the development of new generation is getting increasingly marked by barriers to entry including external credit and regulatory factors that make coal plants in a carbon constrained economy uncertain. In light of these market circumstances, Dynegy has elected to focus development activities on generation portfolios which they can themselves control. Needless to reiterate, the six plants would have spewed 30 million tons of greenhouse gasses into the atmosphere each year (by comparison, the average American is responsible for about 20 tons annually).

The twists and turns between Gazprom and Europe

January 12, 2009

Analysis of:The customary gas stand-off | www.economist.com

It is reported in the Economist Intelligence Unit Briefing in The Economist of January 5th that the winter gas supply from Gazprom Russia via Ukraine has been curtailed substantially to Poland, the Czech Republic, Bulgaria, Romania, Turkey, Croatia and Greece. Poland has been the most severely effected, with supplies via Ukraine down by 11% compared with a month earlier. The genesis of the trouble is traced to the demand by Russia of a substantial increase in gas prices aiming for parity with Eurpean gas prices( $450 per 1000 SCM. Ukraine simply does not agree. Ukraine is relying on inventory, which it has built in 2008, to weather the winter demand, after which they expect that the gas prices necesariliy will fall. and Russia will be forced to sign the deal at the price offered of $235 per 1000 SCM.

Silver Lining in the Gas Crisis in EU

January 12, 2009

Analysis of:EU Presidency: Ukraine says gas agreement difficult | www.reuters.com

It is reported in the Reuters on Jan 6, 2009 , that agreement between Ukraine and Russia over the gas price row is not in sight. Thus the standoff may continue for some time giving rise to apprehensions of a looming energy crisis for the EU. The Czech European Union presidency said on Tuesday that, according to Ukraine, different legal and technical viewpoints made an agreement with Russia's Gazprom on gas deliveries to Europe difficult.

Quo Vadis Hedging and Derivatives, Futures and Spark spread.

December 28, 2008

Analysis of:RasGas to revise LNG prices for India every month | www.reuters.com

It is reported in the Reuters on 23rd December that prices of liquefied natural gas (LNG) supplied by Qatar's RasGas to India's Petronet LNG (PLNG.BO) under a long-term contract will now be revised on a monthly basis, quoting a Junior Oil Minister in Government of India Dinsha Patel. The Japan Custom Cleared Crude rate would be the linked price index for the five million tonnes of LNG which Petronet India is going to buy every year from RasGas under the deal, from 2009 with a clause that the price will be revised every month. Supplies under the agreement are expected to be raised to 7.5 million tonnes next year.    

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