Petroscan February

PETROSCAN (Monthly e-newsletter) February 2012 CONTENTS: OIL, GAS & ENERGY NEWS NEWS LOCAL • INDIA ROAD-BUILDING HITS RECORD AS BUILDERS PAY TO WORK: FREIGHT • HALDIA PETRO MAY REPORT TO BIFR AS ‘INCIPIENTLY SICK' COMPANY • IOC seeks compensation for petrol sale loss • IndianOil bags Retail Excellence award for Rural Impact • Minister Mauritius visits Vashi terminal • World’s largest Subsea Manifold and Spools installed at Paradip Offshore Terminal • Mktg. HO sweeps Director (Marketing)’s Trophy for the third time • IndianOil signs MoU with HDFC for banking services at ROs • Inter-divisional finals of Solaris Quiz held • IOCians reserve top slots in Sports Meet • IOC buys Nigerian light crude, Egyptian heavy-traders • No gas to power sector from ONGC fields: EGoM • Oil spike may hit markets • CNX 100 pay higher part of profit as taxes • GAIL wants marketing margin on RLNG out of regulatory purview • ONGC is spending Rs 26,000 cr on 10 oil clusters • Euro-III fuel to be phased out in 7 cities from March 31 • Videocon Industries: Stagnant sales hurt, but oil & gas business may fire it up • ONGC Videsh, GAIL eye UK's Cove Energy in $1.2bn deal • Ministry refers RIL's marketing margin issue to regulator

PetroScan-February 2012

NEWS GLOBAL • UK 2012 oil, gas capital spend to hit record -survey • UPDATE 2-Exxon expects annual investment of $37 bln a year • U.S. funds alternative fuel research • Shell pays $25m to settle up royalty dispute • ConocoPhillips seeks partner for oil sands assets • Keystone XL : Seeking pipeline common sense • Colorado emerges as next oil frontier • Oil, Gasoline Prices Hit All-Time Highs in 2011—and May Continue Rising NEW & RENEWABLE ENERGY • Chinese solar major offers financing for Indian projects • N. Alaska May Hold 80T Cubic Feet of Shale Gas • Shale Gas: A Boon that Could Stunt Altervatives, study says • LanzaTech Grabs Failed Biofuel Refinery in Georgia Pine • Planting Wind Energy on Farms May Help Crops, Say Researchers • Wind Parks were 21% of new EU Power Plants in 2011 • Hydrogen Cars are on the way • Novozymes explores seaweed to ethanol in India • Solar Storm Hits Earth SUSTAINABILITY & CLIMATE CHANGE • Carbon index BSE-Greenex launched • Walmart, Kohl’s among top green power purchasers • The Green Consumer, 1990-2010 • It takes more than data to make a decision • 4 ways to be more authentically green HSE • • •

Takeda’s TAK-875 Fights Diabetes as Well as Older Drug in Study Abu Dhabi to recycle 90% of waste by 2018 Chevron rig fire

INNOVATION • 4 Myths About How Great Companies Innovate GENERAL READING • Seven Highlights from 2011 and the Outlook for 2012 • Americans Gaining Energy Independence With U.S. as Top Producer • Research Partnership to Secure Energy for America LEADERSHIP • 10 Lessons from Inside Apple • Why the CEO is here to stay

PetroScan-February 2012

INTERVIEW • • • •

Do you share your goals? Sign our constitution Arup Roy Choudhury-NTPC – Our natural resources cannot be priced at international levels Anil Sardana – Tata Power – Coal mining methods needs to be improved Oil India to buy Shale Gas Assets worth $200m

***********************************************************

OIL, GAS & ENERGY NEWS INDIA ROAD-BUILDING HITS RECORD AS BUILDERS PAY TO WORK: FREIGHT India is awarding highway- construction contracts at a record pace, and saving taxpayers money, as builders stop asking for subsidies and instead offer fees to lay and operate new toll roads. Competition among builders such as GMR Infrastructure Ltd. (GMRI), Larsen & Toubro Ltd. and IRB Infrastructure Developers Ltd. (IRB) has helped the National Highways Authority of India win payments, or premiums, for at least 23 of the 35 projects it has offered since April 1, said G. Suresh, its chief general manager for finance. He didn’t elaborate. The body will award tenders for 7,300 kilometer-lanes of highways this fiscal year, worth about 570 billion rupees ($12 billion), and 9,000 kilometers next year.

“Many of the projects where we thought we’ll have to pay subsidies, we actually got premiums,” said B.K. Chaturvedi, who headed a government committee on highway development and a member of the state Planning Commission. “It’s a good thing there’s competition.” Construction companies have stepped up bids for highways as growing vehicle ownership is spurring traffic and because of a slowdown in other sectors such as building power plants. The work will improve roads (LT) ranked worse than Botswana’s by the World Economic Forum and ease congestion that contributes to about 440 billion rupees of harvested foods going to waste each year, according to government estimates.

“India’s road network is barely adequate to maintain its current growth trajectory,” said Shailesh Kanani, an analyst with Angel Broking Ltd. in Mumbai. “Positively, the political will to acknowledge and address this issue is now visible.” $1 Trillion Spending India’s investments in roads could rise to $145 billion in the five years to 2017 from about $69.8 billion in the previous five years, according to a PricewaterhouseCoopers LLP. study. The country plans to spend a total of $1 trillion on roads, railways, airports and other infrastructure in the period.

The national highway system, a predominately two-lane network linking major cities, carries 65 percent of India’s freight and 80 percent of passenger traffic. In about six years through October 2011, the highway agency oversaw 5,182 kilometers of construction, including new highways and improvements.

Prime Minister Manmohan Singh in August 2009 set a goal of building 20 kilometers of highways a day. The nation has added 823 kilometers, or about 2 kilometers a day, since then as construction slowed, Tushar A. Chaudhary, junior road transport and highways minister, told lawmakers in parliament Dec. 12.

PetroScan-February 2012

Tenders Online Construction is now speeding up, partly because the agency has made it easier for builders to compete for projects by accepting tenders online and by creating a list of prequalified bidders. Winning bidders get to collect tolls for as long as 30 years before transferring the highways to the state, Suresh said. Toll fees are decided by the National Highways Authority.

The highways have become more lucrative for builders and the government as the rising number of cars and trucks boosts traffic and tolls. India’s car sales in the year ended in March jumped 30 percent, the biggest gain in at least nine years, according to Society of Indian Automobile Manufacturers. Sales may triple to more than six million by 2018, Rothschild forecast in a December report.

“Traffic risk is something to be taken on by the developer,” said Virendra Mhaiskar, chairman of IRB Infrastructure, which has constructed roads including the Mumbai-Pune highway. If the builder is confident of generating enough tolls to cover costs and make a profit, it can offer the extra anticipated funds to the government as premiums to secure the contract, he said.

Overestimating Traffic Builders run the risk of overestimating future traffic and tolls, which could cause them to pledge unprofitable levels of fees, said Parvesh Minocha, managing director, transport division at Feedback Infrastructure Services Pvt., which advises clients on construction projects.

“The premium bids are increasingly becoming a cause for worry,” he said. “The worry will start manifesting a couple of years down the line when you have to give the NHAI what you promised and also put in money to build the roads.”

L&T, the nation’s biggest engineering company, decides to make premium bids for projects based on factors including traffic expectations, competition from other roads, the type of traffic the highway will attract and the ease of construction, said S.N. Subrahmanyan, director and senior executive vice president of its construction division.

He didn’t say how much premiums the company has so far paid.

The builder fell 3.5 percent to 1,301.9 rupees at close of Mumbai trading. It’s fallen 14 percent in the past year.

IRB Infrastructure declined 2.9 percent and GMR Infrastructure dropped 5.3 percent today.

Reliance, Adani Builders may also be chasing road projects to help replenish orderbooks amid a slowdown in power-plant orders, said Manish Agarwal, an executive director at the Indian unit of PwC.Reliance Power Ltd. (RPWR), Adani Power Ltd. and other electricity generators have delayed building $36 billion of power stations because of concerns about coal supply.

L&T, based in Mumbai, has orders to build 100 billion rupees of roads, Subrahmanyan said. The builder boosted the number of road projects to 7,171 lane-kilometers in the first nine months of this fiscal year from 5,701 lanekilometers a year ago, according to company presentations on its website. The number of power projects remained unchanged at 5 during this period.

Power Plants That means power plants now account for 29 percent of L&T’s orderbook, compared with 37 percent a year ago.

Roads and other building projects’ share has jumped to 40 percent from 32 percent. “For investors, a company’s valuation seems to be driven by its orderbook,” said Agarwal. “If a company wins a bid, they see it as fantastic.”

Welspun Infratech Ltd., a unit of JPMorgan Chase & Co.- backed Welspun Corp. (WLCO), has won road projects worth 10 billion rupees since 1999, including a 185-kilometer stretch in the central Indian state of Madhya Pradesh, without offering premiums, said Assistant Vice President Rajeev Kumar. Still, the company is willing to offer fees.

PetroScan-February 2012

“We aren’t averse to offering a premium to win a deal,” he said. “If the deal is good, why not?”

HALDIA PETRO MAY REPORT TO BIFR AS ‘INCIPIENTLY SICK' COMPANY THE HINDU BUSINESS LINE newspaper.

Kolkata, Feb. 26: While promoters are yet to resolve the ownership issues, blocking fresh capital infusion in Haldia Petrochemicals Ltd, West Bengal's showpiece industrial project is set to “report” to the Board for Industrial and Financial Reconstruction (BIFR) as an as a “incipiently (or potentially) sick company” by the end of this fiscal.

According to sources in lending banks who were recently invited to a meeting by the State Government, as against a peak net worth of Rs 2,844 crore, the company has accumulated nearly Rs 1,550 crore loss till December 2011. According to the existing rule, erosion of more than 50 per cent of the peak net-worth calls for “reporting” to BIFR. Losses mount Having started the year with a net erosion of Rs 747 crore of the peak net worth, HPL added Rs 800-crore loss in the first three quarters of 2011-12 due to poor market conditions. This is inclusive of nearly Rs 200-crore loss on account of currency fluctuations. Though the earnings before interest, depreciation and amortisation (EBIDTA) remain positive, the 21-day shutdown in January, owing to technical reasons, and the high interest liability due to a huge debt burden of Rs 4,000 crore will surely lead HPL to accumulate more losses in the fourth quarter of this fiscal.

No Life line Technically “potential sickness” is different from “sickness” – which makes it mandatory for the unit to undergo a revival plan under direct surveillance of BIFR – and should not lead to as much impact on flow of orders or bank finances. Banking sources, however, feel that high interest payment obligations and lack of capital infusion may keep straining HPL's balance-sheet in the days to come.

“The only available option before the company at this juncture so as to avoid reporting to BIFR is to convert part of its Rs 1,000-crore loan, previously disbursed under the CDR (Corporate debt restructuring) package, into equity. This would enhance the net worth of the company and offer a life-line to the joint sector company,” a source told Business Line. However, no such option can be exercised until the ownership issues are resolved.

Also, since HPL and its promoters failed to fulfil key obligations of the previous bail-out package, due to ownership-tangle emerging soon after the CDR package was approved in 2005, banks are not in a position to offer any fresh bail-out package to the company.

IOC seeks compensation for petrol sale loss Government run Indian Oil Corp, the country's largest oil refining and marketing firm, has asked the government to compensate for revenue losses incurred on selling gasoline below market prices, its chairman RS Butola said on Monday.

India freed pricing of petrol in June 2010 but continues to subsidise prices of gasoil, kerosene and cooking gas to protect the poor from the impact of any inflation pressures. In the second half of 2011 oil companies began reflecting market realities in local gasoline prices but that stopped since end-November on the advise of the government -- majority shareholders in state fuel retailers, due to elections in some states.

IOC has suffered revenue losses of about Rs 1,560 crore so far this fiscal by selling petrol below market price, its head of finance PK Goyal said. Butola said state-fuel retailers are currently losing slightly more than Rs 3 per litre on local sale of gasoline.

PetroScan-February 2012

Oil marketing companies previously cut gasoline prices in mid-November when spot Singapore gasoline prices were about 109.30 a barrel and the exchange rate was about Rs 49.30 to a dollar. Singapore gasoline prices have since risen to about USD 130 a barrel and the rupee has recovered to about 49.19 to a dollar.

IOC on Monday posted a net profit in October-December as cash subsidy from the government and discount on crude and product purchases from the upstream companies helped it to wipe off revenue losses on fuel sales at subsidised rates. In the December quarter the company suffered a gross revenue loss of about 176.9 billion on sale of diesel, kerosene and cooking gas, Butola said. State-run upstream firms gave a discount of Rs 8,336 crore on crude sales to IOC and the federal finance ministry has agreed to pay a cash subsidy of Rs 8,187 crore, leaving the fuel retailer to absorb about Rs 1200 crore.

IndianOil bags Retail Excellence award for Rural Impact For the fourth consecutive year, IndianOil has bagged the Asia Retail Congress Award for Retail Excellence under the category ‘Rural Impact’. The award recognises the lasting and powerful impact made by IndianOil through its novel initiative of Kisan Seva Kendra (KSK), special format petrol/diesel stations in rural areas. Mr. MD Kumar, DGM i/c (Retail Development), Mktg. HO, received the award on behalf of IndianOil from Prof. Marshall Goldsmith, leading global organisational consultant and a well acclaimed expert in executive development from the US. The Asia Retail Congress is a key global platform promoting world-class retail practices and recognising exceptional retail practices across the Asian countries through awards under different categories. Earlier in 201011, the KSK initiative of IndianOil had also won the 'Images Award for Excellence in Retailing' at the India Retail Forum.

IndianOil operates a network of over 4,000 KSKs to meet the demands of the rural customers, offering auto fuels (petrol and diesel) and lubricants (including tractor and pumpset oils) besides a range of agri- and household products such as seeds, fertilisers, pesticides, kerosene stoves, stationery and other FMCG & financial products, all delivered under one roof and literally at the doorstep of the customer. Located in the hinterland, KSK are fast emerging as socio-economic hubs where beyond oil business, several other interactive and community-oriented activities are being rolled out, from dissemination of the latest agricultural techniques to structured health care programmes in the surrounding villages.

Minister Mauritius visits Vashi terminal Mr. Sayyed Abdul Al Cader Sayed Hossen, Hon’ble Minister of Industry, Commerce and Consumer Protection, Govt. of Mauritius, recently visited the state-of-the-art terminal at Vashi.

On the Prime Minister’s delegation to India, Mr. Sayyed Cader Hossen, specially took time off his busy schedule to inspect the process of ethanol blending at the terminal. During the discussions, he revealed that Mauritius, a major producer of sugarcane, intends to market ethanol-blended petrol. The Hon’ble Minister along with his colleagues, Mr. Thailesh Kumar Chamane, Head of Mission, Consulate of Mauritius, as well as Mr. Abdul Sattar Aboobakar, Charge d’ Mission, Enterprise of Mauritius, went around the Vashi Terminal to understand issues pertaining to storage, blending and transportation of ethanol.

Mr. Hossen also met major ethanol suppliers of Maharashtra and asked them about the process of sugarcane procurement, including the concept of Minimum Selling Price fixation by the Government of India. The three-

PetroScan-February 2012

member delegation from Mauritius was greeted by Mr. G. Tiwari ED, Maharashtra State Office, and Mr. M.Ramana, ED (Operations) HO. Mr. Sayyed Cader Hossen, requested for IndianOil’s help in assisting Mauritius to launch marketing of ethanol-blended petrol in Mauritius.

World’s largest Subsea Manifold and Spools installed at Paradip Offshore Terminal The installation of a 480-tonne Pipeline End Manifold (PLEM) measuring 28x11.5 square metres, equipped with nine hydraulically operated valves and tie-in spools has recently been carried out for the integrated Offshore Single Point Mooring (SPM) Project at Paradip by the Offshore Projects group of IndianOil’s Pipelines Division.

This is the largest subsea manifold and spools installed ever in the world for any SPM Terminal.

Installation of the subsea PLEM for SPM-II measuring 28x11.5 metres and weighing 480 tonnes was carried out using derrick barge HD-1000 deployed by Hyundai Heavy Industries (HHI), the installation contractor. This work was performed to exacting tolerances and within an extremely short duration in an underwater environment challenged with zero visibility, extreme sea conditions and water depth of 32 metres.

The subsea manifold presented special installation challenges due to its weight and driven piling (48-inch diameter) with the seabed for making it geostationary. After installation of the subsea manifold, came the most challenging installation of the 48 inch diameter spool for route 2B for tie-in between the subsea manifold and subsea pipeline.

This 48-inch diameter spool set measured over 59 meter in length and weighted approximately 87 tonnes. It is the largest in size ever installed for any offshore SPM terminal anywhere in the world. Its deployment required the use of both 1000-tonne barge crane and 300-tonne crawler crane using air bags of 5 to 10 tonne capacity along with specialised saturation driving system.

Mktg. HO sweeps Director (Marketing)’s Trophy for the third time The Mktg. HO Team lifted the Director (Marketing) Trophy for the third time in succession at the recently concluded Inter-Region Sports Meet (IRSM) held at Cochin from February 6-10, 2012.Cochin saw exciting matches in Table Tennis, Badminton, Carrom, Chess and Bridge played among all the regions of the Marketing Division. The event was inaugurated by Mr. M. Nene, Director (Marketing).

The event was a grand affair with over 200 players participating from all the regions. Matches were conducted in five disciplines i.e. badminton, bridge, chess, carrom and table tennis. Teams from HO and WR were tied with equal points before proceedings on the penultimate day of the tournament. However, in the end, the HO Team edged out WR Team by 4 points to win the trophy.

The 42-member HO Team spearheaded by Team Manager Mr. Sanjay Padhye, Chief Manager (A&W), won the team championships in Badminton (Men’s & Women’s) and Carrom (Women’s). The star performers in the HO Team was Ms. Seema Parab, SO-II, who won a triple crown winning the Badminton Mixed Doubles, Women’s Singles and Doubles titles. Double crowns went to Ms. N. C. Fereira, PS, who won the Women’s Singles and Doubles Table Tennis titles and Mr. Sharat Kumar, SEA to Director (Mktg.), who won the Men’s Singles and Mixed Doubles titles in Badminton. Mr. S S Bapat, ED (Western Region), Mr. G Raghuraman, GM (Finance), Southern Region, Mr Rakesh Jaiswal, GM (A&W), HO and Mr. A Pandian, GM (Kerala State Office) gave away the prizes to the winners of team and individual events.

IndianOil signs MoU with HDFC for banking services at ROs PetroScan-February 2012

IndianOil signed an MoU with HDFC Bank for providing banking services to the customers from the retails outlets.

The MoU was signed by Mr B S Giridhar, GM, UPSO-II, on behalf of the Corporation with Mr Michael Andrade, Sr Vice President HDFC Bank at HDFC Head Office, Mumbai.

Under this MoU, the RO dealer will act as a mini branch of the bank and a standard Business Correspondent (BC) agreement would be executed directly between the dealers and HDFC Bank.

The Business Correspondent (RO Dealer) will be entrusted with the job of collection and disbursement of small value deposits, withdrawals by HDFC customers apart from handling loan applications and assisting HDFC in new account openings in the area. This is the ninth MoU signed by UPSO-II since last year for Non Fuel revenue generation.

Inter-divisional finals of Solaris Quiz held The road to the semi-finals and the inter-divisional finals of Solaris Quiz 2012 was one of huge surprises. Deepak Taneja-Jaimon Philip of Team Refineries Division who scraped through the semi-final rounds, were on a roll in the inter-divisional finals, the “Mt. Everest” Round. Marketing Division, on a high with Nihar Ranjan DasAshuman Rath, and Refineries Division with Deepak Taneja-Jaimon Philip will keep the flag fluttering as they will soon take on the teams of NTPC, ONGC, HPC, BPC, OIL INDIA and PCRA.

IOCians reserve top slots in Sports Meet In the recently concluded sports events across the country, IOCians have garnered top positions and brought laurels to the Corporation.

In the 73rd Senior National and Inter-State Table Tennis Championship held at Lucknow, Mr. Sharath Kamal, Dy. Manager, SRO, finished runners-up in the Men’s Singles. Sharath went down fighting to A. Amalraj 2-4. In the women's finals, former national champion Ms. K. Shamini, Grade ‘A’ Officer, SRO, lost to Ms. Poulami Ghatak 40. Manika Batra, tenure-based sportsperson, NRO, along with partner Sanil Shetty ,defeated Ankita Das and Soumyajit Ghosh in straight games to lift the Mixed Doubles title.

In the PSPB Table Tennis Tournament held at New Delhi, Sharath Kamal, played brilliantly to win the Men’s Singles title defeating current national champion A. Amalraj of ONGC 4-2. In the women's final, Manika Batra, Tenure-based Player, NRO, defeated the vastly experienced Mouma Das of OIL 4-2 to lift the title. In Badminton, double players from IndianOil performed excellently at the 76th Senior National Badminton Championships held at Bangalore from 17-25 January 2012. In the mixed doubles final, the top seed pair of Arun Vishnu, tenure-based Sportsperson, APSO and Aparna Balan, Grade ‘A’ Officer, Kochi DO, upset last year's champions Pranav Chopra and Prajakta Sawant, tenure-based Sportsperson, Mktg. HO. In Men’s Doubles Arun Vishnu joined forces with Tarun Kona, Tenure-based Sportsperson, APSO as they defeated defending champions Rupesh Kumar & Sanave Thomas in the final of the Mens Doubles. In the Womens Doubles final, Prajakta Sawant and Pradnya Gadre defeated the pair of Aparna Balan and N.Sikki Reddy.

In the PSPB Badminton Tournament held at Jaipur from 27 – 31 January 2012. The IndianOil team consisting of Mr. P. Gopichand, Sr. Manager (Lubes), Secunderabad DO, Mr. J.B.S.Vidyadhar, Asst. Manager, Secunderabad DO, Mr. P. Kashyap, Gr. ‘A’ Officer, APSO, Mr. Ajay Jayaram, Grade ‘A’ Officer, Mktg. HO, Mr. Arun Vishnu, tenure based player, APSO, K. Tarun, tenure based player, APSO and N.V.S.Vijetha, Scholarship Player finished runners-up in the Men’s team eent going down to ONGC with a 1-3 scoreline in the finals.

In the same event, the Women’s team reached the finals in the team event. The team consisted of Ms. Trupti Murgunde, Asst. Manager, KASO, Ms. Aparna Balan, Grade ‘A’ Officer, Kochi DO, Ms. Gayatri Vartak, tenure

PetroScan-February 2012

based player, Pune DO and Ms. Prajakta Sawant, tenure based player, HO. Trupti Murgunde and Gayatri Vartak won the Women’s Doubles title and were semi-finalists in the Women’s Singles.

While in Billiards and Snooker championship, Dhvaj Haria, Elite scholar, Ahmedabad, won a triple crown by emerging the winner in the National Sub-Junior Billiards, National Sub-Junior Snooker and also the National Junior Billiards in the National Championship held at Pune in January 2012. Ishpreet Singh Chadha, another Elite Scholar, Mktg. HO, finished third in the National Sub-Junior snooker event. Malkeet Singh, Elite Scholar, finished third in the National Junior Billiards event.

Mr. Aditya Mehta, Grade ‘A’ Officer, Mktg. HO, won the senior national snooker title for the second year in succession at the Senior National Snooker Championship held at Pune during 30 January – 4 February 2012.

After being 0-2 down, defending champion Aditya Mehta rallied to win six frames in-a-row and beat IBSF World No. 3 Kamal Chawla 6-2 in the finals. Brijesh Damani, a tenure based player, reached the semi-finals at the same event.

IOC buys Nigerian light crude, Egyptian heavy-traders LONDON, Feb 20 (Reuters) - Indian Oil Corp (IOC), the country's largest refiner, has bought Nigerian light crude and Egyptian heavy crude in two tenders, traders said on Monday. IOC bought a 950,000-barrel cargo of Qua Iboe and the same volume of Escravos for April loading. The seller was Trafigura, traders said, but this was not confirmed.

In a separate tender, IOC bought Egyptian Ras Gharib from another trading house, the traders said. It was rare for the company to issue a tender by buy heavy crude. (Reporting by Ikuko Kurahone; editing by James Jukwey)

No gas to power sector from ONGC fields: EGoM Dashing hopes of the power sector, an Empowered Group of Ministers (EGoM) today decided not to divert ONGC-produced APM gas from non-priority sectors, like petrochemical units, to electricity plants as volumes available were "very low". The EGoM headed by Finance Minister Pranab Mukherjee felt there was only 3.84 million cubic meters per day of natural gas from state-owned ONGC's fields (called APM gas) that currently goes to non-priority sector. Of this, only 1.92 mmcmd can be diverted as users of rest cannot be switched due to reasons like low pressure. "There is very little gas available (for diversion) in the first place... EGoM decided that things better be left as it is," Oil Minister S Jaipal Reddy told reporters after a 70-minute meeting.

The power sector had been lobbying for diversion of the APM gas in view of a sharp dip in output from Reliance Industries' KG-D6 gas fields to about 35 mmcmd from 61.5 mmcmd achieved in March 2010. Most of APM gas already goes to priority sectors of fertilizer and power and there is about 5.23 mmcmd that goes to city gas distribution companies for sale as CNG and cooking gas. The EGoM felt this is also a priority sector as without APM gas, which is priced at one fourth the price of imported gas, prices of CNG and piped cooking gas would spiral. APM gas and KG-D6 gas are currently sold at USD 4.2 per million British thermal unit. Reddy said the EGoM took note of the fall in output from KG-D6 but did not discuss price changes or pooling of rates as they were not on agenda. Reddy said EGoM accepted his ministry's proposal for stopping KG-D6 gas supplies to power producers that do not sell electricity at regulated tariff.

However, two merchant power plants in Andhra Pradesh that currently sell electricity at way above the tariff determined by the sector regulator, will not face disconnection as they have signed short term agreements with local distribution companies to sell power at regulated tariff. Also, EGoM decided that gas allocations will be made to only urea fertiliser plants and fuel supply to phosphates and potassium fertiliser producers be stopped,

PetroScan-February 2012

he said, adding the three non-urea plants currently getting KG-D6 gas would continue to get the fuel. The incremental revenues that they make from using subsidised gas for making market priced products, would be mopped up by Department of Fertilizer, he said. DoF will come out with a guideline for the same in three months.

KG-D6 gas output has fallen to about 35 mmcmd after touching a peak of 61.5 mmcmd in March 2010, prompting the ministry to suggest changes in the allocation policy. Stating that the EGoM took note of the fall in output from KG-D6 fields, Reddy said the capacity to import gas in its liquid form (liquefied natural gas or LNG) was also limited to 7-8 mmcmd in next fiscal.

Against this, urea plants need 13.22 mmcmd of gas beyond 15.7 mmcmd, which has already been allocated from KG-D6. Similarly, 31.81 mmcmd gas for 14 power plants with a total capacity of 7,219.5 MW that are to be commissioned in the Eleventh Five-Year Plan period ending March 31 is needed. Currently, power plants have been allocated 32.67 mmcmd of KG-D6 gas.

Oil spike may hit markets Livemint.com The sharp rise in crude oil prices over the past weeks has emerged as the biggest risk to the stock market rally in India because it could widen the country's fiscal and current account deficits, and weaken the rupee, analysts said. Indian markets posted their first weekly loss this year for the week ended 24 February. Inves- tors booked profits after a seven- week rally and even as Brent crude prices reached a 10-month high of $125 per barrel.

After a slump in 2011, when Sensex, the benchmark equity index of the Bombay Stock Ex- change, plunged 25%, and the rupee fell 16%, Indian markets have seen a sharp rise this year due to sustained foreign inflows of $5.6 billion (nearly `27,500 crore) in net equity investments so far this year. The 30-stock Sensex has risen nearly 16% thus far, while the rupee has surged 8.4% against the dollar, placing India among the best-performing markets of the world in dollar terms. The rally so far has been led largely by monetary easing in the West, with the rising tide of liquidity pushing up prices of stocks and commodities across the globe. While the leading commodity gauge, the Thomson Reuters CRB Jefferies index, has climbed 6% so far this year, crude prices have jumped faster, rising 16% in the same period, matching the rise of Sensex.

In the past week, Brent crude prices rose 3.5% and breached the $120 mark as tensions between Iran and the US and its al- lies escalated, fuelling worries over oil supply. European buyers of Iranian oil have cut back on purchases ahead of a European Union embargo effective 1 July. Some of Iran's biggest customers in Asia including China have also reduced buying, the Reuters news agency reported.

While last week's market fall may be a temporary pause, and Rising oil prices may hit markets continued foreign inflows may yet lend support to Sensex, any further jump in crude oil prices will weaken the Indian economy and make local stocks unattractive, analysts said. The performance of emerging markets lagged behind that of developed markets and commodities last week. While the Dow Jones Industrial Average rose to nearly 13,000 points, the highest since the financial crash of 2008, the MSCI Emerging Markets Index declined 0.3%. According to fund tracker EPFR, emerging market funds saw the weakest weekly in- flow since mid-December. Indian markets underper- formed peers last week, with Sensex falling 2%. “If crude continues to inch higher, markets will not rise and they will become range-bound,“ said Tirthankar Patnaik, equity strategist and chief economist, Religare Capital Markets Ltd. India is more vulnerable than other markets because it is heavily dependent on oil imports, 9% of which comes from Iran, according to a 22 February report by Macquaire Capital Securities India (Pvt) Ltd. India has committed to reducing its oil imports from Iran,

PetroScan-February 2012

and its oil imports could spin out of control, as the embargo by Western nations bites, the note added. “Every $1 per barrel rise in crude prices raises the current account deficit by $700-900 mil- lion,“ said Patnaik. “The fiscal deficit will also rise, given the in- complete pass-through to consumer prices, unless the government raises diesel prices.“ Deja vu Similar fears had spooked stock markets around the same time last year, when oil prices had shot up to $120 a barrel.

This was after oil production in Libya, the world's 12th largest oil ex- porter, was crippled as protests against the 41-year rule of Moammar Gadhafi spread across the North African country in February 2011. Fears of global demand destruction owing to rising crude oil prices had cooled oil prices subsequently. This time may be different. Oil demand may rise higher than the market anticipates as global growth picks up while risks to oil supplies mount, a 23 February report by Barclays Capital said.

The report advises investors against taking short positions in crude oil futures. Rising crude oil prices will also add to inflation and pose a risk to the rise of the rupee. The improvement in India's trade deficit towards the end of last year stalled in January and may re- verse owing to high oil prices, Standard Chartered Bank wrote in a 24 February note to clients. The strength of the rupee has been driven by “global liquidity rather than any convincing signs of Indian recovery“, the Standard Chartered note said. The recent rise in oil prices only adds to the nearterm concerns and may be the trigger for a correction, the note added. Stock markets may also see a similar correction if the crude oil rally continues uninterrupted and foreign investors weigh in the possibility of a rupee depreciation. India's economic fundamentals have so far not provided much room for comfort as economic growth and corporate earnings have slowed.

Fears that the economy's growth slowdown could be structural were strengthened after Reserve Bank of India governor D. Subbarao said in an inter- view with The Wall Street Journal last week that India's non-inflationary growth rate had fallen to about 7% from 8.5% earlier. After months of persistent de- clines, the consensus earnings estimates of Sensex firms have stabilized at around the `1,298 per share mark for fiscal 2013, down 13% since the start of the current fiscal. Still, it will be a while before analysts make up- grades to earnings estimates and many caution that corporate margins may further fall. “The pricing power of corporates is decreasing but costs are soaring. Hence, the impact on margins will be seen in the com- ing quarters and it is not good for the broader markets,“ said Raamdeo Agrawal, managing director, Motilal Oswal Financial Services Ltd. Analysts are counting on a tighter national budget in mid- March to strengthen the economy and lend support to markets. Till then, global cues will contin- ue to set market direction. The second tranche of long-term refinancing operations, or monetary easing, by the European Central Bank (ECB) and economic data from the US this week will set the tone for markets globally. The amount of monetary easing by the ECB and indications of further such measures will shape sentiment for both commodities and stocks. Indian investors will keenly track the movement of crude oil prices that will impact the budgeted deficit numbers. With crude prices breaching $124 a barrel, the government's annual oil subsidy bill could climb to `2 trillion, Agrawal said.

CNX 100 pay higher part of profit as taxes Financial chronicle, Feb 26 2012 The largest listed companies, represented by 100 companies in the S&P CNX Nifty and CNX Junior Nifty indices, paid a higher proportion of their cash profit as taxes, in the one-year period upto December 2011, as compared to the corresponding previous one-year period. This proportion, which was 19.79 per cent in the four quarters upto December 2010 went up to 20.45 per cent in the four quarters upto December 2011. Three years ago, in the four quarters upto December 2009, this proportion was 20.36 per cent making 2011’s 20.45 per cent, the highest in

PetroScan-February 2012

the last three years. FC Research Bureau summed up the quarterly taxes paid by 97 of the 100 listed companies, whose quarterly financials for the last 12 quarters were available in Capitaline database, in each of the last three calendar years. The three index companies which were not covered in the analysis were Bosch India, Coal India and Mphasis. Financials considered were consolidated, wherever available.

Collectively, across all the four quarters in 2011, the analysed 97 companies made tax payments of Rs 95,744 crore out of their cash profit (profit before depreciation and tax) of Rs 4,68,057 crore amounting to 20.46 per cent of the latter. The corresponding quarters of the previous two years, 2009 and 2010, had seen, for these 97 companies, a total tax outgo of Rs 84,470 crore and Rs 69,845 crore, respectively, which made up for 20.36 per cent and 19.80 per cent. Deferred tax, the amount that companies reserve for estimated tax liability on current period income payable after current period is over, added up to Rs 4,533 crore for the 97 companies in 2011 quarters, making up for 0.97 per cent of their collective cash profit. This was Rs 3,729 crore, or 0.87 per cent, in 2010 quarters and Rs 1,133 crore, or 0.33 per cent, in 2009 quarters.

Among the 10 largest companies by the size of their tax payments in 2011 quarters, ONGC, Reliance Industries, Infosys, TCS and NTPC paid a higher proportion of their cash profit in tax in 2011 quarter as compared to corresponding quarters in 2010. On the other hand, the tax payment as a proportion of their cash profit came down for SBI, Tata Steel, Bhel, ITC and Punjab and National Bank in 2011 quarters.

GAIL wants marketing margin on RLNG out of regulatory purview Gas utility GAIL India Ltd has demanded that the government keep the marketing margin the company and other state-owned firms charge on imported liquefied natural gas (LNG) outside the regulatory purview. Oil Ministry had in December asked oil regulator PNGRB to determine the marketing margin on sale of natural gas on the basis of actual marketing cost so that the price becomes reasonable to the end consumer. GAIL, however, is not happy with Petroleum and Natural Gas Regulatory Board (PNGRB) being asked to regulate marketing margin on imported LNG and has shot-off a letter to the government seeking an exemption for imported-LNG. Sources said GAIL has argued that dynamics of sourcing LNG from international market and the risks and costs associated with marketing it to domestic consumers were very different from the sale of domestic natural gas.

While the USD 0.135 per million British thermal unit marketing margin that Reliance Industries charges on the sale of eastern offshore KG-D6 gas has been questioned by users like fertiliser units, GAIL's USD 0.20 per mmBtu marketing margin on regassified-LNG (RLNG) has so far gone unquestioned. "Keeping in view the long standing shortage of natural gas in the country, and in order to encourage gas imports, the Central Government has taken pro-active steps and as a policy has kept import of LNG under Open General License category and has always permitted the entities to market regassified-LNG (RLNG) at market determined prices."

"Therefore, our impression is that the Government would continue to permit the entities to market RLNG at market determined prices, including its marketing margin, so as to cover corresponding associated costs and risks," GAIL wrote. The company asked the government to modify its December 26 order so as to exclude the marketing margin chargeable on sale of imported gas, including the Regasified LNG (RLNG). The Oil Ministry had on December 26 entrusted "the determination of the quantum of marketing margin chargeable on sale of natural gas to end consumers by each marketing entity, on the basis of its actual marketing cost, to PNGRB." GAIL charges a USD 0.20 per mmBtu marketing margin on gas produced from the BG Group-operated Panna/Mukta and Tapti fields in the Western Offshore. While RIL's marketing margin is fixed for the five-year period ending March 31, 2014, the margin charged by GAIL on PMT gas and LNG increases by 5 per cent every

PetroScan-February 2012

year. GAIL also charges a fixed marketing margin of USD 0.11 per mmBtu on selling gas that state-owned Oil and Natural Gas Corp (ONGC) and Oil India (OIL) produce from domestic fields.

ONGC is spending Rs 26,000 cr on 10 oil clusters PTI Feb 26, 2012, 03.26PM IST HYDERABAD: State-owned ONGC is spending Rs 26,000 crore to develop 10 oil and gas clusters in western and eastern offshore, to increase crude production by up to 4 million tonnes per annum by 2013-14. "We are spending Rs 26,000 crore in developing 10 clusters involving about 34 marginal fields in both western and eastern offshore. Most of them will be completed by 2013-14. By 2013-14, it should add 3.5 to 4 million tonnes to our oil production," ONGC Chairman and Managing Director Sudhir Vasudeva said during a recent visit to Hyderabad.

Euro-III fuel to be phased out in 7 cities from March 31 Environment-friendly Euro-IV quality petrol and diesel will be sold in seven more cities by March 31, government and industry officials said. The seven cities where fuel of Euro-III specifications will be phased out are: Puducherry, Mathura, Vapi, Jamnagar, Ankaleshwar, Hissar and Bharatpur. The oil ministry has also directed state-run IndianOil, Bharat Petroleum and Hindustan Petroleum to phase-out sale of Euro-III petrol and diesel in their pumps in 50 cities by 2015, officials said. "The decision will require simultaneous improvement in engine technology in new vehicles to reduce emission levels and deliver higher fuel efficiency," a government official said. "Automobile manufacturers have told us that they are prepared to meet the new fuel norms, and are waiting for assured supply of upgraded fuel in these cities," the official said. A senior executive of an automobile company said availability of higher-grade fuel was the only concern. "Automobile companies are exporting higher grade Euro V-compliant vehicles to Europe. These standards exceed India's statutory emission requirements," said the executive who did not wish to be named.

An oil ministry official said oil firms had invested about 36,000 crore to upgrade their refineries to produce the higher-grade fuels. "Today, about 17% of the total diesel and 27% of total petrol consumption in the country is of Euro-IV grades," the official said. Government agencies are also ready to simultaneously monitor and enforce measures like retrofitment of devices in old vehicles, phasing out of old vehicles, mandatory periodical inspections and maintenance requirements, government officials said.

Euro-IV, which is also known as Bharat stage-IV, is already sold in 13 major cities including Mumbai, Kolkata, Chennai, Bangalore, Delhi and National Capital Region comprising 17 towns. Higher-grade fuel reduces emission of pollutants such as sulphur. The government is under pressure from environmentalists and environment watchdog, the Central Pollution Control Board (CPCB) to reduce vehicular emission by upgrading fuels sold in pumps. Officials in the board said the vehicular emission was the lesser evil for environment pollution. A recent study of six cities conducted by CPCB has found that vehicular emission is not the major contributor to overall pollution, one official said.

Dust, construction activities, domestic combustion, use of diesel generation sets and biomass burning contribute significantly to pollution levels, the official said quoting the study. "It is, therefore, imperative that policy prescriptions related to other sectors are also adequately enforced," the official said requesting anonymity. CPCB is a statutory body, constituted in 1974 under the Water (Prevention and Control of Pollution) Act, 1974. Later, the board was entrusted with powers under the Air (Prevention and Control of Pollution) Act, 1981. It monitors the

PetroScan-February 2012

National Air Monitoring Programme (NAMP), established to determine air quality status and trends to control and regulate pollution from industries and other sources.

Videocon Industries: Stagnant sales hurt, but oil & gas business may fire it up Videocon Industries' results for the December 2011 quarter were dismal as profit almost halved from the year-ago period on flat sales. The company has ended its financial year with an 8.4% dip in net profit, prolonging its stagnation since FY 2006. However, the company has not published the consolidated figures, which means investors and analysts only have half the picture.

Videocon's Q4 net profit fell 47% to 86.4 crore as sales fell 2%, operating margins weakened by 240 basis points and interest cost rose 54% to 299 crore. Its main business of consumer electronics and home appliances saw a 5% drop in revenues and 20% drop in profits. On the other hand, the oil & gas business, which contributes 12% to its turnover, performed well with a 20% jump in revenues and 23.6% growth in profits. Net profit for the year fell 8.4% to 545.6 crore while sales rose 10% to 12,919.5 crore. The company had nearly doubled its profit in 2006 to 818.8 crore, but it has been stagnating ever since.

The company has been having cash-flow problems with its debt mounting over the past few years. The company had a debt-equity ratio of 1.6 as of December 31, 2010. On a standalone basis, the ratio stood at 1.4 at on June 30, 2011. The company spent nearly 977.8 crore on interest cost in 2011 on a standalone basis. Since the telecom business and most of the petroleum exploration assets are held in subsidiaries, the consolidated debt and interest cost are bound to be higher.

The Supreme Court ruling to quash all 2G telecom licences issued after January 10, 2008 will hit the company hard, since all its 21 licences will be impacted by the order. However, a deal in the making in London is having a positive rub-off on Videocon. London-listed Cove Energy has attracted valuations above $1.6 billion, thanks to its 8.5% stake in Rovuma offshore block in Mozambique. Videocon holds 10% stake in the block through one of its wholly-owned subsidiaries. Going by Cove's valuation, Videocon's stake is worth over 9,000 crore.

ONGC Videsh, GAIL eye UK's Cove Energy in $1.2bn deal ONGC Videsh Ltd, the overseas investment arm of state-run explorer Oil and Natural Gas Corp, and GAIL are making a joint bid to acquire UK-based Cove Energy Plc , a newspaper reported on Saturday. The deal is valued at over USD 1.2 billion, the Times of India said, citing sources briefed on the matter. Both OVL and GAIL have concluded technical due diligence and are expected to place the financial bid soon, the report said.

Officials at GAIL and ONGC were not immediately available for commCove Energy, with a market value of about USD 977 million, put itself up for sale earlier in January. Cove Energy, with a market value of about USD 977 million, put itself up for sale earlier in January. The firm has an 8.5% stake in the Rovuma Area 1 offshore block in Mozambique with an estimated 30 trillion cubic feet of gas reserves.

Bharat Petroleum Corp and Videocon Industries Ltd own 10% stake each in the Rovuma block and the right of first refusal, the paper said. The two firms are not exercising their rights to buy Cove Ennergy's stake in the Mozambique gas block, the report added.

Ministry refers RIL's marketing margin issue to regulator Moneycontrol Bureau The Petroleum Ministry has rejected Reliance Industries (RIL) contention that charging of marketing margin on gas was an issue between the buyer and the seller and has said that the Petroleum and Natural Gas Regulatory Board (PNGRB) will take a final call on the issue. In a letter to RIL executive director P. M. S. Prasad, on PetroScan-February 2012

Thursday, the Ministry wrote that the question of the quantum of marketing margin applicable on sale of gas by any marketer has since been considered in the Ministry and a decision has been taken to refer the matter to the PNGRB. Earlier the petroleum ministry, which had long held that the marketing margin was a bilateral issue between the buyer and seller of gas, referred it to the PNGRB after user industries like fertilisers sought a clarification on the legality of the levy. The ministry's technical arm, the Directorate General of Hydrocarbons (DGH), too, is of the opinion that RIL should share a part of these earnings with the government. It wants the marketing margin to be added to the gas sales price of $4.20 per mmBtu and profit-sharing between the contractor and the government to happen at the combined rate of $4.335 per mmBtu. At present, RIL and the government split profits at the gas sales price of $4.20 per mmBtu after deducting the project cost. However, according to sources, in a letter written to the ministry on December 20, RIL has said that even gas utility GAIL India charges up to $0.18 per mmBtu as a marketing margin on gas it transports and none of it is shared with the government.

RIL, while defending its decision to impose a marketing margin over-and-above the government-approved sale price for KG-D6 gas has said that the levy was to cover for the risk and cost associated with marketing of gas.

The Mukesh Ambani-controlled company has also contested DGH's view, saying the marketing margin was a cost levied beyond the gas delivery flange and as such, was not regulated by the Production Sharing Contract (PSC).

The PSC provides for fixation of the gas price at the delivery point-- the point at which an upstream operator transfers custody of gas to a marketing and transportation agency. That point for the eastern offshore KG-D6 gas is Kakinada, in Andhra Pradesh, and the government had in 2007 approved a gas price of $4.205 per mmBtu at the delivery point.

NEWS GLOBAL UK 2012 oil, gas capital spend to hit record -survey LONDON Feb 28 (Reuters) - Investment on UK oil and gas production is expected to increase by 35 percent in 2012 but output will remain roughly the same, industry body Oil & Gas UK said on Tuesday. Capital spending is expected to reach a record high of 11.5 billion pounds ($18.2 billion) in 2012, up from the previous peak of 8.5 billion ($13.4 billion) spent to bring new reserves into production in 2011, a survey by Oil & Gas UK suggested.

But the body added the rise in UK oil and gas production will be marginal, increasing by 50,000 barrels of oil and gas equivalent per day (boepd) to 1.85 million, as declining reserves make output more difficult. In 2011 oil and gas output fell by 18 percent to 1.8 million boepd, the biggest fall on record, and the organisation expects a "depressed" profile over the next five years. "It would be a mistake to take the current major project activity as a sign of long-term confidence across the industry," Malcolm Webb, Oil & Gas UK's chief executive said in a statement.

Webb and the UK oil and gas industry have been critical of an increase in government's supplementary tax on North Sea oil producers, which rose to 32 percent from 20 percent in 2011. The windfall tax has fuelled fears long-term investment will drop at the worst possible moment, just as it become harder to extract dwindling oil from reserves buried deep under the sea. Another industry concern is decommisioning costs for production platforms and pipelines once the oil and gas reserves have been pumped out.

LONG TERM DECLINE

PetroScan-February 2012

Oil & Gas UK added oil producers were "frustrated by the structure and instability" of Britain's tax regime and urged Chancellor George Osborne to make changes in the 2012 Budget to attract investment and boost production. Webb said the current boom in capital investment stems from contracts signed before the supplementary tax was introduced and masks worrying long-term trends.

He added there was building evidence the UK continental shelf's medium to long-term prospects were at risk due to the tax rise. "2011 production saw a record drop, exploration halved and business confidence remained sluggish, despite an average oil price of $111 per barrel," he said.

However, a report by Edinburgh-based consultants Wood Mackenzie, published in January, suggested the government's surprise supplementary tax has not jeopardised profitability as oil prices remained high. The Oil & Gas UK survey also showed 15 exploration wells were drilled in 2011, a 50 percent decline on 2010 when 30 new wells were bored. The survey suggested 24 billion boe could be extracted from the UK continental shelf but Oil & Gas UK said under current plans only around 10 billion boe will be developed.

UPDATE 2-Exxon expects annual investment of $37 bln a year Feb 24 (Reuters) - Exxon Mobil Corp, the world's largest publicly traded oil company, now expects to invest $37 billion annually over the next several years, coming in at the top of a previous range and in line with an industry trend toward robust spending. The new guidance in Exxon's annual report, issued on Friday, compares with the previous capital expenditure range of $33 billion to $37 billion. Actual capital and exploration expenditure in 2011 was $36.8 billion.

"The corporation anticipates an investment profile of about $37 billion per year for the next several years," Exxon said. "Actual spending could vary depending on the progress of individual projects." Smaller rival Chevron Corp set the tone for the large oil companies in December when it increased its capital budget to $32.7 billion, after its 2011 spending of $29.1 billion came in $3 billion over budget. Royal Dutch Shell Plc also increased its capital budget to as much as $33 billion this year.

Indicators of cost inflation in the energy business were easy to spot this week, with deepwater driller Ensco Plc predicting a 9 percent average offshore labor cost increase this year and engineering group KBR Inc warning of worker shortages in Australia. Exxon, Shell and Chevron all have large natural gas projects in development in Australia, as well as ambitious plans for deepwater drilling. "Finding oil is going to become a more costly enterprise," said Michael Yoshikami of YCMNET Advisors, a Walnut Creek, California-based fund that owns Exxon and Chevron shares. "They're making a bet on higher long-term oil prices." And that looks like a fairly safe bet in the next few years, he added, barring an unlikely global recession.

Not having to worry about short-term fluctuations is where the world's largest oil companies have an advantage, given their size. "Due to its financial strength, debt capacity and diverse portfolio of opportunities," Exxon said, "the risk associated with failure or delay of any single project would not have a significant impact on the corporation's liquidity or ability to generate sufficient cash flows for operations and its fixed commitments."

But the 2011 well statistics in Exxon's annual report offered a glimpse of the challenges involved in finding new resources. The total number of productive exploratory wells fell to 23 from 35 in 2010, while the dry wells figure rose to 11 from 7 the year before.

U.S. funds alternative fuel research Published: Feb. 27, 2012 at 8:53 AM WASHINGTON, Feb. 27 (UPI) -- More than $40 million will go into new research to encourage the development of alternative fuels for automobiles in the U.S. market, the government said. The White House announced it was making $30 million available for developing technology for the use of natural gas in automobiles and another $14 million to support research and development of biofuels derived from algae.

PetroScan-February 2012

The natural gas program in part targets technology needed to build fuel tanks for passenger vehicles that can handle the high pressures of natural gas. The funding for algae-based biofuels will help develop technology the White House said could replace as much as 17 percent of the oil imported into the United States for transportation use.

"Through the new programs announced today, we can help revolutionize the way Americans fuel their cars, saving money for families and businesses while building new industries here in the United States," U.S. Energy Secretary Steven Chu said in a statement. Tensions between Iran and countries leery of Tehran's suspected nuclear ambitions helped push oil prices to nine-month highs, sending U.S. retail gasoline prices to more than $3.60 per gallon. Critics of U.S. President Barack Obama blame his energy policies for high gasoline prices.

The United States is a net exporter of gasoline.

Shell pays $25m to settle up royalty dispute Shell has paid out a $25 million settlement in connection with a dispute with federal regulators over royalties paid between 2000 and 2008, US authorities said today. The Office of Natural Resources Revenue, the branch of government now responsible for dealing with government proceeds from oil and gas leasing, said past accounting discrepancies with the supermajor were unearthed in audits.

They related to payments made by Shell deepwater production under the now-defunct “royalty-in-kind” program, which allowed operators to pay their government take in oil and gas production instead of cash. “This resolution demonstrates ONRR’s commitment to pursue all revenues due from energy production that occurs on federal onshore and offshore lands,” said Greg Gould, an acting deputy assistant secretary with the agency. Following involved negotiations, Shell spokeswoman Kelly op de Weegh said the agreement “provides clarity” and called the payment “fair and appropriate.”

“Shell’s policy is to pay all royalty correctly,” she said in an email. “Should issues arise, we seek to clarify matters through consultation and compromise.” The RIK programme was canned in 2009 amid a tightening budget environment and following a 2008 government investigation that turned up examples of gift giving, drug use and sexual improprieties between government employees and oil company personnel.

ConocoPhillips seeks partner for oil sands assets Mon, Jan 16 2012

By Jeffrey Jones CALGARY, Alberta (Reuters) - ConocoPhillips (COP.N: Quote, Profile, Research, Stock Buzz) is seeking a buyer for 50 percent of a large portion of its Canadian oil sands holdings, assets that could eventually produce more than half a million barrels a day, the U.S. oil major said on Monday.

ConocoPhillips has retained Scotia Waterous to run the offering of a share in six Alberta properties that currently produce 12,000 barrels a day from an estimated 30 billion barrels of bitumen in place. It is doing so as interest in Canadian energy assets booms, especially from Asian buyers.

Tim Bryant, vice-president of ConocoPhillips' Canadian division, declined to say how much the company wants for the holdings, other than to say it would be in the billions of dollars rather than millions.

"It's substantial. These are world-class trophy assets," he said.

The one producing project in the package is Surmont, run in a joint venture with France's Total SA (TOTF.PA: Quote, Profile, Research, Stock Buzz). Located south of the oil sands hub of Fort McMurray, Alberta, the steamdriven development pumps about 25,000 barrels a day. The partners are working to boost that to 136,000 bpd, starting in 2015.

PetroScan-February 2012

The other properties are the Thornbury, Clyden, Saleski, Crow Lake, McMillan Lake assets. The land totals 715,000 acres.

It is difficult to put a potential value on a deal with the information currently available, CIBC World Markets analyst Andrew Potter said. "They give a bitumen-in-place number, but you have no idea how that's attributed by different property," Potter said.

The Houston-based company, in the process of splitting its worldwide production and refining assets into separate companies, is offering the assets at a time when investments in oil sands are piling up, especially from Chinese and other Asian companies.

In the latest deal two weeks ago, PetroChina (601857.SS: Quote, Profile, Research, Stock Buzz) agreed to buy out its partner in a newly approved tar sands development for C$680 million ($674 million). Chinese enterprises have spent nearly $5.5 billion on Canadian energy assets in the past six months.

ConocoPhillips is no stranger to such dealmaking, having sold its interest in the Syncrude Canada oil sands mining venture to Sinopec (600028.SS: Quote, Profile, Research, Stock Buzz) for $4.7 billion in 2010.

"I think you can presume that Asian buyers will be looking at it. There might also be some good opportunities for other operators to tuck in around some existing properties," Potter said.

The company also has a major oil sands and oil refining joint venture with Calgary-based Cenovus Energy Inc (CVE.TO: Quote, Profile, Research, Stock Buzz), under which the pair are developing the Foster Creek and Christina Lake projects.

The sale of the other interests would be part of a three-year, $20 billion asset disposition the company is in the midst of, Bryant said.

"And it's common to go out and seek partners to try to move some of these bigger projects, he said.

Keystone XL : Seeking pipeline common sense Only an idiot would dare to predict the course of the epic battle over the Northern Gateway pipeline that officially begins on Tuesday. I’m not that idiot. But I can predict it will make the fight over Keystone XL look like a skirmish in a sandbox. Environmental groups argue that the pipeline, which will carry heavy oil from the oil/tar sands of Alberta to the Pacific coast, will imperil vast tracts of pristine wilderness as well as the traditional way of life of indigenous peoples. The reality is far more interesting.

Neither Kitimat, B.C., the coastal town where the pipeline would end, nor the Haisla people, whose ancestral land it is, are strangers to development. The town is home to a giant aluminum smelter and a deep-sea port. Billions of dollars are flowing in to build a new liquid natural gas terminal. The 1,500 Haisla (only 700 of whom live in the town) will soon collect more money in rents and royalties than they receive from the federal government. They are dead set against the pipeline – for now. And the rat’s nest of aboriginal title issues in B.C. means the deal could be tied up in the courts for years. More than 700,000 kilometres of oil and gas pipelines already criss-cross Canada. But for the worldwide environmental movement, any pipelines that carry heavy oil from Alberta are the embodiment of hydrocarbon-spewing evil. They could be nuclear-bomb-proof and it wouldn’t matter. What many pipeline opponents really want is to shut down the oil/tar sands altogether.

Prime Minister Stephen Harper has taken to calling these opponents “radical groups” funded by foreign money.

It’s true that Canadian groups do get money – lots of it – from well-heeled foreign backers. And they’ve used it well. For years, they’ve run rings around the even better-heeled oil and pipeline giants, who’ve been pretty good at extracting bitumen but pretty bad at making their case with the public. Somewhere between these two rhetorical extremes is the voice of common sense, which is barely audible in all the din. Unfortunately, the twoyear-long public hearings into the Northern Gateway pipeline are unlikely to enlighten citizens who really want

PetroScan-February 2012

Canada to strike a sensible balance between economic and legitimate environmental interests. The National Energy Board will hear from no fewer than 4,000 intervenors, most of whom will be repeating the same objections over and over. Then it will make its recommendation to the cabinet, which is free to overrule it.

Unlike Barack Obama, Mr. Harper won’t let domestic opposition influence his decision. No prime minister would.

The economic case is so compelling that any government in power would support it. A thirsty world wants our oil, and the more efficiently we can get it to them, the better. And better access to markets could add $131-billion to Canada’s economy by 2030, according to a study by the University of Calgary’s School of Public Policy. That includes more than $27-billion that would go to governments in taxes and royalties. “The rewards of additional pipelines for all of Canada are too great to ignore,” says the institute’s Michal Moore. “Pipelines must be a national priority.”

Canada is hardly unique in the battles over new and unconventional forms of energy. Discoveries of shale oil are fuelling an energy boom in job-hungry states across the U.S. – and also a firestorm of controversy. The truth is, no form of energy extraction is risk-free. The trick is to find the level of risk that’s politically acceptable, and hope to avoid nasty surprises. No one wants a tanker spill. But all that money could help improve a lot of native schools.

Colorado emerges as next oil frontier The Davis family has owned ranchland on the high-desert prairie of El Paso County in Colorado for the past century. Family lore recalls a prophecy of wealth from the Depression years. A geologist came through the desolate region, nestled on the Front Range of the Rocky Mountains, and told the family there might be oil CLFT under their land. In the seven decades since the 1930s, there hasn't been a single successful oil well on the Davis land - or anywhere else in all of El Paso County, a mostly rural region located south of Denver.

Now, however, subsurface fracturing - or fracking - technology so widely used in natural gas drilling is beginning to unlock oil reserves long considered impossible to tap successfully, like the suddenly prolific Bakken play in North Dakota. In Colorado, the target is the tight oil of the Niobrara formation. Houston-based Ultra Petroleum Corp. is on the fringe of the formation in El Paso County and believes it can unearth 150 million barrels of oil.

North of Denver, where oil and gas drilling are common, Anadarko Petroleum Corp. recently said fracking is the key to tapping as many as 1.5 billion barrels of crude the company thinks it is sitting on.

Rick Davis, whose grandfather was long ago told of the oil by the geologist, works in the county assessor's office.

Like others in the region, he has been pushed to answer a difficult question - the same faced by people in other new energy epicentres such as the Marcellus gas field in Pennsylvania. The possibility that fracking might imperil water is a huge concern in dry Colorado. But the economic bonanza, especially in an era of recession, is too appealing to many to ignore.

Mr. Davis decided his family should make a deal, advising his 88-year-old mother to sign a contract in late 2010 with an oil land broker, who then sold a package of mineral rights to Ultra. Ms. Davis inked a contract for mineral rights beneath about 400 acres of land, receiving cash for five years of leasing rights up front, some $12,000 (U.S.). The big money will come if a successful oil well is drilled. Her 12.5-per-cent royalty could generate several thousand dollars a day - which could add up to $1-million a year.

"It was a difficult decision to make," Mr. Davis says. "Do we really want to see oil wells all over the place in eastern El Paso County? We're a rural ranching community. It came down to a matter of economics. My mom

PetroScan-February 2012

lives on my dad's pension. It was a bonus to get some extra money in her bank." El Paso County is one of the new frontiers of the American shale oil revolution, one that has the potential to radically redraw the supply of oil to still-hungry United States consumers. Driven by high oil prices, and new technology, domestic oil production has jumped more than 40 per cent to 5.6 million barrels a day in September from 3.9 million barrels in the same month in 2008 - the lowest level since 1943, according to figures compiled by the U.S. Energy Information Agency.

The increase has happened after U.S. oil demand peaked in the summer of 2005 at nearly 22 million barrels a day, with current demand down 10 per cent from there. All this has squeezed imports, particularly from OPEC countries, whose supply to the U.S. peaked in January, 2008, and has plummeted by one-third to less than five million barrels a day. Canada, which eclipsed Saudi Arabia as the No. 1 U.S. supplier in 2004, has gained steadily. In September, Canada sent a record 69,722,000 barrels of oil to the U.S., 2.3 million a day, up 20 per cent from a year earlier.

The trends - increased U.S. supply, reduced demand because of laws and technology - will continue to squeeze OPEC, so much so analysts believe imports from such countries will eventually not be necessary. Some forecasts even predict the U.S. could become self-sufficient. Even if it's not the case, Canadian oil producers face a big challenge, as the market gets tougher and high-cost oil sands output, far from the market, competes in the shifting milieu.

Companies are piling in. Oil lease permits have doubled in the past two years and just this week Chinese giant Sinopec entered a $2.2-billion joint venture with Devon Energy of Oklahoma City, whose holdings include the Niobrara. However, as in places such as the Marcellus in Pennsylvania, the predicted motherlode of energy below the ground in Colorado's Niobrara battles raises fears of the environmental catastrophe of destroyed aquifers and poisoned drinking water. El Paso County is so new to drilling that local officials did not even know how to pronounce Niobrara (ny-o-brair-ra). County commissioners - all five of them Republican - worried about how they would pay to maintain rural roads torn up by the heavy traffic of trucks, drilling rigs and fracking equipment, and imposed a brief moratorium on drilling last fall.

Such episodes are indicative of the challenges the United States faces on the local level in its quest to wean itself from foreign oil. The El Paso moratorium was quickly eased to allow Ultra to drill three test wells. There is palpable "fear" about water, says Mr. Davis's boss, county assessor Mark Lowderman, who explains that there are four overlapping aquifers that oil wells would need to drill through. But money is a bigger and bigger lure, especially as some people sign seemingly lucrative deals.

"Our economy is in the dumper here, here's an industry that's ready to go, and we can bring in some jobs and some money," says Mr. Lowderman in his office in Colorado Springs, the county seat. "If you look up at North Dakota it can bring a lot of money quickly." With oil around $100 a barrel, the conversation is evolving: "'You know, how much money are we talking here?'" In El Paso County, the issue will play out through the election year of 2012, where three of the five commissioners face voters, as well as Mr. Lowderman's friend, State Rep. Marsha Looper, who comes from a ranching family, resolutely worries about water, and whose district east of Colorado Springs covers some of the newly prospective oil territory. It is parched land, a high-mountain desert, and every drop of water is gold to ranchers and people outside Colorado Springs, who depend on well water. The eastern edge of Colorado Springs had long been seen by developers as a future suburb. Ultra sees certain wealth below ground.

"If we have what we think we have in the Niobrara, we'll do really well in terms of making money, even at more modest oil prices," Ultra chairman and chief executive officer Michael Watford told investors in November. While El Paso County is an extreme frontier of oil development in the U.S., Weld County north of Denver is a traditional home for energy exploration in the state. Anadarko, a large Houston company that produces more oil and gas, by comparison, than Suncor Energy, had been active in the Wattenberg field for a decade when it cracked the Niobrara. Unlike other shale plays in Texas and Pennsylvania, Anadarko hit on the right formula quickly. Its production from the area could be doubled to 140,000 barrels a day, drilling as many as 2,700 wells, with 160 PetroScan-February 2012

planned in 2012. "This thing is off to a roaring start," Chuck Meloy, senior vice-president of worldwide operations at Anadarko, told investors at a conference in early December, and invoked the success of the Bakken in North Dakota.

Shale oil and oil shale The vernacular of the frontier of oil exploration becomes somewhat confusing in Colorado. "Shale oil" has been used, being the oily equivalent of the now well-known phrase "shale gas." The better term is "tight oil," where the oil is trapped in tiny - tight - cracks in subsurface rock, the limestone shale of the Niobrara formation, in Colorado's case.

In Colorado, the term "oil shale" will be remembered by some. Pursued in the early 1980s by the likes of Exxon, oil shale contains kerogen, an organic material from which oil can be produced when burned, vaguely similar to oil sands bitumen. The effort went nowhere, though some companies' work continues. Royal Dutch Shell has the oil shale Mahogany Research Project in Colorado. Last November, when Anadarko Petroleum issued its prediction of as many as 1.5 billion barrels to be pulled from the tight rock of the Niobrara, it was front-page news in Colorado, whose regional economy is suffering. In the six counties on the Front Range of the Colorado Rockies, oil leases have doubled to more than 9,000 in the 12 months ended August, 2011, compared with two years earlier. But most of that activity is in Weld County, the traditional home of energy drilling in the state.

Leases in the other five Front Range counties totalled 2,700 in the year ended in August, up from just 177 in 2008-09.

Oil, Gasoline Prices Hit All-Time Highs in 2011—and May Continue Rising Posted by Mason Inman of The Nicholas Institute for Environmental Policy Solutions, Duke University on January 12, 2012. Average prices of oil and gasoline at the pump reached an all-time high in 2011, according to U.S. Energy Information Administration data. Brent crude oil, the global benchmark, averaged $111 a barrel—the first time it broke $100 for a whole year.

In some ways, these records snuck up on Americans, since there was no extreme spike in oil prices as in 2008 or in the 1970s energy crises. In inflation-adjusted dollars, gasoline averaged$3.56 a gallon, beating the previous record of $3.41 in 1981. But households felt the bite, spending an average of $4,155 on gasoline in 2011. Prices at the main U.S. benchmark site—in Cushing, Okla.— averaged $95 a barrel, lower than the global price, in part because of bottlenecks in transporting crude oil, while extraction of shale oil in the central U.S. and tar sands in Canada increased. (Production in North Dakota, primarily from shale oil, exceeded 500,000 barrels for the first time, surpassing Ecuador, a member of the Organization of Petroleum Exporting Countries.)

The U.S. imported about half of its oil (despite some articles late last year that gave the falseimpression the country had become an oil exporter), so the U.S. was not immune to high international oil prices. This year, oil prices are likely to increase further, many analysts said, possibly setting a new record. Former Shell* Oil CEO John Hofmeister said gasoline may reach $5 a gallon by the end of 2012.

Cobbling Together an Energy Revolution Key U.S. federal subsidies for clean energy lapsed at the end of 2011, but many states are pushing ahead with their own clean energy funds, which encourage investment in technology research hubs, start-ups, and green job training programs. These state funds could help get much more renewable energy installed and create many new jobs, according to a new reportfrom the Brookings Institution and the Rockefeller Foundation. These smaller, localized efforts will accomplish more than a big “moon-shot” program by the federal government, according to a new MIT study on energy innovation.

Energy efficiency improvements could become easier to fund in California, if a program advanced by the state’s Public Utility Commission goes through. The program, based on a proposal by the Environmental Defense Fund, would allow customers to gradually pay off the cost of efficiency renovations through their utility bills. The

PetroScan-February 2012

Commission is taking comments on the proposal and if it moves forward, would be the first state-wide program of this kind.

“Ambitious” Clean Air Rules At the end of January, the U.S. Environmental Protection Agency (EPA) plans to release its first rules for greenhouse gas emissions from new power plants, an EPA official said. This follows on new rules for emissions of mercury and other toxic elements, higher vehicle mileage standards and other efforts that together constitute the “most ambitious clean air rules in decades.” Meanwhile, President Obama stopped at the EPA to offer his support of the agency, which has been under fire by Republican candidates for the presidency, some of whom vowed to drastically cut back the agency’s powers.

Also, a new EPA tool makes detailed data on greenhouse gas emissions public for the first time. This includes a searchable database and an interactive map showing regions that have the highest greenhouse gas emissions and which power plants are the largest polluters. In addition to tackling emissions of carbon dioxide, there are also opportunities for cheaply and easily cutting warming by cutting emissions of heat-trapping methane and soot, according to a new study by an international team of scientists. “In the short term, dealing with these pollutants is more doable …,” said lead author Drew Shindell of the NASA Goddard Institute for Space Studies.

Solar-Powered Law Enforcement In an effort to save gasoline and the cost of replacing batteries the Jacksonville, Fla., Sheriff’s Department outfitted many of its cars with solar panels to help power all the electronics on board. Recent budget cuts stopped the program, but other law enforcement agencies—in Ohio and New Jersey—have launched similar programs.

The Climate Post offers a rundown of the week in climate and energy news. It is produced each Thursday for National Geographic’s News Watch by Duke University’s Nicholas Institute for Environmental Policy Solutions. *Shell is sponsor of National Geographic’s Great Energy Challenge initiative. National Geographic maintains autonomy over content.

NEW & RENEWABLE ENERGY Chinese solar major offers financing for Indian projects THE HINDU BUSINESS LINE newspaper.

China Sunergy, one of China's larger solar module manufacturers, is willing to bring investments into solar projects in India, the company's Chief Executive Officer, Mr Stephen Cai, told Business Line. Nasdaq-listed China Sunergy, which last year supplied 45 MW worth of modules to two projects in Gujarat, is also interested in entering into strategic partnerships with Indian companies, he said. Mr Cai was in New Delhi, where he spoke at the 2nd India Solar Energy Summit, of which China Sunergy was one of the sponsors. Mr Cai, who predicts a huge growth in India for the solar industry in 2012, said that China Sunergy would set up an office in Mumbai in June “to serve our clients with local technical support and after sales-service.”

‘Game-changer' “We are also seeking to bring investments into projects business to help our clients overcome their financing barriers,” he said. “As one of the leading Chinese solar module suppliers in India, China Sunergy is in a good position to reflect on growth opportunities in the Indian market, which is an important part of the company's future business development,” he said. The offer of financing will be a game-changer, say experts. Going forward, the ‘renewable energy certificate' mechanism will drive capacity addition, and here is where low-cost financing has a role.

PetroScan-February 2012

“Under the REC mechanism, developers will not be mandated to use local content. Hence, if module manufacturers are able to assist in low-cost financing, it will contribute a lot to the success of the project,” says Mr Vineeth Vijayaraghavan, an industry expert and Editor, Panchabuta, an online renewables industry newsletter.

Module efficiency China Sunergy promises to deliver 17 per cent module efficiency (a measure of how much of the sun's energy falling on the modules is converted into electricity) by mid-2012. China Sunergy today has a module capacity of 1,000 MW and is looking to expanding it to 1,200 MW in the current year. The company has plants in Nanjing and Shanghai and is putting up a third facility in Yi Zheng City. Asked if the company would put up a manufacturing plant in India, Mr Cai said that the company was “assessing the possibilities of manufacturing outside of China,” but does not have a firm plan yet.

N. Alaska May Hold 80T Cubic Feet of Shale Gas Alaska's North Slope. Photographer: Andrew C. Revkin/The New York Times/Redux Alaska’s North Slope shales may hold as much as 80 trillion cubic feet of gas, or more than half the highest estimate for the Marcellus formation, and as much as 2 billion barrels of oil, the U.S. Geological Survey said.

President Barack Obama’s administration and the state of Alaska are offering more access to oil and natural gas resources on land and in the Arctic waters to help lower dependence on imported fuel and push more crude through a major oil pipeline crossing the state.Royal Dutch Shell Plc (RDSA) plans to start drilling this year in the Chukchi and Beaufort seas, which are off the coast of the North Slope. “Alaska’s energy resources hold great promise and economic opportunity for the American people,” Interior Secretary Ken Salazar said today in an emailed statement.

The geological service, part of the Interior Department, said in a statement that North Slope shale hasn’t been developed because of economic and infrastructure considerations.

The assessment, the first made of North Slope shale resources, is based on success in extracting oil and gas from similar formations, such as the Marcellus Shale in the U.S. East. The agency last year estimated Marcellus may hold as much as 144 trillion cubic feet of gas.

Shale gas and shale oil, produced by horizontal drilling and hydraulic fracturing by injecting water and chemicals underground, led to record natural gas output in the U.S. last year and 33 percent decline in prices in the past 12 months.

Aletrnative Energy

Shale Gas: A Boon That Could Stunt Alternatives, Study Says Natural gas derricks like this one near Morgantown, West Virginia have become an increasingly common sight in the United States. A new economic study raises concern that the abundant new resource could delay development of renewable energy and carbon capture technologies.

Mason Inman For National Geographic News Published January 17, 2012 Shale gas has transformed the U.S. energy landscape in the past several years—but it may crowd out renewable energy and other ways of cutting greenhouse gas (GHG) emissions, a new study warns.

A team of researchers at Massachusetts Institute of Technology used economic modeling to show that new abundant natural gas is likely to have a far more complex impact on the energy scene than is generally assumed.

If climate policy continues to play out in the United States with a relatively weak set of measures to control

PetroScan-February 2012

emissions, the new gas source will lead to lower gas and electricity prices, and total energy use will be higher in 2050.

Absent the shale supply, the United States could have expected to see GHG emissions 2 percent below 2005 levels by 2050 under this relatively weak policy. But the lower gas prices under the current shale gas outlook will stimulate economic growth, leading GHG emissions to increase by 13 percent over 2005. And the shale gas will retard the growth of renewable energy's share of electricity, and push off the development of carbon capture and storage technology, needed to meet more ambitious policy targets, by as long as two decades.

"Shale gas is a great advantage to the U.S. in the short term, for the next few decades," said MIT economist Henry Jacoby, lead author of the new study. "But it is so attractive that it threatens other energy sources we ultimately will need."

A New Resource Shale gas relies on hydraulic fracturing, or fracking, to open up cracks in the rock layer deep underground. The high-volume water fracking, combined with horizontal drilling, allows abundant natural gas production from rock layers that had not yielded natural gas in economic volumes before.

(See "The Science of Shale Gas" and "Breaking Fuel From the Rock") In just five years, the supply from shale gas has soared to become a quarter of all U.S. natural gas production. If this production continues to expand, natural gas prices will remain relatively low for decades, and natural gas will take over more of the electricity market, according to the study's forecast, published in the inaugural issue of Economics of Energy and Environmental Policy. (The peer-reviewed semi-annual journal is a new venture of the International Association for Energy Economics.)

(Related: Plenty of Gas, But No Easy Solution for U.S. Energy Challenge) The study compared two different kinds of climate policies, and two different situations—with or without shale gas.

In the weak climate policy scenario that the researchers examined, the government would mandate that, by 2030, renewable energy such as wind and solar would grow to become 25 percent of the electricity market, and half of all coal power plants would be shut down.

In the strong climate policy case, greenhouse gas emissions would be required to shrink continually, dwindling to about half today's level by 2050, driven by a price on these emissions, either through a tax or market-based policy to cap emissions.

Either way, the presence of abundant shale gas would make it cheaper to meet the targets, the study found.

"The biggest effect is that it would push out coal," Jacoby said. This is a climate benefit, because natural gas generates electricity with roughly half the emissions of coal.

(Related: "Natural Gas Stirs Hope and Fear in Pennsylvania") However, the expansion of shale gas would also put limits on the expansion of other sources of electricity, because natural gas power plants would tend to be cheaper than wind or solar.

In the strong policy scenario, the study forecasts that natural gas would take over about a third of the electricity market by 2050, completely driving out coal. In this case, renewable energy would increase as well, tripling between now and 2050—but this growth of renewables would be much slower than what the U.S. has seen in the past several years.

Low-cost gas would also hamper the development of carbon capture and storage (CCS), a way of keeping carbon dioxide, the primary greenhouse gas, from going up power plants' smokestacks, and instead storing it underground.

According to the study, if there were no shale gas, meeting the stronger policy target would first bring CCS into play around 2030, and then it would expand to become a crucial part of the electricity system. But with shale gas available, CCS is projected to be pushed back by up to two decades.

"In the long run, we need renewables, carbon capture and storage, and nuclear power," Jacoby said. "Shale gas is a good thing overall, but we've got to keep our eye on the long term,"—beyond 2050.

PetroScan-February 2012

Cost, Technology Uncertainty One reason that it is important to spur development of alternative energy and carbon capture is that there is a lot of uncertainty about the future of shale gas, said Jacoby, who co-authored a major MIT study last year on the subject.

"We're at the very early stage of this resource," Jacoby said. "It's a huge resource, but the main uncertainty is the cost."

That's in part because "we're just learning about the geology [of shale gas areas] and how wells will perform over time," Jacoby said.

New environmental regulations may also put restrictions on the industry, pushing up the cost of production. And as the prime reserves of shale gas are depleted, the gas from remaining reserves may be more expensive to produce.

On the other hand, there has been rapid technological improvement in fracking, Jacoby said, "so we'll get better and better at it," which could help keep the price down.

A Blessing or a Trap?

Physicist Ray Orbach, director of the Energy Institute at the University of Texas in Austin, agrees that shale gas in the coming years will be cheap and plentiful enough to drive out most other sources of electricity—including coal, nuclear, and renewables.

"It's a little hard to see how any other source can compete for the foreseeable future," Orbach said.

But Orbach, who oversaw federal research efforts as director of the Office of Science at the U.S. Department of Energy in the Bush administration, added, "I think it's a very healthy competition," since it will drive out coal, the dirtiest source of electricity, both in terms of greenhouse gases and smog. Rather than shale gas being a problem, he said, "it's a blessing."

(Related: A Drive For New Jobs Through Energy) However, James Bradbury, a policy analyst at the World Resources Institute, said energy policymakers face new challenges due to shale gas.

"Given current U.S. policies, abundant and relatively cheap natural gas puts all other energy sources at a competitive disadvantage," he said. "It is particularly important for decision-makers to . . . usher in more renewable energy by creating incentives to help this industry thrive," including policies to increase innovation and encourage investment in electric grids.

The infrastructure people build today—power plants fired by coal or natural gas, or solar panels or wind turbines—will likely last for decades, Bradbury said.

"The longer it takes for the [United States] to pass climate policy," he added, "the more likely it is that we will see . . . gas-related infrastructure become effectively locked in to our energy system for decades."

The MIT study noted that natural gas is often thought of as a "bridge" to a low-carbon future. But the study also emphasizes that there is also a risk of "stunting" other technologies for reducing carbon emissions. "While taking advantage of this gift in the short run, treating gas as a 'bridge' to a low-carbon future," the study said, "it is crucial not to allow the greater ease of the near-term task to erode efforts to prepare a landing at the other end of the bridge."

(Related: "Shale Oil Boom Takes Hold on the Plains" and "With Natural Gas Booming, A Move to Send it Overseas") This story is part of a special series that explores energy issues. For more, visitThe Great Energy Challenge.

LanzaTech Grabs Failed Biofuel Refinery in Georgia Pine

PetroScan-February 2012

Range Fuels attracted millions of dollars from private investors and both the Bush and Obama administrations before the failure of its Soperton, Georgia advanced biofuel plant. New Zealand's LanzaTech aims to coax success out of the plant with a different technology.

Josie Garthwaite For National Geographic News Published January 19, 2012 The sandy soils of central Georgia nurture growth of bunchy wiregrass and longleaf pine. Here between the blackwater Ohoopee and Oconee rivers, about 160 miles (260 kilometers) southeast of Atlanta, a fortune has been sunk in hope of converting the abundant local biomass into fuel.

One of the more spectacular failures in the renewable energy industry—the Range Fuels collapse—played out here. Less renowned than the bankruptcy of Solyndra last September, Range’s failure that same month similarly involved the loss of millions of dollars in U.S. government funds and private investment, all wagered on an innovation that promised to propel an old technology to an exciting new level.

(Related Quiz: What You Don't Know About Biofuel) But where bankruptcy seems to have spelled the end for Solyndra and that California solar company’s technology, a new chapter is now being written in the effort to brew advanced biofuel in the “Million Pines City” of Soperton, Georgia.

Earlier this month, a New Zealand-based carbon-capture and energy startup called LanzaTech bought Range Fuels’ idle biorefinery in a foreclosure auction for just $5.1 million. That’s a bargain basement price, considering the money that Range Fuels had attracted from private investors and from both the Bush and Obama administrations for its cellulosic ethanol plant here: more than $160 million in venture capital, a $76 million grant from the U.S. Department of Energy in 2007, a $6.25 million grant from Georgia in 2008, and an $80 million loan guarantee from the U.S. Department of Agriculture in 2009.

(Related: "Storage, Biofuel Lead $156 Million in Energy Research Grants") LanzaTech says it has a business plan and technology that can coax success out of the Range Fuels plant. And one of the primary backers of LanzaTech’s efforts here is the same venture capitalist who helped bankroll and promote Range, technology investor Vinod Khosla. It’s now up to LanzaTech to see if it can turn the promise of Soperton into a real success for advanced biofuels and investors like Khosla.

High Hopes for Cellulosic Producing ethanol from cellulosic plant sources has been seen as the Holy Grail of the renewable fuel industry.

The U.S. corn belt may have perfected the art of fermenting its crop to produce fuel alcohol, but controversy abounds over the water use, the energy input for cultivating corn, and the limits and long-term viability of turning an edible product into fuel. That’s why President George Bush,in his 2006 State of the Union address, pledged to fund research to commercialize ethanol from non-edible plant material by 2012. Cellulosic ethanol companies also were in the first wave of alternative energy technologiesbacked by President Obama.

Although cellulosic ethanol can be produced in the laboratory and at pilot scale, the genetically engineered enzymes or heat needed to break down the plant material into sugars is expensive. Not a single company has succeeded in scaling up commercial cellulosic ethanol production in the United States six years after President Bush’s vow.

Oil companies in fact were fined $6.8 million in 2011 for failure to meet the U.S. Environmental Protection Agency’s requirement that 6.6 million gallons of cellulosic ethanol be blended into gasoline and diesel last year.

Indeed, that target marked a dramatic scaling back of the goal Congress set in 2007. Lawmakers originally envisioned that 250 million gallons of cellulosic biofuel would be helping to fuel U.S. vehicles by 2011. Although that goal proved overly ambitious (in part because Range Fuels failed to meet production estimates), it would have displaced only a small fraction of oil dependence in a nation that burned 8.8 million barrels, or 370 million gallons, of motor gasoline per day in 2011, according to the U.S. Energy Information Administration.

(Related: "Ethanol Future Looking For More Fuel") PetroScan-February 2012

If things had gone as planned when Congress was setting cellulosic ethanol goals, a large volume of that advanced biofuel would have been produced in Soperton, the only incorporated town in Treutlen County, Georgia.

Range Fuels (formerly called Kergy, Inc.), of Broomfield, Colorado, set out to establish a biorefinery here that would produce 100 million gallons of cellulosic ethanol per year. There would be plenty of feedstock in the “Million Pines City," named after a local plantation where, in the late 1920s, a cotton farmer pioneered the cultivation of pine trees as a crop. Today, pine tree plantations dominate the landscape, and forestry makes up some 80 percent of all land use.

Range had a two-step process. First, it would use heat, pressure, and steam to produce synthetic gas from biomass. Step two would be converting the gas to ethanol using chemical catalysts.

Construction began in an industrial park here in November 2007, but by 2009 Range Fuels had fallen behind and dramatically reined in production goals. In August 2010, the company squeezed out its first batch of methanol, a wood alcohol fuel used in racing and some industrial applications. (Range Fuels said at the time that its methanol would be used to produce biodiesel.) But the facility ran into technical problems with the gasifiers and the system for feeding in biomass, and it never did produce any cellulosic ethanol that would substitute for the corn ethanol now used in cars and trucks.

Range Fuels closed the plant in January 2010, and filed for bankruptcy in September 2011. At the time of its failure, it had received only half of its expected federal grant and loan guarantee monies, amounting to a loss of more than $85 million in public funds. The USDA required the foreclosure sale this month to recoup some of its losses. “LanzaTech is just looking to capitalize on a bargain, really,” said Andrew Soare, an alternative fuels analyst with the research firm Lux Research.

The fact that Range Fuels and LanzaTech share a lead investor—Vinod Khosla’s Khosla Ventures—has raised eyebrows because LanzaTech bought the Soperton site for a fraction of the amount spent developing the facility.

And both companies have talked about big dreams for the site. “Right now the equipment is sized on the order of 4 million gallons,” LanzaTech CEO Jennifer Holmgren said in an interview. “But, you know, some day I’d like to build bigger units there. It’s a lot of land. It’s a lot of wood residue. That site’s really not meant for a little facility. I can imagine making 100 million gallons of fuel there,” perhaps within five years.

A New Approach However, the companies differ when it comes down to the process for transforming the biomass of Treutlen County, bordered by the Ohoopee and Oconee rivers, two tributaries of the mighty Altamaha. LanzaTech, which has named the old Range Fuels site Freedom Pines Biorefinery, plans to use a gasifier to produce synthetic gas from biomass. That much is the same. But while Range Fuels planned to use chemical catalysts for the next step, LanzaTech’s technology uses microbes (specialized through genetic modification and arrested evolution) to ferment the syngas.

At Freedom Pines, LanzaTech intends to initially produce chemicals such as butanol and propanol, rather than ethanol, which sells in high volume but is a product that results in a relatively low profit margin, Soare said. This is new ground for LanzaTech. Since its founding in 2005, LanzaTech has concentrated its efforts mainly on capturing carbon monoxide from industrial flues, and using its proprietary microbes to convert the gas into ethanol fuel.

“Our organism gets carbon and energy from a carbon monoxide molecule,” Holmgren said. “One of the best places to find carbon monoxide is in steel mills,” where the gas would normally be flared and released into the atmosphere as carbon dioxide. And one of the best places to find steel mills, she added, is China, which produces about half the world’s steel.

In Shanghai, LanzaTech recently started up a 100,000-gallon-per-year demo with Bao Steel. Speaking in a phone call from New Zealand, where 50 of LanzaTech’s 85 employees are based, Holmgren said LanzaTech’s first commercial facility would most likely be in China, with construction beginning as early as next year. LanzaTech PetroScan-February 2012

also has industrial partners in India, where it’s using municipal solid waste as a feedstock. And in partnership with Virgin Atlantic, Swedish Biofuels, Boeing, and others, LanzaTech has also begun developing a renewable jet fuel using its microbe-based carbon-capture system.

(Related: "As Jet Fuel Prices Soar, A Green Option Nears the Runway" and "First Green Supersonic Jet to Launch") LanzaTech’s acquisition of the Soperton facility will give the company a new measure of independence, according to Holmgren. “Imagine our situation,” she said. “We’re very excited about our work in the chemicals area, but the demos and commercial facilities are controlled by partners. And so we would have to ask them for permission. We would have to come to an agreement,” to begin proving LanzaTech's technology for biochemical production at any significant scale. “Why would somebody operating this big ethanol plant care about us showing our technology or doing all the process that’s required to deliver a chemicals play, right? We feel that as a company, we need to have the ability to control the larger asset.”

It’s a Gas At the Freedom Pines Biorefinery, LanzaTech will be tackling a whole new process: the gasification step, which was such a headache for Range Fuels. Through its steel mill partners, Soare said, LanzaTech has “access to free feedstock. So it’s surprising to see them go after this. But in the context of how cheap it was, it did make sense.”

LanzaTech plans to try fixing the Range Fuels gasifier. If that fails, Holmgren said, LanzaTech will bring in a new gasifier from a partner. As Soare put it, “They’re not a gasification company. If they can’t get the gasifier to work, they’ll move on.” Soare expects that LanzaTech will spend no more than a few million dollars working on the old gasifier.

Either way, moving into chemicals production strikes Soare as a shrewd strategy that could position LanzaTech for some lucrative deals down the road. “Syngas to ethanol is a very challenging step,” he said. About a dozen companies are working on syngas to ethanol globally, and a few dozen are working on cellulosic ethanol generally. “If gasification companies are unsuccessful, like Range, and if LanzaTech shows its organism works, there could be licensing or acquisition opportunities. Competitors will likely look to LanzaTech to help them switch to chemical production if LanzaTech can demonstrate its technology works at the Soperton plant.”

As for the U.S. government’s hopes for cellulosic ethanol to enter the fuel market this year, the EPA’s analysis is that there are six U.S. companies—each with a differing technology—that could produce the advanced biofuel in 2012. Therefore, the EPA set a goal of blending 8.65 million gallons of cellulosic ethanol into motor fuel this year, over objections from the oil industry that technology wasn’t available for producing that volume. The EPA said the goal was important to ensure a viable market for cellulosic ethanol, and the growth of the industry as Congress intended.

At this point, not a drop is expected to come from Range Fuels’ former biorefinery, which the EPA had projected would contribute 1 million gallons of cellulosic fuel to the U.S. energy mix in 2011. The agency is counting on no fuel production at Soperton in 2012.

(Related: "Brazil Ethanol Looks to Sweeten More Gas Tanks") This story is part of a special series that explores energy issues. For more, visitThe Great Energy Challenge.

Planting Wind Energy on Farms May Help Crops, Say Researchers Mason Inman For National Geographic News Published December 16, 2011 Among other positive effects for farming, wind turbines can improve the flow of carbon dioxide to the surrounding crops.

PetroScan-February 2012

Photograph by Bertrand Rieger, Hemis/Corbis America's corn belt overlaps with its central "wind belt"—a wide swath of the midsection of the United States that is ideal for wind energy development-an intersection that could be good news for corn, new research suggests.

With the tremendous growth in wind energy in the past decade, turbines often have been planted in or near cropland—leading both farmers and researchers to wonder what effect the rotating blades might have on corn, soy, and other crops.

In traditional agriculture in many places, farmers grow trees along the edges of fields, a technique that slows the wind and stirs up the air, benefiting the crops in the field.

Now researchers are studying whether wind turbines can have a similar effect—actually helping crops to grow.

Some of the leading research is under way in the U.S. Midwest, heartland of the world's leading corn-producing nation, a place where blustery fields have beenideal for siting wind energy farms. The findings here could apply to many places around the world, wherever turbines and farms are near each other, although the effects on vegetation may vary by region or by crop.

Mixing the Air One of the more obvious ways that wind turbines could help agriculture is by mixing up the air, getting more carbon dioxide (CO2) to the crops, since "the job of corn is to take up as much CO2 as it can," said Eugene Takle, an agricultural meteorologist at Iowa State University.

Some of the other effects turbines could have on crops would be more complicated.

For example, by causing the air to move, wind turbines could reduce the amount of dew on leaves at night. This would help reduce crop diseases, such as those caused by fungi, Takle said.

That would be a welcome impact in the top U.S. corn-producing state, Iowa, where climate change has made the air more moist, making dew more common, according to a report this year commissioned by the Iowa state government. (Iowa was second to Texas in the United States in wind energy installed in 2011.)

Another potential beneficial impact: Because turbines mix up the air and slow wind speeds, they also could also affect the temperature around them, making nights warmer and days cooler.

Both these effects could help crops, making frosty nights less common, and reducing the number of sweltering days that stress plants.

With this variety of effects, "we are finding it's more complicated than we thought," Takle said.

But based on his work on how trees affect crops, Takle expects that "on balance, the effect would be positive."

Revealing Turbines' "Wakes" To figure out what effect turbines might have on crops, Takle is collaborating with a team at the National Renewable Energy Laboratory in Golden, Colorado, led by atmospheric scientist Julie Lundquist.

Lundquist has begun using "lidar"—like radar, but using light—to reveal the swirls of air in the long "wake" behind a wind turbine, like the waves trailing behind a boat.

At an American Geophysical Union meeting in San Francisco last week, her team presented initial results from its first large set of measurements, which the researchers are still analyzing.

Modern turbines are typically perched on tall towers about 250 feet (80 meters) high, and the strongest part of the wake stretches downwind from a turbine about two or three times the height of the tower, the lidar studies revealed.

The swirling turbulence from the turbine spreads out as it travels downwind, the lidar study found. "We're still trying to figure out where, and in which circumstances, the wake hits the ground," Lundquist said.

A Need for Answers The turbines' influence on temperatures could also have a downside for crops. A nighttime rise in temperature could increase the amount the plants respire—a kind of exhalation at nighttime, when plants release some of the

PetroScan-February 2012

carbon they took up from the air during the day. That could be a negative because the plants would take up less carbon, losing some of the benefits of their daytime growth.

The possibility underscores the importance of the research for the agricultural community. Farmers for years have leased portions of their fields for wind turbines as a way to boost income, but they have wondered what effect it might have on crops, Lundquist said.

"It's a big choice for farmers to make," she said, so they hope to start getting answers soon.

The effects that wind turbines could have on wind and temperatures fit with a 2010 study led by atmospheric scientist Somnath Baidya Roy of the University of Illinois, which was the first published study of the weather around a wind farm.

His study found that in southern California, nighttime temperatures were higher downwind from wind turbines.

Roy agreed that the effects on crops will be complex, and "one good thing could offset another bad thing."

"I think the frost protection effect for crops is going to be a really good thing," Roy said, adding that it might outweigh other effects.

Because of the varied effects of turbines and the needs of different plants, Lundquist cautions that what may help Iowa corn might not help other crops in other places.

"Wind energy offers us great potential for renewable energy," she said, "we just have to be clever and sensitive about how we deploy it."

This story is part of a special series that explores energy issues. For more, visitThe Great Energy Challenge.

Wind Parks Were 21% of New EU Power Plants in 2011

By Alex Morales - Feb 6, 2012 Wind power capacity in the EU expanded by 9,616 megawatts in 2011, equivalent to about 21% of the region's new power capacity, according to the European Wind Energy Association. Investment in wind power topped $16.7 billion, roughly the same as in the previous year, EWEA said. "Despite the economic crisis gripping Europe, the wind industry is still installing solid levels of new capacity," EWEA Policy Director Justin Wilkes said The European Union installed 9,616 megawatts of wind energy in 2011, or 21 percent of the bloc’s new power capacity, the European Wind Energy Association said.

Investment totaled 12.6 billion euros ($16.4 billion), about the same as in 2010, the Brussels-based lobby group EWEA said today in a report on its website. Germany installed more than a fifth of the bloc’s new turbines, followed by the U.K. with 13 percent, then Spain and Italy, respectively with 11 percent and 10 percent.

The EU is chasing a target of getting 20 percent of all energy for power, heating and transport from renewables by 2020. At the same time, governments across the bloc are cutting subsidies to reduce budget deficits. Spain last month halted subsidies for renewable energy projects to rein in spending, while in the U.K. lawmakers are campaigning against wind power.

“Despite the economic crisis gripping Europe, the wind industry is still installing solid levels of new capacity,” EWEA Policy Director Justin Wilkes said in an e-mailed statement. “It is critical to send positive signals to investors by European governments maintaining stable policies to support renewables.”

The 27-nation EU now has a total of 93,957 megawatts of installed wind power capacity, about 10.5 percent of the bloc’s total power generation installations, according to EWEA. Because wind is intermittent, in a typical year, that capacity would produce 6.3 percent of the EU’s electricity, the group said.

A third of U.K. Prime Minister David Cameron’s Conservative Party lawmakers signed a letter urging him to cut subsidies for onshore wind farms, lawmaker Chris Heaton-Harris, who organized it, said yesterday in a blog posting.

U.K. Ambition “It is unwise to make consumers pay, through taxpayer subsidy, for inefficient and intermittent energy production,” the legislators said in theletter, dated Jan. 30. “We ask the government to dramatically cut the subsidy for

PetroScan-February 2012

onshore wind and spread the savings made between other types of reliable renewable energy production and energy efficiency measures.”

The U.K. last year installed 1,293 megawatts of turbines, bringing its total to 6,540 megawatts, according to EWEA. Of last year’s new devices, 752 megawatts were offshore. Britain in July said it wants total wind installations to reach 31,000 megawatts by 2020, with 18,000 megawatts of it offshore.

Across the EU, solar photovoltaic power took 46.7 percent of installations of new electricity capacity last year, followed by gas, at 21.6 percent, and then wind, according to EWEA. Renewables accounted for 71.3 percent of added power generation, the wind group said.

Hydrogen cars are on the way Questions for Peter Hoffmann: A Hydrogen Advocate Whose Time May Have Come

By JIM MOTAVALLI Hydrogen-power advocate Peter Hoffmann says he's "not a futurist or a prophet," but predicts that there will be roughly 160,000 zero-emission, hydrogen-powered autos on the road by 2025.

Hydrogen is safe, cost-effective and clean, Hoffman says, so it's just a matter of time until infrastructure improvements and economic drivers allow the technology to go mainstream.

Peter Hoffmann started what is now the Hydrogen and Fuel Cell Letter in 1986 and is the author of two books on this potential energy carrier for automobiles. “Tomorrow’s Energy: Hydrogen, Fuel Cells and the Prospects for a Cleaner Planet” was published in 2001, but a revised and expanded edition is scheduled to be available from M.I.T. Press in March.

Advocating for hydrogen cars has been, at times, a lonely profession, because fuel-cell vehicles have long been just around the next bend. But several major automakers have committed in recent months to hydrogen car production by 2015. The cars and the hydrogen are likely to be expensive in the early years, but Mr. Hoffmann, a native of Germany, and other advocates expect those costs to decrease as production ramps up and technology matures.

Fuel-cell cars are regarded as zero emission because they don’t emit anything but water vapor from their tailpipes.They use the same basic drivetrains as electric vehicles, but in lieu of batteries they substitute a fuel-cell chemical factory that produces electricity by combining hydrogen and oxygen.

Q. The California Air Resources Board just approved new regulations designed to put 500,000 zero-emission cars on the road by 2025. More than 160,000 of those vehicles would be hydrogen fuel-cell cars in one scenario.

The regulations also require oil companies to build hydrogen refueling stations. Is this a big leap forward?

A. I certainly hope so — it’s definitely a step along the way. The Japanese and Europeans (and especially the Germans) are setting up similar schemes supporting collaborations between carmakers and fuel providers to set up hydrogen stations. In those cases, there’s a lot of government money involved.

Q. California would seem to be the epicenter of fuel-cell deployment in the United States, but even in Los Angeles today there are only a few public stations. Will there be a network in place by the time automakers roll out the first commercial fuel-cell cars in 2015?

A. The California Fuel Cell Partnership is working hard to get more stations going. And the new CARB rules will also help.

Q. The Clean Fuels Outlet provision of CARB’s rules will require oil companies to install hydrogen pumps at gas stations. The Western States Petroleum Association trade group has announced strong opposition and will possibly sue over it.

A. The oil companies are being more cooperative with hydrogen fueling in Europe, so their actions may depend on how the political winds are blowing. If the oil companies are not in the forefront, there are other companies in the wings that are very active and want to provide hydrogen infrastructure. These include major industrial gas

PetroScan-February 2012

companies like Linde, Air Products and Air Liquide. Mercedes, for instance, is working with Linde to build 20 stations in Germany.

Q. What’s been your experience behind the wheel of fuel-cell cars?

A. I’ve driven quite a few, from G.M., Mercedes, Honda, Toyota, Mazda and Ford. I remember early Ford cars in the 1990s that lacked noise insulation and sounded like they had angry bees under their hoods. The cars have evolved considerably since then and are as fun to drive as anything else on the road. Automakers say they’re committed to fuel-cell production by 2015, and now they need to ensure that at least the beginnings of a hydrogen station network is built.

Q. Will the cost of hydrogen come down?

A. It will be competitive with gasoline eventually. At Stuttgart Airport in Germany, a station was selling it recently for $12 a kilogram. Since a kilo of hydrogen is the energy equivalent of a gallon of gas, and a fuel cell is twice as efficient as an internal-combustion engine, you could translate that into approximately $6 a gallon. That’s roughly what gasoline costs in Europe. Of course, hydrogen is probably subsidized at that price, but it indicates the potential for price reductions. The price will come down as more fuel providers get into the field, as production methods such as electrolysis and other forms evolve, and as storage and compression technology is made more efficient.

Q. Will consumers accept fuel-cell cars?

A. The people who have driven them are happy, but of course they tend to be hydrogen supporters.They say the cars are smooth and convenient to use, accelerate well and refuel very quickly, which is a big selling point. The one issue that disappoints people about battery electrics is range, and that’s not an issue for fuel-cell cars, which often travel 300 miles on a tank of hydrogen.

Q. What about the safety issue? The Hindenburg disaster still looms large for many.

A. From what I understand, these cars are as safe as they can be — as safe as gasoline cars. Even if hydrogen tanks leak, the gas just evaporates into the air, and there are extensive safety and warning devices built into the cars. In an accident, the hydrogen supply is cut off and valves automatically vent it in case of a pressure build-up.

The concern will always be there, let’s face it, because hydrogen is very flammable. But the automakers tell me it won’t be an issue. I remember seeing a BMW film in the 1980s in which they dropped hydrogen tanks off a gantry, cooked them over a fire and tried to pierce them with a device. Nothing happened.

Q. Any projections of how many fuel-cell cars might be on American roads by 2025?

A. It’s hard to say, and I’m not a futurist or a prophet. I’ll cite the CARB estimate of 500,000 zero-emission cars by 2025, with maybe a third being fuel-cell vehicles.

Novozymes explores seaweed-to-ethanol in India

By Kris Bevill | February 03, 2012 •

Novozymes has entered into a one-year exploratory research agreement with India’s Sea6 Energy to develop a process to convert seaweed to ethanol. As part of the agreement, Novozymes will focus on the development and manufacturing of enzymes for the conversion process. Sea6 Energy, a company created by researchers at the Indian Institute of Technology Madras to develop large-scale biofuels production from seaweed, otherwise known as macroalgae, will share its knowledge of offshore seaweed cultivation technology.

The agreement with Sea6 Energy marks Novozymes’ first venture into seaweed-to-ethanol conversion. GS Krishnan, regional president-India, Novozymes South Asia, said the company elected to explore seaweed’s potential for ethanol production because it offers a natural complement to the company’s other biomass-toethanol projects. Seaweed presents unique benefits as a biofuel feedstock in that it is one of the fastest growing plants in the world, it requires no irrigation or fertilizers and it does not need to be cultivated on arable land.

PetroScan-February 2012

Additionally, more than half of the dry mass in seaweed is sugar, offering great potential for high yields. Seaweed also lacks lignin, which could make it easier for producers to break down the plant material in order to reach the fermentable sugars.

Seaweed also possesses a unique compositional element which could pose a challenge for researchers who are seeking a cost-effective conversion process. “Compared to land-based carbohydrate polymers, which mostly consist of glucose and xylose, the carrageenan [the substance extracted from seaweed] is a highly sulfated galactose polymer which might/might not cause difficulties in processing,” Krishnan said. Bakers yeast is used to assimilate glucose and can also be used in the same manner for galactose, according to Krishnan, but the conversion rate is slower.

While this is Novozymes’ first look at seaweed’s potential for biofuels production, other companies have been researching its possibilities for several years. In 2010, Norway-based oil and gas production giant Statoil formed a three-year partnership with California’s Bio Architecture Lab Inc. to develop ethanol-to-seaweed production using a consolidated bioprocessing technology. That agreement called for pilot- and demonstration-scale facilities to be housed in Norway, where the companies would utilize native seaweed acquired from coastal salmon farms, with Statoil providing funding and management for the seaweed cultivation activities. BAL is providing the technological expertise for the project.

Krishnan said the various conversion technologies now being developed by firms for seaweed conversion will be non-competing because they each focus on seaweed substrates specific to certain regions of the world. “While some groups are working with green seaweed or brown seaweed, we are experimenting on red seaweed,” Krishnan said. “The red seaweed is cultivated in tropical areas, like India, and consequently the productivity of the red seaweed is higher.” Krishnan stressed that while its research is in the very early stages, Novozymes will likely develop a flexible bioprocessing conversion process for the seaweed, which will enable it to optimize each step of the process individiually. “The process engineering is aiming at a flexible process as currently [used] in firstgeneration ethanol processing, taking advantage of the optimal conditions for the degradation of the carrageenan-to-galactose optimizing pH, temperature and enzyme performance,” he said. “The fermentation is possibly conducted at a separate step, optimizing the fermentation conditions. This provides much more freedom to optimize and develop the next generation of enzymes as the process matures.”

While seaweed has been farmed for centuries in parts of the world, it is typically cultivated in areas with calm, shallow waters, according to the company. Sea6 Energy has developed proprietary structures that will allow seaweed to be cultivated in rougher waters, opening the potential for vast new areas of seaweed farms along coastlines that otherwise would not be available for the practice. Sea6 Energy is currently trialing cultivation technology in partnership with fishing communities around the coastal areas of South India. “We are excited about our partnership with Novozymes and look forward to developing an efficient enzymatic process to convert seaweed to sugar,” Sea6 Energy Chairman Shrikumar Suryanarayan said in a news release. “Combined with Sea6 Energy’s offshore seaweed cultivation expertise, these conversion technologies will offer a scalable and sustainable alternative to expensive and polluting fossil fuels, while providing employment to coastal communities and energy security for our country.”

Solar Storm Hits Earth Posted by Andrew Fazekas on January 23, 2012 Giant solar flare captured in UV light by NASA's Solar Dynamic Observatory satellite on January 23. Credit: NASA After a weekend filled with great auroral activity in Northern Canada and Scandinavia (Norway video) thanks to a strong gust of solar wind coming off the Sun Jan.19th, the Earth is about to get hit again -by the biggest blast of solar radiation in 7 years. Talk about a one-two punch on the cosmic scale!

PetroScan-February 2012

Late last night (Jan.22) at around 11 pm ET a giant, long lasting, solar flare erupted off the face of the Sun, sending a giant Coronal Mass Ejection (CME) – cloud of plasma and charged particles – squarely towards the Earth. Detected by NASA’s sun-monitoring satellites SOHO and STEREO, the solar blast was determined to be an M9 on the Richter scale of solar flares – just shy of an X- class flare which is ranked as the most powerful.

Space weather forecasters atNOAA – who keep watch for any hazardous, incoming solar storms – are expecting the brunt of the CME to slam into Earth’s magnetic field Jan.24 around 9 am EST ( 2 pm UT) +/- 7 hours.

And Earth is not the only planet in its cross-hairs. Mars will get walloped too when the CME arrives there on Jan.25th.

Already the front of the storm is now being felt as space radiation (energized protons) speeds by Earth, states the Spaceweather.com website. The high influx of charged particles hitting the magnetic field poses a hazard to everything from GPS signals, polar radio communications, power grids and circuit boards on orbiting satellites.

What does this mean for chances of seeing Northern Lights? If the geomagnetic storm becomes moderate to strong then auroras may creep down to southern latitudes like Texas and Georgia -but that’s pretty rare. Exactly how intense and widespread the sky show will be depends on how our planet’s magnetic field is oriented at the time when the storm arrives.

Best time to go outside will be between local midnight and pre-dawn hours. Face the northern sky and look for green or red glows to start near the horizon. Catching auroras with your camera is not hard. All you need to have is a tripod mounted DSLR camera with a wide angle lens, capable of taking exposures of up to 20 seconds with a timer.

As usual there are still too many unknowns to forecast reliably who, where, and when exactly will get a sky show when it comes to aurora, but one thing is for sure – you have to go outside and look up to even have a chance.

Andrew Fazekas, aka The Night Sky Guy, is a science writer, broadcaster, and lecturer who loves to share his passion for the wonders of the universe through all media. He is a regular contributor to National Geographic News and is the national cosmic correspondent for Canada’s Weather Network TV channel, space columnist for CBC Radio network, and a consultant for the Canadian Space Agency. As a member of the Royal Astronomical Society of Canada, Andrew has been observing the heavens from Montreal for over a quarter century and has never met a clear night sky he didn’t like.

SUSTAINABILITY & CLIMATE CHANGE Carbon index BSE-Greenex launched Financial Chronicle, Feb 22 2012 In a major initiative to promote ‘green’ investing mindset among investors, the Bombay Stock Exchange on Wednesday launched first-ever live carbon index called BSE-Greenex. Bombay Stock Exchange in an alliance with gTrade (supported by GIZ promoted by Germany, Observer Research Foundation and IIM Ahmedabad) launched the new initiative, which is designed specifically to promote green investing.

“The BSE-Greenex index is a veritable first step in creating a credible market based response mechanism in India, whereby both businesses and investors can rely upon purely quantitative and objective performance based signals, to assess “carbon performance,” a BSE release said. Top 20 companies from the BSE-100 index that fit into the category of carbon emissions, free-float capitalisation and market turnover would make into the BSEGreenex.

Some of the top notable companies that have been at the forefront in recent years to promote green investing mindset and will make into the Greenex index are HDFC, NTPC, State Bank of India, Tata Steel, Glaxo Pharma, Tata Motors, L&T and Sterlite Industries among others.

PetroScan-February 2012

In case a company is excluded from BSE-100, the same will also be eliminated from the Greenex index.

The BSE-Greenex has been into existence for the last three years, and taking into account the top 20 companies performance in as many years, the index has met with decent success. In the last three years, the BSE-Greenex has gained 32.36 per cent compared with 41.59 per cent rise in Sensex and 31.69 per cent jump in BSE-100 index.

The index which is calculated based on the capping methodology will asset managers create various products in order to help investors to invest in the green theme of India. It will also help the government to gauge policy implementation and acceptance with regard to energy usage and efficiency measures.

One of the parameters for measuring environmental performance used in BSE-Greenex calculation is emissions intensity vis-à-vis total emissions upon total revenue. Mandatory disclosures on energy usage by assessed companies will make it possible to estimate these numbers for listed companies.

Walmart, Kohl's among top green power purchasers By ghoffer Created 02/03/2012 - 13:36 NEW YORK — Kohl’s Department Stores and Walmart rank among the nation’s top purchasers of power according to the EPA’s most recent Green Power Partnership report. Kohl’s placed second in the ranking, while Walmart came in at third, followed by Whole Foods Market. Intel Corp. maintained its long-held top spot. Other retailers in the top 10 included Starbucks (No. 7) and Staples (No.9).

The Walmart ranking is particularly noteworthy in that it based only on the chain’s Texas and California facilities.

According to the EPA’s data, Walmart’s facilities in the two states use 872,382,088 kWh of green power a year, or 28% of their total electricity use.

Walmart has a long-term goal of being supplied by 100% renewable energy. The chain said it will use its success in Texas and California as a model for its larger operations.

Walmart’s purchases of wind energy in Texas provide up to 15% of the total energy for more than 360 outlets in that state. The electricity comes from a Duke Energy wind farm in Notrees, Texas, which produces about 226 million kWh a year.

In California Walmart plans to expand its solar portfolio to more than 130 rooftops, comprising 75% of its stores, by the end of 2013.

BOOK : On Sustainaiblity

The Green Consumer, 1990-2010 It wasn't 20 years ago today, but close enough: About this time in 1990, my book, "The Green Consumer," hit the bookstores. The book — the U.S. version of a 1988 U.K. bestseller, "The Green Consumer Guide," by John Elkington and Julia Hailes, which I substantially adapted for U.S. audiences — began with a simple premise: You probably don't realize it, but every week you make dozens of decisions that directly affect the environment of the planet Earth. At work, at home, and at play, whether shopping for life's basic necessities or its most indulgent luxuries, the choices you make are a never-ending series of votes for or against the environment.

I went on to note that: The marketplace is not a democracy; you don't need a majority opinion to make change. Indeed, it takes only a small portion of shoppers — as few as one person in ten — changing buying habits for companies to stand up and take notice.

From that opening gambit sprang 340-odd pages of overviews, insights, advice, lists, and sidebars (including one cheery piece titled "How the American Way of Life Is Destroying the Earth"). And from that book sprang 1,001 magazine articles, syndicated columns, newsletters, speeches, interviews, panel discussions, books, reports, websites, and more that have been the centerpiece of my professional life over the past two decades.

PetroScan-February 2012

The world has changed dramatically over those 20 years. There's the Internet, for starters, as well as 500channel cable TV, social media, globalization, and the rapid growth of emerging economies, the current Great Recession notwithstanding. Environmental issues have gone from the margins to the mainstream.

School kids, young adults, their parents, and even some politicians today are well-versed in environmental problems, if not their solutions. And more and more companies continue to be engaged in more and more ways, addressing and reducing their environmental impacts. Many companies are going beyond that, creating innovative new products and services designed for a low-carbon economy.

But one thing hasn't changed all that much: green consumers. That is, there don't seem to be that many more today than in 1990, in terms of people making significant changes to their shopping and consuming habits in ways that move markets toward greener products and services, never mind actually "saving the earth."

I won't bother to make the case that consumers — in the U.S. but also elsewhere — say one thing and do another. I've harped on that theme relentlessly over the years. (See examples here, here, here, here, and here, among many others.) Suffice to say, the chasm between green concern, as expressed by consumers to market researchers, and green consumerism, as reflected in real-life purchase of products and services, remains vast, as much today as in 1990.

True, there are successes. In the cleaning products aisle, Method and Seventh Generation now compete to scrub market share from the likes of Clorox and Procter & Gamble. Fedex and UPS compete vigorously on who can deliver greener operations. So, too, Dell and HP, Coke and Pepsi, and a handful of other leading brands that compete to see who is greener. The notion of big companies competing, at least in part, on environmental performance represents progress, no question about it.

But all of this represents only a tiny fraction of the economy, and little of this is driven by consumer demand.

Consumers, for all their good intentions, don't really want to change. They want what they want — and what they feel they need and deserve — with little regard for where it comes from, how it's made, how it's used, and its impacts throughout its life-cycle.

To be sure, consumers haven't been overwhelmed with green choices. While hundreds of major companies have reduced their impacts in ways both large and small, few of their achievements are visible on supermarket shelves. As I've written in the past, the aluminum can containing a third less aluminum than its predecessor, the laptop computer that has eliminated toxic flame retardants, and the bag of snack food whose manufacturer now recycles its rinse water, all represent tangible environmental improvements. But these companies aren't typically messaging those achievements. Indeed, they're not even undertaking these measures to "save the earth"; they're doing them because they save money, reduce risk and liability, improve quality, and delight employees — and maybe win them a few reputational points.

That is to say, they're doing these things for all the right reasons.

The result: We've all become greener consumers in spite of ourselves. The stuff we buy is greener than it used to be, sometimes significantly so, even though its producers don't necessarily tout their achievements.

All of which raises the question: Are green consumers even necessary? Is much of this marketing and labeling activity a waste, a distraction from the business of running an eco-efficient business?

It's an open question. As I've mentioned in the past, green marketing represents a reputational risk for most big companies. Consumers, activists, bloggers, and others are quick to dub things as "greenwash" when environmentally imperfect companies make green claims. That has led many companies to engage in, for lack of a better term, covert environmentalism, burying mentions of their green deeds in their websites or corporate responsibility reports, rather than tout them on products or advertisements and risk the wrath of critics.

I'm not quite ready to proclaim green consumerism dead (though I can't honestly say it's ever been alive and well). There will always be a small corps of true-blue green consumers ready to vote with their dollars — at least for some products. But my 20-year-old premise — that a relative handful of committed consumers will transform companies and markets — hasn't really panned out, though I still believe it to be true.

PetroScan-February 2012

What will green consumerism look like over the next decade? Will we be celebrating or mourning green consumerism when Earth Day 2020 rolls around? And if the former, how will we have gotten there? I welcome your thoughts.

Source URL: http://www.retailingtoday.com/article/walmart-kohls-among-top-green-power-purchasers

It Takes More Than Data to Make a Decision Posted by Scott Bittle and Jean Johnson of Public Agenda on January 17, 2012 The Environmental Protection Agency last week launched its much-awaited database reporting on the greenhouse gas emissions of major power plants. You can go to ghgdata.epa.gov and find out how many tons of carbon dioxide, methane and other gases are being put out byfacilities in your community or state.

It’s a major advance for transparency on greenhouse emissions, and analysts and activists will have a field day with the data. But will it really help the public move forward on making energy decisions?

A lot of people, particularly in the scientific community, believe more and better information means more and better decisions. Whether that actually works out in practice, however, depends on how that information fits into the broader method of how the broader public (rather than experts and activists) grapples with problems.

Social scientist Daniel Yankelovich, the co-founder of Public Agenda, has put forward the idea of a “Learning Curve” in public thinking about complicated problems. Experts and activists, those who have spent their lives learning about a specific topic, are ready to take new facts and move forward – maybe in the right direction, maybe not.

The public usually needs time to get up to speed and make up its mind about a problem. Generally speaking, the public passes through a “learning curve” of several stages , from initial consciousness of what the problem is, to “working through” the tradeoffs in different options and then, to “resolution” about solutions. Sometimes that happens quickly; sometimes it can take years or decades. The more complicated the problem, the longer it takes the public to reach resolution. And the problems surrounding energy and climate are particularly complex.

WhenPublic Agenda surveyed public attitudes on energy several years ago, we found that many Americans were stumped on questions that were far more basic than how many tons of greenhouse gases their local power plant put out.

Nearly 4 in 10 Americans (39 percent) cannot name a fossil fuel. About half couldn’t name a renewable energy source. More than half of the public (56 percent) says incorrectly that nuclear energy contributes to global warming. About one-third of the public (31 percent) says that solar energy contributes to global warming. In many of these cases, there were also high levels of “don’t knows.”

More importantly, even when the facts are out there, any number of other problems can block the public from getting behind a course of action. A lack of urgency, mistrust, wishful thinking and a paucity of alternatives can all keep the public from grappling with a problem, even when everyone’s agreed on the facts. When it comes to energy and the environment especially, addressing the public’s lack of trust and fear of change can be just as important as giving people more information.

The new database – or any other new information source – will work best if it’s combined with a sense of practical choices. Despite all the focus on national policy and global treaties, energy and climate decisions are driven by local decisions by utility companies, state regulators and community activists. They’re the ones who decide what kinds of power plants get built – and deciding what kind of plants we build is the core of the climate problem. If we’re going to shift those policies, we need to not only show the pros and cons of our current plants, we also

PetroScan-February 2012

need to show the advantages and disadvantages of the alternatives. And people need to wrestle with the alternatives in local communities where trust is likely to be stronger and where people can envision the alternatives in concrete ways. Otherwise, we end up where we are now: with energy choices we can’t sustain and yet won’t change.

Data can show us how we’re going wrong. The trick is finding ways to use it to guide us in the right direction.

4 Ways to Be More Authentically Green Posted By Kelly Spors On February 6, 2012 @ 2:30 pm In Green Business | Companies need to be upfront about the challenges they face as they try to go green, writes Kelly Spors.

It's better to take a warts-and-all approach to corporate transparency, since getting caught cheating can destroy any goodwill a company has managed to accrue. "To really make an impression on consumers anymore, a business's environmental sustainability efforts need to feel genuine, transparent and earnest," Business owners are often natural sales people. They love to talk about their successes – and yes, occasionally glaze over their setbacks, their shortcomings. It’s human nature, in fact.

But when it comes to green business, there are risks to downplaying your weaknesses or only trumpeting achievements: • One, your customers will see through it.

• Two, they’ll trust you less.

• Three, they will feel less loyal.

Another problem is that there are many companies these days guilty of “greenwashing [1],” or plastering green leaves and vague words like “natural” and “pure” on their packaging when there’s little substance behind them.

This only makes consumers more mistrustful of all green messaging. They have to look more closely to find out if it’s for real. To really make an impression on consumers anymore, a business’s environmental sustainability efforts need to feel genuine, transparent and earnest.

Here, then, are four ways to improve the authenticity of your green efforts: 1. Dig for data. Sustainability leaders are focusing more and more on tracking and analyzing data. They know how many gallons of water they’re saving each year, or how much emissions are created transporting their products from a factory in China to their U.S. distribution centers. Communicating real numbers and targets to your customers adds credibility and brings your initiatives to life.

2. Don’t overplay “green marketing.” Don’t fall into the trap of thinking being green is all about image and messaging. In fact, it might be better to not think about your green efforts as marketing at all. Think about them as something you want to communicate to customers. But when it comes to actual marketing, focus on other benefits of your products – whether it’s their design or usefulness. Research shows most consumers consider eco-friendliness a secondary purchasing concern, anyway.

3. Increase transparency. Give consumers more substance about your green initiatives. Write a sustainability plan [2] and track your annual progress. Devote a part of your web site to your green efforts, so consumers can easily find it if they’re interested.

4. Expose your challenges. As you talk about your green successes, don’t forget to discuss the challenges. Let your customers know when you miss a sustainability target – and why. Explaining the hurdles involved with reaching your goals only adds legitimacy and shows you’re truly committed to reducing your environmental footprint.

HSE PetroScan-February 2012

Takeda’s TAK-875 Fights Diabetes as Well as Older Drug in Study

By Simeon Bennett - Feb 27, 2012 5:00 AM GMT+0530 Takeda Pharmaceutical Co. (4502)’s experimental diabetes drug lowered blood sugar as much as an older generic medicine with fewer side effects, a company- sponsored study found. In a trial of 426 patients with Type 2 diabetes, TAK-875 reduced blood sugar below a pre-determined level in as much as 48 percent of those receiving it after 12 weeks, compared with 40 percent of those who got glimepiride, the older drug, according to findings publishedonline by The Lancet medical journal today. The research was presented in June at theAmerican Diabetes Association’s annual meeting in San Diego.

Takeda is testing TAK-875 in the third and final stage of patient studies usually required for regulatory approval.

The Osaka, Japan-based company seeks products to replace sales of Actos, the world’s best-selling diabetes treatment, that will be lost when the therapy’s patent protection ends this year. About 90 percent of the 285 million people worldwide with diabetes have Type 2, the form that TAK-875 is designed to fight. The pill belongs to a new class of treatments called GPR40 agonists, which activate a receptor that stimulates and regulates insulin production.

New treatments are needed because of “the expected increase in the number of cases of Type 2 diabetes during the next few decades” and because some current drugs have “insufficient effect,” the researchers, led by Charles Burant at the University of Michigan Medical School, wrote in the study. About 2 percent of those receiving TAK875 in the trial developed hypoglycemia, a complication in which blood sugar is lowered too much, compared with 19 percent of those receiving glimepiride, the researchers wrote. About half of the TAK-875 group experienced an adverse side effect of any kind, compared with 61 percent of those in the glimepiride group.

Abu Dhabi to recycle 90% of waste by 2018 The Centre of Waste Management (CWM) in Abu Dhabi targets to divert 90 per cent of waste from landfills to the recycling industry by 2018, said Saif Al Shamsi, Director of Excellence and Quality Department at the centre. The emirate annually generates over 10 million tonnes of waste, which has already occupied about 1,800 hectares of land for landfills. Abu Dhabi generates 33,000 tonnes of waste per day and the per capita waste generation is 1.8 to 2 kilograms per day.

According to the centre, the dump and landfill sites, which are located throughout the emirate have received a mix of waste streams, including municipal, construction and demolition, clinical, hazardous, industrial and commercial wastes, for more than 20 years. The centre is introducing new controlled management processes at existing dump and landfill sites throughout the emirate. The investigation and characterisation of these sites are the first stage in producing definitive recommendations for the closure of the sites. More than 30 old dump and landfill sites have been identified for which rehabilitation services may be required.

Some geological surveys were previously conducted but more relevant investigation and analysis is in process.

This includes surveys, photographic records, soil/water data and waste analysis. In a bid to enhance the communication with all stakeholders, the Centre of Waste Management has opened up the front for new investments in green industry and recycling of waste in the Emirate of Abu Dhabi. Saif Al Shamsi said the new investment opportunities in green industry field and recycling are currently available for investors.

These sectors include e-waste recycling and processing, used cooking oils recycling and processing and establishing certified waste management consultants to support various waste management efforts undertaken by different entities in the emirate, Al Shamsi said. The centre and Nadafa programme of the centre recently held a workshop for different waste management stakeholders.

PetroScan-February 2012

Speaking at the workshop, Al Shamsi said that all stakeholders in waste management in general and the Environmental Service Providers (ESPs) in particular are CWM’s strategic partners towards achieving the vision for a sustainable Abu Dhabi 2030. The CWM has registered and licensed 2,000 companies and establishments during the last 18 months which include 760 establishments practicing waste collection and transportation. Some 820 establishments are practicing cleaning services, such as streets, beaches and building cleaning.

The CWM has also registered and classified almost 100 establishments to work in the field of pest control and rodent fumigation. In addition, 215 facilities are registered for waste trading and 34 facilities for waste treatment and reprocessing in the emirate. Al Shamsi stressed that the centre will continue to support the ESPs registered and licensed in the emirate, in line with its strategy to provide integrated waste management.

Al Shamsi said that the centre, incoordination with relevant authorities, is currently reviewing all the regulations in order to assure proper handling of waste transportation, noting that the centre has already registered and is monitoring 98 per cent of the waste transportation vehicles in the emirate.

Chevron rig fire A Chevron rig caught fire off Nigeria's coast, and the company was searching for two missing workers. The company has not said what sparked the blaze. Image courtesy of Chevron. A Chevron rig caught fire off Nigeria's coast, and the company was searching for two missing workers. The company has not said what sparked the blaze. Image courtesy of Chevron. Traditional chiefs await the visit of Nigerian President Goodluck Jonathan, to Koluama 2 village, Nigeria on Monday, Feb. 27, 2012. President Goodluck Jonathan visited the community Monday, the nearest settlement to a Chevron Corp. offshore gas rig site that remains on fire after an apparent industrial accident Jan. 16, 2012. Jonathan sought to assure residents on his visit, but many remain worried about the environmental impact of the ongoing blaze.

Nigeria President Goodluck Jonathan, is welcome by Koluama 2 residents, in Nigeria on Monday, Feb. 27, 2012.

President Goodluck Jonathan visited the community Monday, the nearest settlement to a Chevron Corp. offshore gas rig site that remains on fire after an apparent industrial accident Jan. 16, 2012. Jonathan sought to assure residents during his visit, but many remain worried about the environmental impact of the ongoing blaze. Photo: Sunday Alamba / AP Nigerian President Goodluck Jonathan visits Koluama 2 village, Nigeria on Monday, Feb. 27, 2012. President Goodluck Jonathan visited the community Monday, the nearest settlement to a Chevron Corp. offshore gas rig site that remains on fire after an apparent industrial accident Jan. 16, 2012. Jonathan sought to assure residents on his visit, but many remain worried about the environmental impact of the ongoing blaze. Photo: Sunday Alamba / AP Nigeria's President Goodluck Jonathan, waves to the crowd as he visits Koluama 2 village, in Nigeria on Monday, Feb. 27, 2012. President Goodluck Jonathan visited the community Monday, the nearest settlement to a Chevron Corp. offshore gas rig site that remains on fire after an apparent industrial accident Jan. 16, 2012. Jonathan sought to assure residents on his visit, but many remain worried about the environmental impact of the ongoing blaze. Photo: Sunday Alamba / AP Nigeria President Goodluck Jonathan, waves to the crowd as he visits Koluama 2 village, Nigeria, on Monday, Feb. 27, 2012. President Goodluck Jonathan visited the community Monday, the nearest settlement to a Chevron Corp. offshore gas rig site that remains on fire after an apparent industrial accident Jan. 16, 2012. Jonathan sought to assure residents during his visit, but many remain worried about the environmental impact of the ongoing blaze. Photo: Sunday Alamba / AP

PetroScan-February 2012

UPDATE: As of Tuesday evening, Chevron Corp. said a fire on an offshore rig near Nigeria’s coast was still burning as a search continued for two missing workers. Chevron said earlier it had accounted for 152 workers on the natural gas rig and a nearby barge. Two workers remained hospitalized Tuesday with minor burns. Chevron said the investigation into the fire was ongoing, though they believe a possible equipment failure caused the inferno. Officials with Nigeria’s state-run oil company already have blamed the fire on a “gas kick” — a major build up of gas pressure from drilling. Chevron said it does not know how long the fire will last on the rig, which has partially collapsed.

LAGOS, Nigeria —Two contractors are still missing after a Chevron drilling rig caught fire Monday off Nigeria’s coast, the oil company said today. Two of the 154 workers on the KS Endeavor, a jack-up rig, are missing today after the offshore rig caught fire as it explored possible oil and gas fields off Nigeria’s coast. Chevron said it was still investigating the cause of the fire, which has not been contained, but it did not appear to be sabotage. The fire occurred near its North Apoi oil platform, and the blaze forced it to shut down. “We do not know what caused the incident. We are working diligently to contain the fire, which is restricted to the rig,” Andrew Fawthrop, managing director of Chevron’s Nigeria/Middle East strategic business unit, told Upstreamonline.com.

“Substantial resources have been deployed including well control specialists and drilling experts. We continue to work in full cooperation with Nigerian authorities and are committed to providing additional information as it becomes known.”

The rig is run on Chevron’s behalf by contractor Fode Drilling Co., Walker said. Officials with Fode, which has offices in London and Jenkintown, Pennsylvania, could not be immediately reached for comment Monday.

Nnimmo Bassey, who runs an environmental watchdog group in Nigeria, said he had received reports from locals nearby that the fire was an industrial incident. “Workers were trying to contain the gas pressure and they didn’t succeed,” Bassey said. Nigeria is the fifth-largest crude oil exporter to the U.S. It produces about 2.4 million barrels of crude oil a day. However, more than 50 years of oil production has seen environmental damage through delta’s maze of muddy creeks and mangroves.

Chevron, based in San Ramon, California, produced an average of 524,000 barrels of crude oil a day from Nigeria in 2010. The company has exploration rights to about 2.2 million acres across Nigeria’s delta and offshore.

INNOVATION 4 Myths About How Great Companies Innovate WRITTEN BY: Jeffrey Phillips HOW DO APPLE, GOOGLE, AND 3M CONTINUE TO DISRUPT THEIR MARKETS? THE TRUTH DOESN'T LIE IN COMMON MYTHS ABOUT VISIONARY LEADERS OR BUSINESS STRATEGY, BUT RATHER SIMPLER TRUTHS, ARGUES JEFFREY PHILLIPS IN "RELENTLESS INNOVATION." The following is an excerpt from Relentless Innovation: What Works, What Doesn’t--and What That Means for Your Business by Jeffrey Phillips.

In the United States alone there are hundreds of large, successful firms with recognizable brand names that we encounter every day. We constantly hear innovation success stories about firms like Apple and Procter & Gamble, but we rarely hear about innovation in their direct competitors, Dell and Unilever, much less about innovation in any of the thousands of firms worldwide that compete in these markets. In every region and industry the same pattern is repeated: A small handful of firms are recognized as consistent innovators, used as case PetroScan-February 2012

studies and examples, while we hear little or nothing about innovation in the vast majority of the other firms in those industries.

So what is it that differentiates a successful, consistent innovator from its close competitors, firms of the same relative size that compete in the same industries and geographies, that aren’t viewed as innovative? What factors or attributes accelerate innovation in these successful companies? Are those factors or attributes lacking or underrepresented in lower performing firms? Or are firms like Apple and Google better at attracting marketing and publicity? Is it safe to say that the majority of firms in every region of the globe are not innovative, or is it simply that they don’t receive as much media attention? What happens at Target that does not take place at Kmart?

What is Apple doing that Dell is not? And what about 3M compared to Avery Dennison?

Several possible factors spring to mind, including the executive management, the nature of the industry, or the capabilities of a firm’s research and development teams. Much of the mythology built around innovation identifies these factors as the main components of innovation success and it is true that each of them may contribute to a stronger innovation capability. But in the long run, none of them are the key drivers. Let’s review the myths and debunk the conventional wisdom, then confront the simpler realities.

EXECUTIVE MANAGEMENT Myth: Individual, innovative leadership accounts for the majority of a firm’s success.

Truth: Sustained innovation success does not rely on visionary leaders alone.

In the 1990s, a cult of personality arose around some senior executives, especially individuals like Jack Welch of General Electric and Lou Gerstner of IBM. The media led the public to believe that these CEOs accounted for much of their firms’ success while they were at the helm. During Welch’s tenure at GE he implemented several programs that were attributed with driving new value and differentiation for the company, including ranking employees into categories and only participating in markets or industries in which GE could be one of the top three players. Many analysts have also attributed much of GE’s success in the 1980s and 1990s to Welch’s leadership.

ALTHOUGH HE WAS A VISIONARY, OLSON DID NOT FORESEE IMMINENT CHANGES. Strong, visionary leaders matter, but do visionary leaders account for the differences in innovation competence?

Certainly, to some degree. For example, everyone recognizes Steve Jobs’s influence on Apple and the company’s decade-long dominance in consumer electronics and innovation. Jobs, however, isn’t the only visionary leader in the computing space, which was created by a number of innovative trend-setters.

Look no further than Kenneth Olson, the founder of Digital Equipment Corporation (DEC), who disrupted the mainframe market with minicomputers, but failed to see the further disruption of the minicomputer market by the personal computer. He is attributed as saying “there is no reason anyone would want a computer in their home.”

Although he was a visionary leader, Olson did not foresee the imminent changes in the computing market, and DEC was soon disrupted by personal computer (PC) manufacturers such as Compaq, which made the first “portable” PC. Michael Dell at Dell Computer is every bit as dynamic a leader as Jobs is at Apple, and he was heralded as an innovative leader in the 1990s, constantly on the cover of magazines like Fortune and Forbes. Dell disrupted the existing business model in the PC market, which enabled his company to grow faster and supplant many larger and well-established firms, including Compaq. In fact, far more people own Dell PCs than own Apple PCs, yet Jobs is constantly feted as an innovator while Dell is hardly considered in the same league.

Dell and Olson were both recognized for their vision and innovative capabilities at a point in time, but their firms did not sustain innovation over time. But, back to the initial question of how much impact a CEO has on innovation. If we assert that Jobs is a unique case, can we identify innovative firms that don’t have visionary CEOs? Certainly; W. L. Gore is an excellent example.

W. L. Gore is a privately held firm with more than $2.5 billion in revenue, headquartered in Newark, Delaware.

Gore manufactures Gore-Tex, the waterproof, breathable fabric that is used in a wide range of outdoor clothing PetroScan-February 2012

and gear. The company has sought and found numerous uses for its PFTE polymer, creating dental floss, coatings for guitar strings, medical devices, and other applications. Beyond product innovation, however, Gore is also an innovator in organizational structure. Gore has an exceptionally flat organizational structure with no formal reporting hierarchies or organizational charts--its CEO was actually elected by its employees. Innovation at the company is therefore driven not by a single visionary CEO, but by the individuals and teams throughout the business.

Further, consider Target or 3M, firms identified earlier, which are far more innovative than their competitors. While these firms are recognized as innovation leaders, I suspect most people would have difficulty picking out any member of the executive team of either firm in a police lineup.

Another thought experiment may help clarify whether or not executive leadership is a significant driver or barrier for innovation. Let’s assume that Steve Jobs could be magically and instantly transported to Austin, Texas, where he becomes the CEO of Dell. If this were to happen, do you think Dell would become dramatically more innovative overnight, or even in several years? If Target’s CEO was recruited to Kmart, or 3M’s CEO was remanded to become the CEO of an abrasives company, would those firms instantly become innovative? Would these firms attain the level of relentless innovation of the leaders in their industries or markets, even over time?

I’d stipulate that the answer is no. Simply put, there’s more to sustained innovation than a visionary executive.

Visionary, innovative, executive leadership may occur periodically, and while it may contribute to sustained innovation, it is not the only contributor to successful, long-term innovation. Sustained innovation success does not rely on visionary leaders alone.

INDUSTRY COMPETITION AND SPECIFICS Myth: The level of industry competition dictates the amount of innovation.

Truth: Industry competition is a factor in fostering innovation, but it doesn’t guarantee innovation leadership.

If executive leadership alone doesn’t account for innovation success, then perhaps the level of industry competition fosters more innovation. After all, it seems some industries are more innovative than others. A look at the mobile phone handset market provides perspective on a highly competitive and innovative industry.

Consumers expect their wireless devices to offer valuable new features and capabilities. Yet, recent history suggests that while many firms in the space have been considered innovative, few of them have sustained leadership for any length of time. Nokia is a great case study in this regard as it was considered the market leader in innovative handsets for many years.

NOKIA’S CEO WROTE AN OPEN LETTER, DESCRIBING THEIR POSITION AS A 'BURNING PLATFORM.' Nokia is an example of a company that has reinvented itself as times and needs changed. Originally a paper company, the firm has shifted its focus and business model at least three times over the course of almost 150 years. Nokia entered the cellular handset market in the late 1980s and as of 2010 was the leading handset manufacturer in terms of volume. Yet its market share has dropped precipitously according to industry analysts as it has failed to anticipate new needs and offer compelling new products.

At the time Nokia was the leading handset developer, its researchers actually designed a touchscreen mobile handset (this was years before Apple’s iPhone), but the concept was rejected by executive management, which had become complacent and comfortable with current profits. In early 2011, Nokia’s CEO wrote an open letter to his employees, describing Nokia’s position in the handset space as a “burning platform” based on the company’s shrinking market share.

As Nokia stumbled, Motorola took its place as the innovation leader in the handset industry with the RAZR phone, for a short period. The designers of the RAZR were featured in the business press and were hailed as the new leaders in cell phone design. Yet in just a few years Motorola was dethroned by Apple, showing that it was no more able to innovate consistently over time in the cell phone space than Nokia. It remains to be seen whether Apple will suffer a similar fate with the introduction of the Android operating system and new smartphones based on that technology.

PetroScan-February 2012

While the competitive nature of an industry does increase the likelihood of innovation, it does not guarantee a firm will sustain innovation focus.

The point is that within less than a decade several firms wore the crown as the “innovation” leader in cell phone/smart-phone development and design, and all of them demonstrated periodic innovation. Yet only Apple appears to be able to sustain innovation. Just because one firm held the leadership mantle and received higher profits during its own leadership period has not meant that such firms could sustain innovation over time.

THE FAST FOLLOWER Myth: It is possible for firms to copy the product or service offerings of market leaders while retaining competitive advantage through low costs or higher service.

Truth: To remain competitive, firms must increase their innovation capabilities instead of playing 'follow the leader.'

A quick review of firms in the United States demonstrates that most industries or markets have one wellestablished innovator and several “fast followers.” The majority of firms in any industry don’t heavily invest in innovation. Most companies assume they can copy the strategies of the leader in their market and still retain competitive advantage through low cost or higher service--or simply through the lethargy of their customer base.

Such organizations will even argue that their strategy is to be a “fast follower.” This strategy, however, is usually a difficult one to pursue and it is increasingly a dangerous proposition. There are at least four problems with a business plan of this kind.

'FAST’ FOLLOWERS SUFFER THE MOST AS NEW INNOVATIONS ENTER A MARKET. The first problem is in the word “fast.” Customer demand and expectations are changing much more quickly than many firms have the ability to keep up with. Few products or services have the luxury of extended life cycles or little competition. A growing base of consumers with new expectations and new demands only fuels the fire for more products and services. Firms that claim to be fast followers are often merely just followers. As a firm grows and matures, its bureaucracy, decisions, and approvals inhibit its ability to bring a new product to market quickly.

The company can’t respond fast enough to innovators or consumer demands. In this period of rapid change and global competition, innovation isn’t a “nice to have” but an important core competence; those firms that can’t keep up will inevitably perish.

The second problem with “fast” followers is that they become accustomed to following. Since these companies don’t exercise any creativity or innovation skills, those capabilities have atrophied or they aren’t valued within their organizations. This lack of innovation skills leaves the fast follower with only one recourse: to eliminate costs and inefficiencies since they can’t hope to command the attention and margins that accrue to innovators. Given new economic shifts, global competition, and customer demand, firms that cannot create new, interesting products and services exist on the very brink. To remain competitive, firms that haven’t relied on innovation as an advantage must increase their innovation capabilities, not try replicating others’ successes.

Third, “fast” followers often don’t understand what features or benefits the customer values in a product, and what challenges or issues exist in those products. By simply copying an existing product or service, they risk duplicating all the problems or issues that exist within the innovative product. Since the “fast” follower does little research, the company often doesn’t know which features or benefits are important and should be emphasized, or what hidden issues or concerns exist with the product. “Fast” followers often make the same mistakes as innovators do, but they have less opportunity to respond and encounter a customer base that has recognized both the benefits of the product or service and the issues or constraints.

'FAST’ FOLLOWERS OFTEN DON’T UNDERSTAND WHAT FEATURES OR BENEFITS THE CUSTOMER VALUES IN A PRODUCT. Finally, “fast” followers suffer the most as new innovations enter a market. They are more accustomed to implementing the business models and offerings of the innovation leaders after the models have been proven.

Fresh entrants, unbound by the shape and structure of the market or competition, will enter to disrupt the existing order and make older products, services, and companies obsolete. Innovators by their very nature are constantly PetroScan-February 2012

scanning the horizon, looking for emerging threats and new entrants. They spot disruptive trends and shift nimbly into new opportunities. Industry laggards and fast followers are impacted by disruptions far more than innovators, but the impact is more severe on fast followers since laggards really had little to lose. Since such companies are neither fast nor particularly insightful, they lose the most in a market disruption as they can’t shift away from their existing models and structures quickly enough.

The “fast follower” strategy is increasingly a difficult business proposition. Firms that focus their efforts on innovation rather than fast duplication will succeed.

As Michael Treacy established in his book The Discipline of Market Leaders, there are three differentiated positions in any market: product leadership, operational excellence, and customer intimacy. Innovation is a tool that can help an organization achieve leadership in any one of these differentiated pursuits, but clearly only one firm in an industry can be the “best” at any of these strategies. For example, we could argue that in the retail space, Target is the product leader, partner-ing with leading designers to bring interesting, attractive, and affordable products to the mass market. Wal-Mart is the operational efficiency leader, innovating new data streams and distribution tactics to keep costs and prices low. Nordstrom is the customer intimacy leader, creating a completely unique and valuable relationship with its customers. Every other retail firm lags behind these firms in one or more of the three strategic areas, and new competitors seek to enter the retail space and disrupt the leaders, much less the laggards.

Innovation is a long and winding road. Thankfully, you can steer.

SUSTAINED INNOVATION Myth: Due to changes in a globalizing world, no firm can sustain innovation leadership over the long term.

Truth: Sustained innovation resides in factors that companies can control.

Some observers argue that given heightened competition, accelerating global trade, and increasing customer demands, no firm can sustain innovation leadership over the long term. This argument, however, ignores the results of a firm like 3M. Except for a brief period between 2000 and 2005 under former GE executive James McNerney, whose focus was on profitability and efficiency, 3M has had a long history of innovation leadership, creating a range of products and services. Certainly the Post-It is probably the most well known, but over the last 50 years 3M has entered countless markets and industries, tailoring new innovations to different geographies, technologies, and market needs. Though 3M continued to innovate in spite of McNerney’s focus on efficiency, when George Buckley replaced him as CEO, one of Buckley’s first actions was to reemphasize innovation as a core capability, providing fresh focus and funding for those activities.

In my experience, it is completely possible for a firm to develop and sustain an innovation capability over time, just as a firm is able to create and sustain market leadership over time. Innovation capability resides less in markets, strategies, technologies, or leadership than we typically suppose, and more specifically in factors that companies can control--culture, business attitudes and perspectives, focus, and intent. That’s the real lesson we can learn from relentless innovators: what drives long-term, successful innovation are the same factors that shape the way people think and act in any business--operating models, strategies, rewards, culture, and processes.

GENERAL READING Seven Highlights from 2011 and the Outlook for 2012 With the end of 2011 in sight and a new year on the horizon, it’s a good time to reflect and to plan. Let’s reflect on the key events in supply chain sustainability from 2011.

PetroScan-February 2012

Highlights from 2011 So many supply chain sustainability initiatives and announcements occurred in 2011 that any summary is necessarily selective and subjective. But here are a few that I think are significant.

GREENHOUSE GAS INVENTORIES OF THE SUPPLY CHAIN More companies are going to begin calculating greenhouse gas inventories for their supply chains and their products following the release in 2011 of two standards. In October the World Resources Institute introduced the new standards for value chain (scope 3) accounting and product life cycle accounting. Already, according to a new Green Research survey of sustainability executives, sixty percent of respondents say their company will calculate its scope 3 emissions in the coming year and over half intend to report the results publicly. These standards will help companies understand and begin to take responsibility for the carbon emissions of their supply chains.

MONITORING AND REPORTING THE USE OF CONFLICT MINERALS This year saw a lot of discussion and analysis of the implications of a new U.S. law that will shine a light on the supply chains of thousands of companies. The law in question is the Dodd-Frank law, whose conflict minerals provisions require U.S.-listed companies to conduct due diligence of their supply chains and report whether they are buyers of conflict minerals (minerals that may originate in the Eastern Congo and surrounding areas and whose trade may provide funding to armed groups in the region). In 2011, dozens of major companies including Apple, General Electric, Ford, Hewlett-Packard, Intel and Motorola worked to analyze their exposure and obligations under the law and began to put in place the due diligence processes required to ensure they are in compliance with eventual final rules. Given the global nature of supply chains, these regulations will have global impact and will accelerate the broader trend toward supply chain visibility and accountability. We maintain a site with news and information on the conflict minerals provisions of the Dodd-Frank law atsection1502.com.

SUSTAINABLY SOURCED PACKAGING Green Research studies have found that companies in many industries entered 2011 with goals to reduce the volume of packaging they use. In 2011, we saw a number of commitments and initiatives to enhance the sustainability of packaging materials themselves. Toy makers Hasbro and Mattel announced commitments to shift to sustainably sourced packaging materials, for instance. Dell announced a new packaging material made of sustainably sourced mushrooms. PepsiCo announced a new plant-based bottle, and AT&T announced plans to begin using packaging that is partly plant based.

COMMITMENT TO SUSTAINABLE PALM OIL The Roundtable on Sustainable Palm Oil announced a surge in purchases of certified sustainable palm oil and many major companies, including Asda, Johnson & Johnson, Kellogg’s, McDonalds and SC Johnson announced commitments to shift their most or all of their purchases of palm oil to certified sustainable sources.

FOREST PRODUCTS CERTIFICATION CONTROVERSY A conflict between competing North American forest products sustainability standards boiled over in 2011 as a number of major U.S. companies including Aetna, Allstate, AT&T, Comcast, Garnet Hill, Office Depot, Performance Bicycles, State Farm, Sprint, Symantec, United Stationers and U.S. Bank dropped the Sustainable Forestry Initiative in favor of Forest Stewardship Council. There are already too many “standards” in the sustainability field; some consolidation is welcome.

BUSINESS DECISIONS ABOUT ECOSYSTEM SERVICES The World Business Council for Sustainable Development introduced a new toolthis year to help corporations put a monetary value on the ecosystem services they affect or depend on. The Corporate Ecosystem Valuation (CEV) tool is intended to help companies incorporate thinking about ecosystem services corporate in their strategic and financial planning. Shortly after the CEV tool was published sports-lifestyle apparel maker PUMA released a much-lauded “environmental profit and loss” statement that not only valued the company’s

PetroScan-February 2012

environmental impacts but also revealed that most of its impacts occur in its supply chain, something that is true for many companies.

SUPPLY CHAIN GOALS STILL IN SHORT SUPPLY Despite the growing awareness that, for many companies, the supply chain is where many if not most of their environmental impacts occur, many companies have struggled to make firm commitments for improvement in this area. In a 2011 study of the global pharmaceutical industry, for instance, we found that ninety percent of the sustainability goals pharmaceutical manufacturers have announced deal with their internal operations; only a handful deal with the supply chain. Supply chain goals are scarce in the other industries we studied as well, including alcoholic beverages, food processing and telecommunications.

Outlook for 2012 All of this sets the stage for what promises to be redoubling of effort to improve the sustainability performance of company supply chains. According to the aforementioned survey of senior sustainability executives, improving supply chain sustainability is the number two sustainability initiative (behind employee engagement) of their companies for 2012. I expect to see companies aim for closer collaboration with suppliers, adopt more stringent scorecarding, put a greater focus on ecosystem services and biodiversity, and apply the new carbon accounting standards to their supply chains, among other initiatives.

Americans Gaining Energy Independence With U.S. as Top Producer

By Rich Miller, Asjylyn Loder and Jim Polson - Feb 6, 2012 The U.S. is the closest it has been in almost 20 years to achieving energy self-sufficiency, a goal the nation has been pursuing since the 1973 Arab oil embargo triggered a recession and led to lines at gasoline stations.

Domestic oil output is the highest in eight years. The U.S. is producing so much natural gas that, where the government warned four years ago of a critical need to boost imports, it now may approve an export terminal. Methanex Corp. (MX), the world’s biggest methanol maker, said it will dismantle a factory in Chile and reassemble it in Louisiana to take advantage of low natural gas prices. And higher mileage standards and federally mandated ethanol use, along with slow economic growth, have curbed demand.

The result: The U.S. has reversed a two-decade-long decline in energy independence, increasing the proportion of demand met from domestic sources over the last six years to an estimated 81 percent through the first 10 months of 2011, according to data compiled by Bloomberg from the U.S. Department of Energy. That would be the highest level since 1992.

“For 40 years, only politicians and the occasional author in Popular Mechanics magazine talked about achieving energy independence,” saidAdam Sieminski, who has been nominated by President Barack Obama to head the U.S. Energy Information Administration. “Now it doesn’t seem such an outlandish idea.”

The transformation, which could see the country become the world’s top energy producer by 2020, has implications for the economy and national security -- boosting household incomes, jobs and government revenue; cutting the trade deficit; enhancing manufacturers’ competitiveness; and allowing greater flexibility in dealing with unrest in the Middle East.

Output Rising U.S. energy self-sufficiency has been steadily rising since 2005, when it hit a low of 70 percent, the data compiled

by Bloomberg show. Domestic crude oil production rose 3.6 percent last year to an average 5.7 million barrels a day, the highest since 2003, according to the Energy Department. Natural gas output climbed to 22.4 trillion cubic feet in 2010 from 20.2 trillion in 2007, when the Federal Energy Regulatory Commission warned of the need for more imports. Prices have fallen more than 80 percent since 2008.

At the same time, the efficiency of the average U.S. passenger vehicle has helped limit demand. It increased to 29.6 miles per gallon in 2011 from 19.9 mpg in 1978, according to the National Highway Traffic Safety Administration.

PetroScan-February 2012

The last time the U.S. achieved energy independence was in 1952. While it still imported some petroleum, the country’s exports, including of coal, more than offset its imports.

Environmental Concern The expansion in oil and natural gas production isn’t without a downside. Environmentalists say hydraulic fracturing, or fracking -- in which a mixture of water, sand and chemicals is shot underground to blast apart rock and free fossil fuels -- is tainting drinking water.

The drop in natural gas prices is also making the use of alternative energy sources such as solar, wind and nuclear power less attractive, threatening to link the U.S.’s future even more to hydrocarbons to run the world’s largest economy.

Still, those concerns probably won’t be enough to outweigh the benefits of greater energy independence.

Stepped-up oil output and restrained consumption will lessen demand for imports, cutting the nation’s trade deficit and buttressing the dollar, said Sieminski, who is currently chief energy economist at Deutsche Bank AG in Washington.

Cutting Trade Deficit With the price of a barrel of oil at about $100, a drop of 4 million barrels a day in oil imports -- which he said could happen by 2020, if not before -- would shave $145 billion off the deficit. Through the first 11 months of last year, the trade gap was $513 billion, according to the Commerce Department. Crude for March delivery settled at $96.91 a barrel yesterday on the New York Mercantile Exchange.

The impact on national security also could be significant as the U.S. relies less on oil from the Mideast. Persian Gulf countries accounted for 15 percent of U.S. imports of crude oil and petroleum products in 2010, down from 23 percent in 1999.

“The past image of the United States as helplessly dependent on imported oil and gas from politically unstable and unfriendly regions of the world no longer holds,” former Central Intelligence Agency Director John Deutch told an energy conference last month.

Arab Oil Embargo That dependence was underscored in October 1973, when Arab oil producers declared an embargo in retaliation for U.S. help for Israel in the Yom Kippur war. The U.S. economy contracted at an annualized 3.5 percent rate in the first quarter of the next year. Stock prices plunged, with the Standard & Poor’s 500 Index dropping more than 40 percent in the year following the embargo.

Car owners were forced to line up at gasoline stations to buy fuel. President Richard Nixon announced in December that because of the energy crisis the lights on the national Christmas tree wouldn’t be turned on.

Today, signs of what former North Dakota Senator Byron Dorgan says could be a “new normal” in energy are proliferating. The U.S. likely became a net exporter of refined oil products last year for the first time since 1949.

And it will probably become a net exporter of natural gas early in the next decade, said Howard Gruenspecht, the acting administrator of the EIA, the statistical arm of the Energy Department.

Cheniere Energy Partners LP (CQP) may receive a construction and operating permit as early as this month from the Federal Energy Regulatory Commission for the first new plant capable of exporting natural gas by ship to be built since 1969 in the U.S. Houston-based Cheniere said it expects the $6 billion plant to export as much as 2.6 billion cubic feet of gas per day.

Mitchell the Pioneer The shale-gas technology that’s boosting U.S. natural gas production was spawned in the Barnett Shale around Dallas and Fort Worth by George P. Mitchell, who was chairman and chief executive officer of Mitchell Energy & Development Corp.

Helped by a provision inserted in the 1980 windfall oil profits tax bill to encourage drilling for unconventional natural gas, the Houston-based oil man pursued a trial-and-error approach for years before succeeding in the late-1990s. The fracking method he devised cracked the rock deep underground, propping open small seams that allowed natural gas trapped in tiny pores to flow into the well and up to the surface.

PetroScan-February 2012

Recognizing that Mitchell was on to something, Devon Energy Corp. bought his company in 2002 for about $3.3 billion and combined it with its own expertise in directional drilling, a method derived from offshore exploration.

Hunting for Oil Traditional vertical drilling bores straight down, like a straw stuck straight in the earth. Directional drilling bends the straw, boring horizontally sometimes a mile or more through the richest layer of rock, allowing more of the trapped fuel to make it into the well. This slice of rock is like the kitchen, where ancient plants and creatures came under so much pressure that they cooked into natural gas and oil.

The oil boom a century ago tapped reservoirs of fuel that rose out of those layers and got trapped in large pockets closer to the earth’s surface, or used vertical wells that could get out only a portion of the fuel stored in the rock. The new technology has Devon and its competitors hunting beneath decades-old oil plays long thought depleted.

About an hour’s drive north from where Devon’s soon-to-be- completed new glass headquarters towers 50 stories above downtown Oklahoma City, the company is exploring for oil in the Mississippian and other formations, where oil majors once made their fortunes. It’s racing companies such as Chesapeake Energy Corp. and SandRidge Energy Inc. to buy leases and drill wells.

North Dakota Booming Crude production in the U.S. is already increasing. Within three years, domestic output could reach 7 million barrels a day, the highest in 20 years, said Andy Lipow, president of Lipow Oil Associates in Houston, a consulting firm. The U.S. produced 5.9 million barrels of crude oil a day in December, while consuming 18.5 million barrels of petroleum products, according to the Energy Department.

North Dakota -- the center of the so-called tight-oil transformation -- is now the fourth largest oil-producing state, behind Texas, Alaska and California.

The growth in oil and gas output means the U.S. will overtake Russia as the world’s largest energy producer in the next eight years, said Jamie Webster, senior manager for the markets and country strategy group at PFC Energy, a Washington- based consultant.

While U.S. consumers would still be susceptible to surges in global oil prices, “we’d end up sending some of that cash to North Dakota” rather than to Saudi Arabia, said Richard Schmalensee, a professor of economics and management at the Massachusetts Institute of Technology in Cambridge.

1.6 Million Jobs The shale gas expansion is already benefiting the economy. In 2010, the industry supported more than 600,000 jobs, according to a reportthat consultants IHS Global Insight prepared for America’s Natural Gas Alliance, a group that represents companies such as Devon Energy and Chesapeake Energy.

More than half were in the companies directly involved and their suppliers, with the balance coming at restaurants, hotels and other firms. By 2035, the number of jobs supported by the industry will rise to more than 1.6 million, IHS said. Some 360,000 will be directly employed in the shale gas industry.

The oil boom is also pushing up payrolls. Unemployment in North Dakota was 3.3 percent in December, the lowest of any state. Hiring is so frantic that the McDonald’s Corp. restaurant in Dickinson is offering $300 signing bonuses.

State governments are reaping benefits, too. Ohio is considering a new impact fee on drillers and increasing the tax charged on natural gas and other natural resources extracted, Governor John Kasich has said.

In Texas, DeWitt County Judge Daryl Fowler has negotiated an $8,000-per-well fee from drilling companies to pay for roads in the district, southeast of San Antonio.

Lot of Traffic “It takes 270 loads of gravel just to build a pad used for drilling a well, which means a lot of truck traffic on a lot of roads that nobody except Grandpa Schultz and some deer hunters may have used in the past,” said Fowler, whose non-judicial post gives him administrative control over the county.

PetroScan-February 2012

The federal government will see tax payments from shale gas rise to $14.5 billion in 2015 from $9.6 billion in 2010, according to IHS. Over the period 2010 to 2035, revenue will total $464.9 billion, it said.

Manufacturing companies, particularly chemical makers, also stand to win as the shale bonanza keeps natural gas cheaper in the U.S. than in Asia or Europe.

Dow Chemical Co., which spent a decade moving production to the Middle East and Asia, is leading the biggest expansion ever in the U.S. The chemical industry is one of the top consumers of natural gas, using it both as a fuel and feedstock to produce the compounds it sells.

First Since 2001 Midland, Michigan-based Dow is among companies planning to build crackers, industrial plants typically costing $1.5 billion that process hydrocarbons into ethylene, a plastics ingredient.

The new crackers will be the first in the U.S. since 2001, said John Stekla, a director at Chemical Market Associates Inc., a Houston-based consultant.

Vancouver-based Methanex said last month it plans to take apart the idled Chilean factory and ship it to Louisiana to capitalize on natural gas prices.

The shift to increased energy independence is also the result of government policies to depress oil demand.

“Vehicles are getting more efficient, and people who travel won’t be driving more miles,” said Daniel Yergin, chairman of IHS Cambridge Energy Research Associates.

Automakers have agreed to raise the fuel economy of the vehicles they sell in the U.S. to a fleetwide average of 54.5 miles per gallon by 2025 under an agreement last year with the Obama administration.

No ‘Silver Bullet’ The 2008-09 recession helped lower oil demand, and consumption has lagged even as the economy has recovered, said Judith Dwarkin, director of energy research for ITG Investment Research in Calgary. Coupled with higher domestic output, “this has translated into an import requirement of some 15.4 barrels per person per year -- about on par with the mid-1990s.”

She cautioned against thinking that rising oil and gas production is a “silver bullet” for solving U.S. economic woes.

Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, agreed, saying in a Jan. 20 note to clients that oil and gas output accounts for just 1 percent of gross domestic production and isn’t likely on its own to be able to pull the economy into above-trend growth.

Cooling on Wind Some companies are hurting from the shale gas glut. With abundant supplies making it the cheapest option for new power generation,Exelon Corp. (EXC) scrapped plans to expand capacity at two nuclear plants, while Michigan utility CMS Energy Corp. (CMS) canceled a $2 billion coal plant after deciding it wasn’t financially viable. NextEra Energy Inc. (NEE), the largest U.S. wind energy producer, shelved plans for new U.S. wind projects next year.

Investors also are cooling on wind investment, partly because of falling power prices. T. Boone Pickens, one of wind power’s biggest boosters, decided to focus on promoting natural gas-fueled trucking fleets after dropping plans for a Texas wind farm in 2010.

“Wind on its own without incentives is far from economic unless gas is north of $6.50,” said Travis Miller, a Chicago- based utility analyst at Morningstar Inc. Natural gas for March delivery settled at $2.55 per million British thermal units on New York Mercantile Exchangeyesterday.

When Obama lauded increased energy production in his State of the Union speech on Jan. 24, he drew criticism from some environmentalists opposed to fracking.

Waning Confidence “We’re disappointed in his enthusiasm for shale gas,” said Iris Marie Bloom, director of Protecting Our Waters in Philadelphia. Obama “spoke about gas as if it’s better for the environment, which it’s not.”

PetroScan-February 2012

Deutch, who headed an advisory panel on fracking for the Energy Department, voiced concern that public confidence in the technology will wane if action isn’t taken to address environmental concerns. The potential positive impact of increased North American production are “enormous,” he said.

Higher U.S. output lessens the ability of countries like Iran and Russia to use “energy diplomacy” as a means of strengthening their influence, Amy Myers Jaffe, director of the Baker Institute Energy Forum at Rice University, and her colleagues wrote in a report last year.

While the U.S. will still have to pay attention to issues such as Israel’s security and Islamic fundamentalism in the Mideast, which could affect oil prices, it won’t have to be as worried about its supplies.

Positive ‘Shock’ Carlos Pascual, special envoy and coordinator for international energy affairs at the State Department, suggested at a Council on Foreign Relations conference in December that the increased production in the U.S. and elsewhere gives Washington more “maneuverability” in using sanctions to deal with Iran and its nuclear aspirations.

The increased U.S. production of oil and natural gas is a “positive supply shock” for the economy and for national security, said Philip Verleger, a former director of the office of energy policy at the Treasury Department and founder of PKVerleger LLC, a consulting firm in Aspen, Colorado.

“We aren’t there yet, but it looks like we’re blundering into a solution for the energy problem,” he said.

To contact the reporters on this story: Rich Miller in Washington at rmiller28@bloomberg.net; Asjylyn Loder in New York ataloder@bloomberg.net; Jim Polson in New York at jpolson@bloomberg.net To contact the editor responsible for this story: Clark Hoyt in Washington at choyt2@bloomberg.net

Research Partnership to Secure Energy for America Keynote Remarks by Dr. Victor K. Der Assistant Secretary of Energy (Acting) Office of Fossil Energy U.S. Department of Energy Thank you, David [Carroll, President and CEO, GTI] and thank you to GTI and RPSEA for the opportunity to present these remarks on behalf of the Department of Energy.

Today, I’d like to talk about our Nation’s energy security and the role of natural gas in ensuring domestic energy supplies -- and about the role of gas shales in securing our energy future, and finally, about our efforts to date to implement the Ultra-Deepwater and Unconventional Natural Gas Research Program as established by the Energy Policy Act of 2005.

Energy security means moving toward less dependence on outside sources of the fuels we need to power our economy.

Fossil fuels supply 85 percent of the nation's energy. Ensuring that we can continue to rely on clean, affordable energy from our traditional fuel resources is the primary mission of Department of Energy's Office of Fossil Energy.

To this end, we are working on such priority projects as pollution-free coal plants, more productive oil and gas fields, and the continuing readiness of federal emergency oil stockpiles.

Because it is an integral part of FE’s mission, I’d like to just briefly mention our R&D efforts on carbon capture and sequestration (CCS) and advanced coal.

The President is committed to the concept of near-zero emission coal with CCS. For instance, his science and technology advisory committee recommended increasing DOE's R&D for carbon sequestration. And the recentlypassed stimulus bill - the Recovery Act - provides funds for enhancing "America’s energy independence" in part through carbon capture and storage from industrial sources. The Office of Fossil Energy has received $3.4 billion from the Recovery Act that includes $1.52 billion for a competitive solicitation for a range of industrial carbon

PetroScan-February 2012

capture and energy efficiency improvement projects, including a small allocation for innovative concepts for beneficial reuse of carbon dioxide (CO2).

So, as we continue to move forward with our advanced coal R&D, the focus will be on developing deployable advanced near-zero emission technologies, including carbon capture and storage.

To be successful, the techniques and practices to sequester carbon must be safe, effective and cost-competitive, in providing stable, long term storage.

But I have to stop and ask myself, who better than the oil and gas sector understands the challenges of injecting fluids into porous media, monitoring the results, and monetizing the effort?

Who better than the oil and gas industry understands how to transfer lessons learned in one arena into business opportunities in another arena?

And, who better than the oil and gas sector understands the value of solid business relationships across the various technical sectors of our economy?

When discussing energy security, the President acknowledges that the U.S. is endowed with an abundance of energy alternatives: oil and gas, coal, and renewable forms of energy such as solar, wind, hydro, geothermal and nuclear.

But he also acknowledges that we’re not going to make the transition to alternative energy sources overnight. As our energy needs grow through the transition, we will still need more oil and gas, and we want to find it, produce it, and use it in an environmentally responsible, sustainable way.

As we move toward a greater reliance on renewable energy, domestic production of oil and natural gas will be an essential part of that transition.

The President’s comprehensive "New Energy for America" plan promotes the responsible domestic production of oil and natural gas—which you are doing now and will continue to do.

At the core of the Administration’s plan for national energy security is the assumption that current production of oil and gas will continue into the next century, based on the strength of the industry. A steady domestic supply of oil and gas is a key part of the strategy for the Administration in its goal to reduce foreign imports.

The next assumption, of course, is that the oil and gas industry will continue its strong leadership in production to underpin the transition to greater use of alternative energy sources – a transition that will require the research, development and application of cutting edge technologies.

At the recent annual meeting of the National Academy of Sciences, the President said that science is more essential for our prosperity, our security, our health, our environment, and our quality of life than it has ever been before.

Nowhere is that more true than in the field of natural gas production, where science and technology are opening doors to a new era of exploration and development.

Let’s look at the facts. Natural gas makes up about 22 percent of the total U.S. fossil fuel supply, a share that will remain fairly constant for the next 20 years.

But here’s the challenging part - natural gas from unconventional reservoirs provides nearly 50 percent of U.S. gas production. So, for all intent and purpose, our Nation’s natural gas supply base is unconventional in nature – locked in gas-filled shale, coal seams, and low permeability sandstones. Moreover, a very significant volume of methane is also present in hydrates – a resource many would term "frontier." The US Geological Survey recently estimated the volume of technically recoverable gas from hydrates at 85 Trillion cubic feet for the North Slope of Alaska alone. Worldwide, methane hydrate resources are estimated as tens of thousands of Tcf. Clearly, if we are to develop, process and distribute these valuable and abundant resources, we – all of us – must "get smarter" regarding how we do this.

If we can develop an efficient way to turn produced natural gas well brine or fracture fluids into a clean water supply in arid regions of the country, we are "getting smarter." If we can find ways to develop reservoirs 20 miles from a drilling location, both saving on drilling costs and causing less environmental disturbance, we are "getting smarter." If we can find a way to extract geothermal energy from produced water and then use that energy to PetroScan-February 2012

power remote production facilities, we are "getting smarter." If we can find a way to extract more gas from difficult-to-crack rocks and drill fewer wells in fewer places for the same amount of "home-grown" energy, we are "getting smarter."

Getting smarter also means finding ways to develop our domestic energy resources, including natural gas, in ways that are efficient, environmentally benign and scientifically sensible. So, it’s not necessarily about drilling more wells, it’s about getting more gas from more sources with fewer wells, each with less waste and a lower energy cost.

Fortunately, we’ve had a good head start - Section 999 of the Energy Policy Act of 2005 authorized and funded a program that focuses in part on research, development, demonstration, and commercial application of technologies for ultra-deepwater and unconventional natural gas and other petroleum resource exploration and production. It also includes addressing the technology challenges for small producers, safe operations, and environmental mitigation.

In the time I have, I’d like to pay particular attention to a Section 999 program we’re focusing on, and to underscore the importance of that program to our energy security.

One of the most exciting developments in natural gas production today is the progress we are making in the research, development and production of shale gas.

Technically recoverable unconventional gas - including shale gas - accounts for 60 percent of the onshore recoverable resource. At 2007 U.S. production rates, estimated at about 19.3 Tcf, the current recoverable resource estimate provides enough natural gas to supply the U.S. for the next 90 years. Some estimates of the shale gas resource extend this supply to about 116 years.

Three factors have combined in recent years to make shale gas production economically viable: advances in horizontal drilling; advances in hydraulic fracturing; and, perhaps most importantly – notwithstanding recent natural gas prices – the rapid price increase in the last several years resulting from significant supply and demand pressures.

The lower 48 states have a wide distribution of highly organic shales containing vast resources of natural gas. For instance, in 2007 the Barnett Shale play in Texas produced 1 Tcf – or six percent of all natural gas produced in the continental United States. Additionally, other active shales hold great promise. These include the Haynesville/Bossier Shale, the Antrim Shale, the Fayetteville Shale, the Marcellus Shale, the Woodford Shale, and the New Albany Shale.

Analysts have estimated that by 2011 most new reserves growth will come from unconventional shale gas reservoirs. The total recoverable gas resources in four new shale gas plays - the Haynesville, Fayetteville, Marcellus, and Woodford - may be over 550 Tcf. Total annual production volumes of three to four Tcf may be sustainable for decades. This potential for production in the known onshore shale basins, coupled with other unconventional gas plays, is predicted to contribute significantly to the United States' domestic energy outlook.

Each of these gas shale basins is different and each has a unique set of exploration criteria and operational challenges. Because of these differences, the development of shale gas resources in each of these areas faces potentially unique opportunities and challenges for industry.

These challenges – both technical and non-technical – require our attention. And they require a considered and effective response. For example, DOE recently funded a Basin Initiative with the Interstate Oil and Gas Compact Commission (IOGCC). This effort is designed to encourage the development of State-championed strategies for increasing U.S. oil and natural gas supply, with an eye toward regional economic and environmental objectives.

Under the Basin Initiative, the IOGCC has established a 16-state Shale Gas Directors Workgroup. This Workgroup aims to enable state officials to leverage efforts to address shale gas development challenges, such as evolving regulatory programs, public education, water management and recycling, data availability, infrastructure, and technology. The IOGCC, in collaboration with FERC, plans to host an Appalachian Shale Gas Infrastructure Summit later this year. This effort and others could serve as a model for activities in other basins.

PetroScan-February 2012

By any measure, the rapidly expanding development of shale gas resources has been astounding. It has uncovered deep, previously untapped resources, and has brought drilling and production to regions of the country that have seen little or no activity in the past. New gas developments bring environmental and socio-economic changes, particularly in those areas where gas development is a new activity. These changes have prompted questions and concerns about the nature of shale gas development, the potential environmental impacts, and the ability of the current regulatory structure to deal with this development. Regulators, policy makers, and the public need a reliable source of information on which to base answers to these questions and decisions about how to manage the challenges that may accompany shale gas development.

In April of this year, the Department announced the release of "Modern Shale Gas Development in the United States: A Primer." The Primer provides regulators, policy makers, and the public with an objective source of information on the technology advances and challenges that accompany development in gas shales that can be anywhere from 6,000 to more than 10,000 feet deep.

So, with a new Administration, the question is: Where do we go from here?

To be clear, the President and Secretary Chu are fully behind responsible exploration and development of unconventional fossil fuel resources. The view from 30,000 feet is that there will continue to be significant emphasis on R&D and the deployment of new technologies across the fossil energy spectrum – including onshore unconventional resources.

With specific regard to Section 999, we have a lot going on. There are currently 42 cost-shared projects in place, one cost-shared contract currently under negotiation, and 18 newly selected cost-shared projects. Proposals responding to the seven remaining 2008 solicitations are currently under review, and seven more solicitations are planned to be released this year. Finally, there are 36 complementary research projects in place. We will continue to move forward on these activities.

Additionally, we have begun our planning for the 2010 Annual Plan, and expect that the Ultra-Deepwater and Unconventional Resources Technology Advisory Committees will begin their review of the plan in September.

Let me take a moment to acknowledge the very important work of the Ultra-Deepwater Advisory Committee for the offshore program, and the Unconventional Resources Technology Advisory Committee for the onshore program.

Some of the members on those committees have served since the beginning, and we really appreciate their time, their effort, and, especially, their patience.

Again, we appreciate all the work to help us be good stewards of the funds that Congress has entrusted to us, and we continue to look forward to building our partnerships with you, the oil and gas industry.

Finally, I want to congratulate RPSEA and GTI on a great forum here today.

The work you, the industry, do is fundamental to the energy and economic security of our Nation. And for that, we thank you

LEADERSHIP 10 Lessons From Inside Apple Guy Kawasaki Co-Founder, Allto Adam Lashinsky's recent book, Inside Apple: How America's Most Admired—and Secretive—Company Really Works, is revealing. Lashinsky is a longtime friend and a senior editor-at-large for Fortune magazine. I asked him what he thinks are the top 10 lessons from Apple. - Guy Kawasaki Steve Jobs was known as a rule-breaker. He didn’t want license plates on his car, for instance, so he didn’t have them. As I researched my book, a theme emerged of how differently Apple does things than the rest of the business world. Just how he fashioned Apple into a rule-breaking company is a good story.

PetroScan-February 2012

In instance after instance, Apple thumbs its nose at what MBA programs consider to be the best practices of modern business. Here are 10 lessons that any company might apply—with caution—to doing things the Apple way.

1. Design comes first Every product manufacturer emphasizes design. Apple taught us, under the direction of Jonathan Ive, that design is paramount. Steve Jobs literally made the rest of the process subservient to design. That is revolutionary in a world where product-management and financial people conceive of products first and then tell the designers what to do. At Apple, it is the opposite.

Apple’s emphasis on design is what led to the beauty of Apple’s products, and, undeniably, its financial success.

2. Secrecy is paramount Apple changed the rules of the game on how to clamp down on corporate secrets. My book describes the sometimes creepy lengths Apple goes to keep its secrets from the outside world and from its own employees.

Apple employees live in constant fear of termination if they divulge anything about the inner workings of their company.

The reign of terror works. Despite the increasing drumbeat of rumors about what to expect from Apple, the company keeps a lid on its plans better than any company its size. What’s more, its people are focused, freed from the temptation to gossip or play politics—because they don’t have enough information to do so.

3. Forget revenues Apple never enters a new field with the idea of making money. It doesn’t ignore revenue, of course. In fact, it has a sophisticated approach to pricing its products globally. But the genesis of a new product segment at Apple never is about revenue optimization. It is always about what kick-ass gizmo or service Apple could make that its own executives would love to use.

It’s a variant of "Do what you love and the money will follow." In Apple’s case, it’s "Make what you love, and the revenue will come rushing in."

4. Tell customers, don’t ask Because Apple makes products its executives want to use, it is able to skip the expensive and potentially distracting step of conducting focus groups. Apple delights customers by giving them products they didn’t know they wanted.

How could a customer possibly give feedback on a product they don’t know they want? Is this risky? Absolutely.

Big risk, big reward.

5. Create one company, not many Apple is revolutionary for its size in that there are no committees, no separate ad budgets, no fiefdoms. Jobs got the whole company pulling in one direction under his leadership. Just the way a startup would.

Think of the Apple brand: There’s just one. And Apple guards it zealously. So few big companies control their brand the way Apple does, and one of the ways Apple does it is by having the brand stand for everything that goes on at the company.

6. Say no Over and over, Apple has chosen not to pursue new products or services. It’s a matter of focus. Common sense, obviously, but given the follies of so many big companies that chase new markets, it’s radical.

Saying no is much more difficult than saying yes. (Ask any parent.) Apple says no not only to products—it waited years to make a phone—but also to features within the products. The lack of a USB connection in the iPad is an example. These omissions annoy some customers. But the choices account for the overall excellence Apple achieves.

7. Value expertise Apple laughs at the idea of general management. Why in the world would a company want to “broaden” its executives by exposing them to new things or different parts of the world when they already create tremendous value for shareholders by doing exactly what they’re doing?

PetroScan-February 2012

There are limitations to this approach to be sure. But Apple hires the best in their fields and then focuses these people like lasers on their assigned tasks.

8. Own your message Remember the phrase “1,000 songs in your pocket”? Of course you do. It’s because when Apple launched the iPod, the executives who were authorized to speak to the news media repeated the phrase over and over again.

It’s classic Apple: Craft, control and repeat the message.

9. Spend whatever it takes Apple employees describe their teams as being resource-constrained. But when it comes to making or marketing products, Apple pulls out all the stops. Sure, you say, that’s easy for a company with nearly $100 billion in cash.

But Apple has been behaving this way since it was tiny.

No expense can be spared in delighting customers. The return is obvious.

10. Be insanely great Easier said than done, sure. But understand that Steve Jobs’ famous boast about Apple is aspirational. A company that believes its products will be insanely great has a shot at making insanely great products.

The company that hems itself in by thinking about next quarter’s numbers, well, you know some words to describe the products they’ll turn out.

Be sure to read Adam’s book, Inside Apple: How America's Most Admired—and Secretive—Company Really Works, to learn more about Apple and Steve Jobs.

Why the CEO is here to stay February 23, 2012: Fortune 4 reasons leadership isn't a team activity We're a long way from "a post-CEO world," writes Bob Frisch. Team-based decision-making processes simply don't work well, leaving companies without proper accountability or the ability to make tough decisions swiftly. "It is unrealistic and unreasonably idealistic to think that modern corporations will abandon the time-tested model of placing their trust in individuals to lead them in favor of utopian experiments in management-by-committee," Frisch writes. CNNMoney.com/Fortune (2/23) Team-based decision-making has become the mantra of many executive coaches, but these arrangements often lead to disaster. Here's why.

By Bob Frisch, guest contributor FORTUNE -- In a recent post on Fortune.com, Doreen Lorenzo, the president of frog, raised a provocative question: Are we living in a post-CEO world? The short answer is no, and here's why.

Lorenzo argues that handling the complexity and challenges of running a modern corporation now exceeds the capacity of a single individual. I couldn't agree more that well functioning senior teams are critical to business success and that activities like collaboration, coordination, and innovation are growing more important.

But Lorenzo's claim that team-based decision making will emerge as a logical alternative to CEOs running enterprises gives me pause. Lorenzo argues that "even if team leadership isn't a management goal, group versus solo decision-making is increasingly necessary and falling into place."

Going from team leadership to team decision-making is a big leap. A number of people have made this leap before. Team-based decision-making has become the mantra of many executive coaches, organization development professionals, trainers, and facilitators around the globe. But few have made the case as boldly as Lorenzo has that co-CEOs or team-based decision-making will ultimately displace the current model.

There are a few examples of co-CEOs running sizable companies today. Some companies, like Motorola, have installed co-CEOs as a temporary situation -- in this case, Sanjay Jha was named co-CEO in advance of the spin-

PetroScan-February 2012

off of Motorola Mobility (MMI). Although you can find examples of permanent co-CEOs, they don't seem to fare too well. RIM's (RIMM) co-CEO arrangement collapsed. Whole Foods (WFM) put in a co-CEO following a scandal involving CEO John Mackey. Archie Comics co-CEO Nancy Silberkleit got slapped with a restraining order last month, keeping her from entering the corporate headquarters. SAP (SAP) is using a co-CEO model as well, and we'll see how that goes. These examples suggest that, for companies at scale, the co-CEO model is an oddity, not a bold new experiment.

The timeless truth is that the best-led organizations are those that are run by individual leaders who are held accountable for making the big decisions. Teams are great at debating, advising, implementing, inventing, creating, and communicating. But they are inherently weak at making decisions. Time and again, four common conflicts prove the accuracy of this principle: 1. Mission Control versus Knights of the Roundtable In team discussions, members are often torn between the functional expertise that brought them to their places at the table and the leader's desire that they take an organization-wide, holistic perspective. This is a conflict between what the leader expects of them and what they know.

2. The team versus the legislature It's called a team, but it more closely resembles a legislature. Each team member represents a significant constituency that isn't present at senior management team meetings. Meanwhile, the CEO expects team members to act in the best interests of the overall enterprise. This is a conflict of accountability.

3. The House versus the Senate Because it's unclear what kind of legislature the team resembles, deliberations are clouded with ambiguity. Is it a group like the U.S. Senate where every state has equal weight, or is it more like the U.S. House of Representatives, in which the most populous states have the most clout? This is a conflict over the balance of power within the team.

4. The majority versus the majority The voting paradox, first identified by 18th century French mathematician and social theorist the Marquis de Condorcet, shows that no matter what choice a group makes, other alternatives can simultaneously command a majority of the group's preferences. This is a conflict over consensus.

None of the first three of these conflicts can be easily resolved -- and the voting paradox cannot be resolved at all. Even in instances where decisions are delegated to teams, there is almost always a closure mechanism -- a way to end debate if the team deadlocks or can't reach consensus. That mechanism is usually one individual making the call -- either the boss or a designated "leader among equals." In the executive suite or the corridors of power, there is simply no room for a hung jury.

Are teams at the top important? Absolutely. Increasingly so? Unquestionably. Will they replace individuals as leaders of organizations except in rare and exceptional circumstances? Not a chance.

It is unrealistic and unreasonably idealistic to think that modern corporations will abandon the time-tested model of placing their trust in individuals to lead them in favor of utopian experiments in management-by-committee.

Bob Frisch is managing partner of The Strategic Offsites Group and the author of Who's In The Room? How Great Leaders Organize and Manage the Teams Around Them.

INTERVIEW Do You Share Our Goals? Sign Our Constitution

By ADAM BRYANT This interview with Steve Stoute, chief executive of Translation LLC, an ad agency, was conducted and condensed by Adam Bryant. Mr. Stoute is also chairman of Carol’s Daughter, a beauty products company.

PetroScan-February 2012

Q. What are some important leadership lessons you’ve learned?

A. One of the hardest things to do is run an organization. And teaching people who work for you is a very important skill set that requires patience. I’ve seen a lot of great leaders fail to execute because they couldn’t get a team to rally behind them. You meet a lot of entrepreneurs who want to build great businesses and they have great ideas, but their leadership style doesn’t allow them to have any patience to teach people.

Q. What else?

A. You have to set a belief system in your organization. Once you do that, if you have people who have not bought into the philosophy, you need to identify them and move them out quickly. It’s to their benefit and your benefit. If you ask most executives, they know within the first 30 or 60 days if a person is going to work out, but it takes them seven months to a year to get them out of the organization. That’s a waste of time.

I think that it’s very important, no matter how big you get, to have checks and balances to know when somebody has not bought into the culture, because at some point in your organization, something is going to backfire and something’s not going to get done because somebody’s not paying attention. The beliefs of the organization are not going to be passed along because you have people who have not even bought into the belief system. And here’s the biggest problem: Bad behavior is contagious. And once that starts hitting a company, no matter how big you are, no matter how small you are, that will start the demise of a great organization.

Q. Define bad behavior for me in this context.

A. Bad behavior is the blatant act of ignoring the belief system of the company — it means not paying attention to the strategic intent of the company and not being aligned around the goals of the organization. So when somebody has not bought into the system, that becomes very contagious, it becomes a cancer in the organization, especially when you’re talking about midlevel talent. Because any organization is not going to move forward unless mid-tier management helps foster young talent to become better. And then you are actually going to lose talent.

Q. How do you make sure people are aligned?

A. Well, the companies have clear mission statements, and we have clear goals and objectives that are outlined, and there’s a way in which we want to achieve those goals. There’s a specific way in which I want growth in my companies to happen and take place. To me, that’s where it starts. I have to be crystal clear. They then have to be clear that they understand the mission, and then we can look at each other in the eye and judge each other for how we move forward. If then I start seeing people going off of the track and having their own belief systems, then it’s very clear that somebody is blatantly not aligned to the mission even though they said they were.

Sometimes, I would even go as far as to have people sign a group document — almost like a constitution — so that everybody is aligned around the mission statement, so everybody knows what they’re responsible for. I’m very upfront, I expect the best, and I hold people accountable for everything that comes out of their mouth. Don’t say you’re going to do something and not do it, because in a company of this size, everybody is directly responsible for the person next to them.

It’s like one of those moments where everybody’s holding hands. So if somebody doesn’t do something, it’s felt throughout the organization. The organization’s not big enough to withstand those kinds of errors. At big companies, that happens all the time, and it can take years before it starts to affect the bottom line. Small organizations have the benefit of being nimble, but the threat is that when one person catches a cold, everybody catches a cold.

So I let everybody understand that they have a direct responsibility for the person next to them, and that it’s very important that we’re transparent with one another, that we work with one another, that we are aligned and clear in our communication. I force people to speak to the people next to them, not through e-mail. E-mail has created a lot more productivity but also has created a lot more miscommunications within organizations, because the tone is lost.

Q. Tell me more about this.

PetroScan-February 2012

A. We have to communicate, and we have to get off e-mail and pick up the phone, call our clients and walk down the hall and speak to our peers, because tone makes a gigantic difference in the way somebody receives information. It defines urgency. It defines intent. You need tone and mannerisms to build relationships. But if you mute all those things, you start to get people who are not necessarily aligned because they don’t get to know each other. They know each other by name, but they don’t know each other. And simple conversations around tasks and teamwork and how are we going to move forward get lost in translation if you’re not speaking to the person, and you’re just texting them or e-mailing.

Q. And this constitution that you ask people to sign. I assume it’s about values. What are they?

A. Doing what you say is a core value. You can’t have people inside a company who are saying things but have no intention of doing what they say. They might have good intentions when it leaves their mouth, but that’s exactly where it ends. You have to find those people immediately, because those people hurt a growing organization. So I have people aligned around the idea that we are not going to just say things that we don’t mean; we’re actually going to do what we say we’re going to do.

Another core value is, you have to have a major and a minor. I don’t want you just using your academic background inside the work force. If you’re a photographer, if you are a DJ, if you are a blogger, I want those skill sets as part of what you do inside of our company. As the head of a company that focuses on culture and understanding culture, I need everybody to have a major and a minor inside of my organization. They’re embraced, and they’re part of the creative process.

So at Carol’s Daughter, somebody could be in customer service, but their minor may be in photography. I want to hear their point of view as we start looking at packaging, as we start looking at how we are going to market to our consumer. I think that’s very important.

If you have people in your organization who touch culture, you have to reward them for bringing that into the workplace. Most companies mute their employees’ “off the court” activities. I want what you do off the court to be a part of our growing organization. It builds camaraderie inside of a company.

And ideas can come from anywhere. There are no titles around an idea. As the C.E.O., I’m the chief editor of the company, but I want the idea to come from anybody. There’s no bureaucracy around an idea. In fact, bureaucracy around an idea is the death of an organization. I tell people all the time: If you have a great idea, and you’re passionate about it, and it makes sense, and you can’t get your boss to hear your idea, then you should leave. That’s not an organization that you’re going to thrive in.

You know why so many companies let great talent out the door? Because there was no platform for great talent to be heard, so they get frustrated and leave.

Q. What else is important to you in terms of values?

A. I would love it if résumés could be binding contracts. If people give a résumé to you, they should have to sign it. I wish this were the case, because the number of lies on people’s résumés is amazing. Unfortunately, if you hire somebody who lies on their résumé, they are putting other people they’re going to be working with in jeopardy, because they’re saying they have a skill set they really don’t have. And you bring them into an organization, and you find out after that there’s collateral damage because this person’s not who they said they were. So I think that résumés should be like a contract.

Q. What about lessons from earlier in your life? Did you play sports?

A. Yes. Sports force you to be transparent with yourself. You can’t avoid the fact that you missed a tackle or that you’re not as fast as the guy next to you. Either you decide that you’re going to practice to improve, or you are going to accept that you are not as good or talented as the person next to you. The clock doesn’t lie, and the competitive nature of a sport doesn’t lie.

Finding the comfort in that discomfort is what makes great leaders. For some people, it’s daunting that somebody might actually time them. And if my time isn’t where it needs to be, then I fail. Some people love that. They look forward to that challenge and opportunity. When you learn that early on in sports, it prepares you for a lot about

PetroScan-February 2012

what real life is, because real life is just as transparent. Some people find out who they are at 60. I prefer to find out at 30, 25.

Q. How do you hire? If you were interviewing me, what questions would you ask me?

A. I would ask you a lot of questions that have nothing to do with your job. For example, what are your values? If you could do it all over again, what’s the one thing that you would do differently? Is what you’re doing the thing that you’re most passionate about? Why aren’t you doing what you’re most passionate about?

ARUP ROY CHOUDHURY/NTPC Our natural resources cannot be priced at international levels Arup Roy Choudhury, chairman and managing director of state-run NTPC Ltd, India's biggest power producer, speaks in an interview on capacity addition plans and the challenges ahead for the domestic power sector. Edited excerpts: Last week the Supreme Court ruled in favour of NTPC and Ansal do was disqualified from that huge `16,000 crore tender. How soon are you going to call bids for it?

Can you give us a sense of what's happening? (The apex court set aside a Delhi high court order that allowed Ansaldo Caldaie Boilers In dia to bid for a tender for equipment supply to NTPC, which had rejected the company's bid on grounds that it did not meet the minimum qualifying requirements.)

As you are aware, the dispute was for the SG (steam generator) package...It is un- fortunate that we lost almost one year on this. We have now taken up steps to award this and we would like very much to do so by March, which means it will happen in this fiscal. The STG (steam turbine generator) package was always resolved, we were just waiting for the SG package to get sort- ed (out). We expect that pack- age, too, should get awarded by March. So the entire `16,000 crore that you mentioned should get awarded by March this year.

Are there other tenders in the pipeline right pipeline right now that you will be looking at? Does this guarantee Bhel (Bharat Heavy Electricals Ltd) a piece of the pie as well?

As per the bulk tender pro cess, Bhel will always get a part of this. The second lot of 800 megawatts (MW) bulk is also finalized and thankfully there is no litigation and there- fore it has been finalized well in time and as per the guidance of the cabinet. Kudgi (in Karnataka) has already been awarded. The balance units are two in Darlipali and two in Gajmara, both in Orissa and two in Lara in Chhattisgarh.

The Chhattisgarh land acquisition is in a very advanced stage. In Orissa we are a little slow because of the land issue.

So, unless we get the land there, we will probably not be t able to award the Orissa contracts. But I would like to reiterate that from our side all the tenders have been finalized well in time, they are ready to t be awarded and we are waiting t to award them.

There are reports that your initial plan was for 75,000MW to be added in the 12th Plan, but you might have cut it down to 65,000 or 66,000. Can you tell us what is your strategy and the rationale behind it? Capacity addition is no t more an issue with NTPC or in f the country.

We have al- ready added g 2,500MW last year. We said we would and we did it. This year we have said that we will add more than 4,000, we are almost at 2,000 and we expect to add another 2,000 by the end of March, so we will go beyond 4,000MW. Looking at the capacity addition for the 12th Plan, the capex (capital expenditure) that we have thought for in the 12th Plan is `215,000 crore. Now when we look at our capacity addition programme, we find that probably adding another 40,000 MW could be a little difficult at the moment because we don't have a surety of gas. So we thought that in the coming five years if we take around 5,000 to 6,000MW capacity addition per year, it will be a fairly good target for us. If we get to about 65,000 as our total capacity, it will still mean that in the next 57 years we would have doubled what we have today.

As you mentioned there has al ways been a question mark on gas since the last two years at least.

Now we have finally an empowered group of ministers meet on it.

PetroScan-February 2012

What sort of hope do you have in light of the KGD6 output falling?

Do you have any plan B? As far as gas is concerned, the fall in production is what we read in newspapers. So we don't want to comment on the falling or tapering production or about pricing. But I think we have to depend on our natural gas resources.

Coal and what- ever gas we have is our natural resources. These cannot be priced at international level prices.

There can't be a situation where we subsidise oil imports, or diesel and kerosene prices on one end and then allow our own resources at inter- national prices.

So, I have very high hopes from the panel of ministers that they would be able to get the requisite amount of gas and I have very high hope that not only covers Gandhar (in Gujarat) but even Kayamkulam (in Kerala) will get some allocation of domestic gas. We have in fact requested for Badarpur (Delhi) also. But we re- ally don't know how that will stand. I think the gas will come through and I have no reason not to believe that it will not come through. I think the indications from the government are that the gas will be given to the power sector which they are treating as priority for the growth of the economy Is there a plan B, if it is getting delayed. Would you be open to buying from the spot market considering you already have a plant ready?

Our plan B will depend on our buyer. If I generate from imported gas and nobody buys then what's the point in having plan B? So, at the moment, will not see any plan B. If there is a plan B, it depends on whether the consumer wants power from imported gas. I can start then and in fact I can start Kayamkulam straight away. In fact, all my gas plants today are running at an aver- age of about 70% PLF (plant load factor). I have another 2025%, which I can run with imported gas. But I should have the demand for imported gas. So, why should I have a plan B for capacity addition on imported gas when my domes- tic capacity is under-utilized.

And if they want it on imported gas I can run those on higher capacity.

Two issues weighing on the sector are land acquisition and acute coal shortage. From NTPC's point of view how are you looking to meet this issue?

As far as coal is concerned we have enough mines to meet our requirement at least by 30%, if not more. What Coal India is giving us today and what the government has now ordered to commit FSA (fuel supply agreement), that with normal increase of 3% to 4% would suffice our requirement from Coal India.

ANIL SARDANA/TATA POWER Coal mining methods need to be improved Anil Sardana, managing di- rector of Tata Power Ltd, said there is an immediate need to improve coal mining methods in India. In an interview, Sardana said though India has 20 times more proven coal reserves than Indonesia, it is not able to meet its needs. Edited excepts: There was considerable excite ment in the markets and else where when the Prime Minister's Office directed Coal India Ltd to have fuel supply agreements. Are you saying that the fine print has left a lot of ambiguous issues that need clarification?

One could also say that it is not expected of a committee of secretaries to articulate language which would address those is- sues very accurately. One would, therefore, expect that when the professional set of notification comes in to execute this... at that time it will be very clear in terms of the clarity of the subject mat- ter. So, I won't say that there is ambiguity. I would say it would require some bit of clarification in terms of how things will get executed on the ground. To that extent, one is expecting those notification to come in the next few days.

I have spoken to the power minis ter on two occasions. He said the price pass through cannot be worked out in the existing power purchase agreements because you will have to revisit the entire con tract and it might happen in the next financial year. As things stand right now, what is the situation on Mundra and if you don't get compensation, how is it going to work out?

Mundra is not a similar case as any other imported coal-based project. It is different. Mundra had tied up its coal in exactly the same back-to-back arrangement as the bid was submitted for Mundra. Which meant that whatever was the scalable component in the Mundra bid, the same component was provided for in the coal agreement that

PetroScan-February 2012

was tied up in Indonesia. This back-to-back arrangement got reneged once the change in law in Indonesia happened. So, as far as Mundra is concerned, it is not an issue of higher coal price.

It is an issue with the fact that we cannot take deep discounts which we had contracted for the lifetime of the project. So it's not a problem Mundra can resolve on its own. The change in law will have to be compensated for.

If the beneficiary doesn't want to look into and change the law how can a developer solve this issue of change in law by a country. If somebody argues and says Indonesia is not the only country for you to go and source the coal, I say even Australia has changed the law. They have a carbon tax there now.

When you're dealing with an issue like power, there are multiple problems at different levels. You have issues in terms of coal sup ply. Somewhere down the line, Coal India is also caught in a bind because they've not been able to increase output as demand for coal that they produce has been going up. Hence, most of you had to go in for imported coal. Even if they were to agree to a 20year deal, everybody they have promised supplies to, can they do it in the current circumstances or are we moving into another form of crisis?

Instead of saying what Coal India can't do, let me give you an example of what we have learnt from our coal investment. We have had mines which are ready to export 63 million tonnes every year. These are the largest exporting mines in Indonesia or in the world. That kind of production we see coming out of specialized agencies who work with our promotional investment.

These are called mine-development operators. They are specialized agencies that bring in their own tools and equipment, their own people who are completely specialized and this works not only on guaranteed output but guaranteed quality.

What we have seen over a period of time are these two impact factors. There's neither a guaranteed quality nor a guaranteed quantity. Therefore, it's important to reform the Indian coal situation. We are 20 times more than Indonesia in terms of proven reserves. If they can export 400 million tonnes out of their country. A country which has 20 times more reserves should actually be talking much more than that. But we are not able to meet our own needs.

OiI India to buy Shale Gas assets worth $200m Jan 16, 2012 14:46 | Source: CNBC-TV18 State-run Oil India Ltd (OIL) is looking to buy Shale Gas assets worth up to USD 200 million and is scouting for potential acquisitions globally, TK Ananth Kumar, the companys director(finance) told CNBC-TV18. Oil Indias shares reacted to the news and were up around 1% to Rs 1,160, while the broader benchmark index was down 0.21% to 16,120.77. He further said that the company has Rs 13,500 cash on its books and the company is willing to use around Rs 6,000 crore which will be used to acquire upstream assets. OIL is keen to tap into its Shale Gas resources to meet rising gas demand from power plants and factories. Oil India joins other Indian companiessuch as Reliance Industries Ltd. and GAIL (India) Ltd. which have already acquired acreage in the USto get technology for exploiting the natural resource and secure fuel supplies. Below is the edited transcript of Kumars interview with Latha Venkatesh and Sonia Shenoy of CNBC-TV18.

Q: Are there any plans afoot to buy Shale Gas assets or any other oil ventures abroad? What is on the shortlist and what can we expect by when?

A: As per our strategy, we have been looking for shale gas as a possible entry. In this regard certain we are looking at assets, it is in the initial stage. We have already lined up our strategy to acquire Shale Gas as a JV partner up to a maximum limit of USD 200 million.

Q: But have you identified parties and how soon can we expect a decision?

A: We have identified a couple of opportunities. The process is still going on. It will take some time for us to crystallize the whole thing.

Q: The other news piece is the plan of Oil India to buy stake in the Gabon blocks. Can you tell us about that and whats stage of finalization is that plan?

PetroScan-February 2012

A: Even that is in advance stage at the moment since the news is already there for quite some time. We are still in discussions and are likely to take it forward.

Q: If these discussions do fructify then how much will this help increase your overall production base by and what is the total amount of cash reserves that Oil India is willing to pump into acquisitions like these?

A: We are having cash to the extent of almost USD 2.6 billion. We have been actively looking for acquisitions for quite some time. We can plan to invest around Rs 4,000-6,000 crore for investment in oil and gas and also in Shale Gas assets.

Q: What is the cash on your books at this point in time? My understanding is that you have considerable cash surpluses. So what have you set aside for capex and have you been approached by the Disinvestment Ministry or the government in any fashion to buyback either your own shares or shares of other PSUs? A: At the moment, we have cash around Rs 13,500 crore. We havent yet been told about buyback or crossholdings as part of our disinvestment.

Q: What are your capex plans out of this Rs 13,500 crore? If you have not been approached for a buyback or crossholding have you been approached for dividend?

A: We have been asked about our payout ratio over the past few years. We have also been asked whether we can pay some interim dividend inline with earlier years. We have already paid 250% interim dividend in January.

Any further dividend, we said we will go back to board and come back.

Q: Can you give us some idea, what it might be and by when we will know?

A: No. It is a board decision so we will not be able to tell you anything about it.

Q: The other issue is the higher subsidy sharing for the next half of the fiscal. If that does come through and its higher than the 33% - what kind of a realization will Oil India manage to do by the end of this fiscal and in FY13 as well ballpark?

A: We have shown growth in the current year also in production. At the moment we are growing around 7-8% in production of crude oil and more than 10% in gas. As of December, we are still in 33% bracket. We have been telling government that we have huge investment outlays and it should not be increased beyond 33%. We will have to wait and watch what is the outcome for the fourth quarter.

Q: Can you tell us what could the rate of return look like on this Gabon acquisition? How will it help to increase your overall production base and how will it help to increase your reserves? Where are they at currently and post this what will it do to your reserves?

A: It is too early for me to say anything about it.

Q: Can you give us a timeline?

A: We are working on it. It will take some time.

PetroScan-February 2012