June 2012 Petroscan

(Monthly e-newsletter) June 2012

June 2012

CONTENTS FOREWORD OIL, GAS & ENERGY NEWS INDOSCAN • Govt releases Rs 7,000-cr subsidy arrears to oil retailers • S. Rly flags off first rake with BPCL Kochi bitumen to Bhutan • Fingers crossed on Iranian oil…

• ONGC may bid for $5bn Conoco oil sands assets • More pain ahead for petro companies as under-recoveries soar • RIL to invest Rs 1L cr in 4 yrs • ONGC, CNPC to jointly bid for assets • India cuts May Iran oil imports 38% trade • Reliance Power, Shell to build LNG terminal • ESSAR REPLACING MRPL • Eliminate petroproduct subsidies: Firm decision will improve the health of OMCs • ONGC extends pact with Hinduja Group for sourcing LNG • MRPL looks to acquire Haldia Petrochemicals\ • CPCL wants ban to go on new projects at Manali • The political economy of petroleum prices • Rangarajan panel to review existing PSCs • IGL-PNGRB case ruling adds regulatory uncertainty for CGD • GAIL selects Axens technology for petchem plant • Fuel subsidies pervers: Jairam Ramesh • Duelling hard over diesel • RIL says may be forced to seek damages from govt.

• Playing the petro price change • BPCL, Videocon’s Mozambique gas reserves more than KG-D6

June 2012

GLOBESCAN • Crude price hit record in 2011 : BP ANNUAL REPORT • EIA lowers expectations of oil prices, gas demand • EIA cuts 2012 world oil demand growth forecast, raises nonOpec output • OPEC chief hints at action to reduce oil glut • US oil majors eye TAPI gas project • BP looks for growth in Gulf, starts new field • Drug problems hindering offshore recruiters • Increased gas use, efficiency help U.S. slash carbon emissions • Despite fall, oil prices threaten global recovery • IEA Chief Economist sees threat from Oil Prices • Global crude demand should rise sharply in coming months – Oil market report • Oil prices to ease further this year: Shell CEO • Analyst sees near-term natural gas prices below $3/MMbtu • KMEP to reverse Cochin Pipeline, ship diluent to Alberta • Canadian oil output seen doubling by 2030 • IEA sees China doubling gas demand by 2017 • ExxonMobil plans expansion at Baytown petrochemical complex • Honeywell’s hydrogen purification technology selected for clean fuel refining in Russia • Exxon, Shell See U.S – Led Gas Boom Boosing Global Growth • Keystone XL can help U.S. achieve energy independence ALTERNATIVE & RENEWABLE ENERGY SHALE GAS • China could be biggest shale gas producer by 2030 • Exxon Mobile Says Huge Oil Potential in Western Siberia • Shell says early shale-gas drilling in China encouraging • Chesapeake to sell Utica shale assets • Chesapeake puts more assets on the market

June 2012

• Shell’s orion project put on block • ExxonMobil CEO says natural gas will be ‘global economic enabler’ BIOENERGY • Biofuels producer launching ethanol replacement • India to seek 15% of $50 billion for renewables from overseas • Biofuels at the tipping point • Algae, new-age biofuel for green tomorrow • Purdue University researchers develop cost-effective process for creating biofuels • Biofuels: Better for airplanes, too?

• Biog oil’s Big in Biofuels • Algae secreting oil-like lipids SOLAR • Wrinkles and twists boost power from solar panels • Some rays of light amid the gloom for thin-film PV • Japan poised to make large strides in use of solar power • 3Sun Chairman says PV can learn lesson from microchipmakers • Market upheaval won’t stop global PV growth, analysts agree • China’s Hanergy in talks to buy Q-Cells thin-film firm Solibro • Stan Ovshinsky’s Solar Revolution WIND • Vestas signs global wind pact with methanol giant • Long-serving Suzlon executive takes senior job at REpower • U.K. Offshore wind developers able to cut costs with tie-ups • Siemens unwraps ‘word’s longest’ wind blade at 75 metres NUCLEAR • Will nuclear plants withstand quakes and floods?

• Nuclear power after Fukushima

June 2012

HSE, CLIMATE CHANGE & SUSTAINABILITY HSE • Pumps and the Bhopal connection • ExxonMobil named top responsible care company for safety, environment efforts.

• Wind turbines planned for northwest Illinois generate controversy • Research identifies specific bacteria linked to indoor waterdamage and mold CLIMATE CHANGE • Green expectations • Beyond Rio+20 • ILTA honors safey award winners at conference SUSTAINABILITY • Rio+20 and the search for a sustainable energy future • Measure natural capital, so we don’t go beyond safe operating space’ INNOVATION • The Missing Link in Innovative Research MANAGEMENT AND LEADERSHIP • Import of value-driven management • Expecting independent directors and institutional investors to do more about mergers like Escorts may be unrealistic RAPID READING • Falling oil prices are no mystery • The petrol hike is high — but not high enough • Oil below $100: good news for consumers?

• Cutting the Gordian knot • What you need to look out for in a balance sheet • IIT just won’t work

June 2012

• Experimental diabetes drugs offer patient hope • Beijing’s headache: Many cars, fewer homes INTERVIEW • Demand is never a problem in India, it’s supply BOOK SCAN • Reverse innovation CHART SCAN

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Foreword Dear Patron of Petrotech, The PetroScan June is on your screen. Its is long as June summer days, and yet full of ripe news and views from oil and gas industry, as ripe as the delicious Indian mangoes, which was , also, at its peak during this month. But the news, views and mangoes are nothing unusual for June.

But this year’s June, was different from the June of other years on three counts.

One, it started with World Environment Day, observed differently, with a theme pointing fingers directly towards each one of us. The WED 2012 had theme: “Green Economy: Does it include YOU?” UNEP has initiated the concept of Green Economy in 2008, which would result into improved human wellbeing and social equity, while significantly reducing environmental risks and ecological imbalances. In other words, a Green Economy, would work on principle and processes which reduces emission, improves resource efficiency (more from less for more) and at the same time improves quality of life each person on this planet, without endangering life of any specie. It’s a great task, but is only for the Governments and corporate to usher in this era? Certainly not. Each one of us has to play a very positive and contributory role, and that’s why the WED-2012 posed this question to each one of us – “does it include YOU?

June 2012

Second reason for this year’s June being different was the Rio+20, which started in the Brazilian capital from 20th of the month. This event has made this June very-very different, after 20 years, because the future course of the climate of our planet shall depend on the course we chose for our journey from here.

June 2012 - is an historic opportunity to define pathways to a safer, more equitable, cleaner, greener and more prosperous world for all.

Thirdly, June 2012 became different for increase in Petrol prices by over R 7 a liter, and the oil companies were not forced to roll back, in spite of tremendous pressure on the Government. We hope, the oil companies will soon be released from the suckles of subsidies and allowed to work for the securing energy for the country, which is essential for sustainable development.

Lastly, the year old Egyptian Arab Spring culminated during this hot month into formation of an elected Government, but the Syria became hotter.

Well, Asian June of whatever hue shall remain hot. But this PetroScan carries many news related to global and local developments, in the areas of Oil& Gas, Alternate & renewable Energy, HSE & Sustainability, management & leadership, innovations, research and development, and I hope it shall provide something for you and your friends, and so please share it by forwarding it to them.

We have received very encouraging response from Petrotech Chapters, particularly from its student members, who find this capsule news very useful.

We, however, always look forward to your observations, comments and suggestions I would also like to remind you that the upcoming mega Indian Oil& gas event Petrotech-2012, starting 14th October, is now only 15 weeks away. Hope you have already register yourself as one of esteemed delegates. If not yet, then you may please go to its website www.petrotech.in, and register at the earliest to avoid last minute hazels.

Wishing you happy reading and pleasant monsoon, Sincerely, (Anand Kumar), Director, Petrotech anand.iocl@gmail.com petrotech@petrotechsociety.org

June 2012

IndoScan Govt releases Rs 7,000-cr subsidy arrears to oil retailers Companies to get Rs 38,500 cr compensation for Jan-March quarter of FY2012 New Delhi, June 19: In a major relief to oil marketing firms, the Government released Rs 7,000 crore to the three public sector oil marketing companies, Indian Oil, Hindustan Petroleum and Bharat Petroleum, as part of the compensation owed to them towards selling diesel, LPG and kerosene below cost. A senior Government official told Business Line, “The three oil companies are scheduled to get Rs 38,500 crore to cover under recovery for January-March quarter of 2011-12.

First instalment The first instalment was released on Tuesday. Four more equal instalments will be paid with a gap of one or two days between each. The last instalment will be of Rs 3,500 crore.” It is a normal practice that subsidy payment for January-March quarter of last fiscal is done during April-June quarter of the following fiscal. The three state-owned companies are estimated to have lost Rs 41,000 crore during January-March quarter of 2011-12. For the fiscal year as a whole, this loss is estimated to touch Rs 1.38 lakh crore. Under recovery relates to selling diesel, domestic cooking gas (LPG) and kerosene below cost.

Meanwhile, the Petroleum Ministry said that the for the fortnight beginning June 16, under recovery on diesel has come down a bit but remained at the same level for kerosene and LPG. Under recovery on diesel has come down to Rs 10.20 a litre from Rs 12.53 a litre. In case of PDS kerosene and domestic LPG the under-recoveries remain same (Rs 30.53/Litre and Rs 396.00/cylinder respectively). The under-recoveries are computed on monthly basis in respect of PDS kerosene and domestic LPG. The three state run oil marketing companies are currently incurring daily under-recovery of about Rs 446 crore on the sale of diesel, PDS kerosene and domestic LPG. S. Rly flags off first rake with BPCL Kochi bitumen to Bhutan The Hindu Businessline First train load: The inaugural run of ‘Kairali Black’ train loaded with bitumen, from Kochi to Falakatta in the North-East, seen off by the Executive Director, BPCL Kochi Refinery, Mr John Minu Mathew, and the Area Manager, Southern Railway, Mr K. George John. .

Kochi, May 21: The Southern Railway's Thiruvananthapuram Division has started transporting bitumen by rakes as part of

June 2012

the consignment from BPCL's Kochi Refinery to Bhutan.

The service, flagged off from here, is as per an MoU signed between the public sector oil company and the Bhutan Government for supply of bitumen for one year.

The cargo is meant for road-laying in Bhutan.

This is the first consignment of 12,600 barrels of bitumen and the Railway will move three rakes a month. The cargo movement assumes significance for BPCL-KR as it is the first time it is moving the product by rail and exporting it too.

Each train will consist of 42 wagons and the Railway will generate a revenue of Rs 91 lakh as freight charges from each service, Mr George John, Area Manager, Southern Railway, Ernakulam, told Business Line. ‘Kairali Black' The final destination of the train service is Falakatta in West Bengal and, from there, the consignment will be moved by trucks to the unloading point, he said, adding that the service will be in full swing after undertaking the necessary infrastructure developments at the loading point, including building a platform.

The Railways will also make round-the-clock arrangements at the loading point, he said.

He termed the service the first international contract for the Railways, which expects to generate more revenues in the coming years.

The Railways christened the service Kairali Black, which extends the concept of Kairali Queen, a dream project of the Thiruvananthapuram Division. Mr Rajesh Agarwal, Divisional Railway Manager, has taken the initiative for this project, meant to showcase Kerala brand products such as spices, cashew and rubber in north Indian markets.

Petro products, coal According to Mr John, the Thiruvananthapuram Division is coordinating with government agencies such as the Spices Board, the Coir Board and various transport agencies to move products to different markets, either through wagons or containers. Besides, the division is also transporting petroleum products from BPCL-KR to various parts of the State. An average 80-90 rakes per month move products to upcountry destinations also.

The Railways is also engaged in moving imported fertilisers and cement from Kochi Port to many manufacturing units. Coal movement, which was suspended almost a year and a half back, is expected to re-start shortly, he added.

Fingers crossed on Iranian oil‌ editorial in the HINDU BUSINESS LINE newspaper.

Whether Washington's move to exempt India from Iran related sanctions would prompt the EU to follow suit remains to be seen.

The US decision exempting India from sanctions against its purchases of oil from Iran is a victory of sorts for non-confrontational but firm diplomacy on the part of New Delhi. The sanctions under the US' National Defense Authorisation Act impose penalties against any entity engaging in transactions with Iranian financial institutions, including its central bank.

The exemption from the sanctions, which were to operate from next month, would technically allow Indian firms and banks to do business directly with Iran without fear of being cut off from the US financial system. Whether they would do so is, of course, another issue. India has, in any case, worked out an alternative mechanism to make 45 per cent of its payments for Iranian crude in rupees through an account operated by UCO Bank. The

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money deposited by oil refineries into this account can be used by Iranian importers to buy Indian goods. In addition, Indian refineries are also paying for Iranian oil in euros, with these being channelised through Turkey's Halkbank. It helps here that Turkey, too, figures in the latest list of seven countries to be granted waiver from the US sanctions.

The real issue now to be settled pertains to insurance cover for Iranian crude shipments.

The uncertainty on this count comes from the European Union's (EU) proposed sanctions from July 1, banning its insurers from offering protection against claims by third-parties or losses relating to vessel and cargo. That also includes reinsurance of risk underwritten by a primary insurance entity. If these take effect, tankers would simply refuse to load crude from Iran, more so when European insurers and reinsurers provide liability cover to bulk of the world's ocean-going fleet, including that of India. It remains to be seen whether Washington's move to exempt India from Iran-related sanctions would prompt the EU to also grant similar relaxation. A decision on that, expected early next week, is probably of more immediate relevance to India.

But overall, it can be said that India has adopted a practical, yet principled, stance to the Iranian crude problem, arising from the Islamic Republic's controversial uranium enrichment programme. On the one hand, it has reduced imports from Iran – from almost 22 million to 17.5 million tonnes between 2008-09 and 2011-12 – and augmented supplies from Iraq and Kuwait, which have displaced the former as India's largest crude sources after Saudi Arabia. At the same time, by insisting on its right to import Iranian oil so long as there are no United Nations sanctions in this regard, New Delhi has clearly conveyed that unilateral embargoes by the US or EU cannot pass off as international law binding on others. This two-pronged approach has seemingly paid off, with the US now implicitly recognizing that India cannot be persuaded (rather, bullied) to cut down on its Iranian oil purchases beyond a point. The fact is Iran still supplies a tenth of the country's oil imports.

ONGC may bid for $5bn Conoco oil sands assets Source: Moneycontrol.com June 5, 2012 Oil and Natural Gas Corp, India's biggest state-owned energy explorer, is considering bidding for part of ConocoPhillips Canadian oil sands holdings worth around USD 5 billion, a source with direct knowledge of the situation told Reuters on Tuesday.

The Houston-based company has been looking to sell assets in a number of countries including Nigeria as part of a global restructuring. ConocoPhillips recently completed the spin-off of its refining activities into Phillips 66, a newly created independent US company.

ConocoPhillips said in January that it is selling a stake in six Alberta properties that produce 12,000 barrels of oil a day from an estimated 30 billion barrels of bitumen.

Asked whether ONGC Videsh Ltd, the overseas arm of ONGC, was interested in buying the assets, the source said: "It's in the process. It is seriously looking at it."

The first round of bids is due soon and there is likely to be competition from other international parties, including possible Chinese interest, said the source.

State-run Oil India is also looking to buy stakes in ConocoPhillips' oil sand assets in Canada, its head of finance said last week.

Of the six projects offered, only Surmont, run in a joint venture with France's Total SA, is producing oil. Lo cated 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.

June 2012

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

More pain ahead for petro companies as under-recoveries soar The Economic Times Indian petroleum industry's woes are likely to worsen in FY13 as the total under-recoveries zoom to a record high of Rs 1,70,000 crore, up 22.7% from Rs 1,38,541 crore in FY12. This is notwithstanding the recent fall in international oil prices, benefits of which have been blunted due to the weakness in the rupee.

India continues to keep retail fuel prices under control disregarding high crude oil prices and even though we import 84% of our crude requirements. Out of the 204.8 million tonne crude oil processed by Indian refiners during FY12, 172.11 million tonne was imported while the domestic production stood at around 38.4 million tonne. This high import dependency means high prices lead to a widening trade deficit for the country.

Nevertheless, the government continues to offer these fuels at heavy discount to consumers. For the first fortnight of June 2012, the petroleum ministry estimates pegged losses of Rs 12.53 per litre on diesel, Rs 30.53 per litre on kerosene and Rs 396 per cylinder of LPG. These may be marginally lower to comparable figures from March 2012 when oil prices were trading above $125 in the international market. However, they mean a combined loss of Rs 457 crore per day - a large chunk of which will become the burden of the national exchequer ultimately.

Thanks to the subsidised sales the public sector oil industry has lost control over its profitability and hence become unattractive for investment.

Public sector petroleum companies like IndianOil, HPCL and

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Gail India have heavily under-performed the market, while ONGC and Oil India have barely maintained the overall pace. BPCL has been the only outperformer of the league, which is mainly due to its attractive exploration portfolio.

The situation in India's natural gas sector is not looking rosy either. Mukesh Ambani made it clear in RIL's annual general meeting recently that the ongoing problems at KG-D6 block are unlikely to be over within the next 3-4 years.

This means the country's natural gas volumes - growth in which is necessary for growth of transmission companies like Gail -will increase only at a slow pace in the near future.

Although some additions can be expected to domestic production, the main growth will come from incremental LNG imports in FY13. Dabhol and Kochi LNG import facilities are expected to commence operations this year and should add 10 million tonne or around 40 mmscmd of additional capacity on a whole-year basis. The actual benefit in FY13 will depend on how soon they commence operations and how fast they can scale up capacity utilisation.

RIL to invest Rs 1L cr in 4 yrs Reliance Industries chairman Mukesh Ambani today said the company would invest Rs 1 lakh crore across business over the next four years. Ambani also said that he had set himself a target of doubling the company's operating profits over the next four years.

"We are targeting to achieve, in the next three to four years, a total production of 60 mmscmd gas for a sustained period," he said speaking about gas production.

RIL has so far bought back 2.79 crore shares for around Rs 1929 crore, which works out to roughly 22.5% of the funds it has earmarked for the buyback scheme, Ambani said.

Shale gas and digitization are the two key areas where the company could be increasing its exposure to in the coming years.

Ambani's statements come at a time when the company is grappling with falling output at its KG-D6 block, a sagging share price, locked in disputes with the government and the Securities and Exchange Board of India. In addition, the company has been criticized for not effectively deploying its Rs 70,000 crore plus cash hoard.

Refining Business Our refining margin is in excess of USD 8 a barrel and is among one of the best in the world. We continue to improve our business in every way. We sourced eight new different types of crude to enhance margins. We produced ultra clean fuels to supply to the transportation industry globally. We are an important supply to domestic oil companies and the domestic aviation sector.

We have also invested in efficient improvements and debottlenecks and we strengthened our partnerships with major crude suppliers as well as customers for mutual benefit. We are aggressively pursuing partnership opportunities for the crude feedstock that is enhanced and sustained our margins. We are making a major investment to further strengthen the competitiveness of our refining business.

We are building the largest gasification facility in the world to convert petroleum coke to synthetic natural gas, and this will be used as a feedstock and fuel at our integrated Jamnagar Refining Complex. This project will not only add value to our refining business but also provide competitive fuel and reduce the volatility of our company’s earnings.

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This investment at this scale is path-breaking in the refinancing industry and is being done for the first time by anybody in the world. It is our target that this will add 30-40% to the integrated Jamnagar Complex margins within the next three years.

Oil & Gas Business I now come to the oil and gas business. The year saw the Government of India approve a landmark deal between Reliance and British Petroleum, representing the largest ever foreign investment in the domestic hydrocarbon sector. BP acquired 30% participating interest in 21 oil and gas blocks, including the currently producing KG-D6 block. In over three years of uninterrupted and incident free operations, our KG-D6 block has already supplied more than 1.8 trillion cubic feet of natural gas and more than 19 million barrels of crude oil to various consumers in the country.

10 years since its discovery, the D6 block remains Indiaâ₏™s first and only producing deep water development project. Unlike similar projects elsewhere, it has not been without its unique set of geological challenges. The reserves from the existing D1-D3 field have proved far more difficult to produce than we anticipated. We have experienced some disappointment with the reserves and consequently seen production drop below the originally estimated quantities. Today, RIL and BP teams are working closely to understand the complex geology of this block. We are chopping out an exploration and development campaign that will efficiently target high quality prospects in the deeper zones and also optimize existing as well as future development plans.

We are well on the way to creating a pipeline of projects for our next way of oil and gas development projects which would include the R-series discoveries and all the satellite discoveries, subject to receiving the requisite approvals,. We hope to add around 30 million cubic metres a day of additional production through the new way of planned development.

We are also set to proceed with development of two cold bet methane blocks in Sohagpur, Madhya Pradesh. If approvals and clearances come as planned, we are hoping to target these additional quantities of gas by 2015. We are targeting to achieve in the next 3-4 years a total production of 60 million cubic metres of gas for sustained period of time.

Government and regulatory approvals are key to achieving this and we hope that these will be granted soon.

Our domestic oil and gas portfolio remains a key strategic asset for Reliance, its partners and India. We are confident about its enormous value from a medium-term perspective which will eventually benefit all stake holders.

Reliance has also made significant investment in the emerging and exciting resource base of shale gas in United States of America. We entered into four joint ventures two years ago to build a new shale gas business in the US. The shale gas industry is now recognised as a game changer, its growth has the potential of making North America substantially reduce its dependence on external source of energy in less than a decade. All our three joint ventures are now operational and we are selling natural gas in the competitive markets of Pennsylvania and Texas.

Retail Business Reliance Retail opened its first set of stores about five years ago. The vision was to radically change the way consumers bought goods and services and to address their diverse consumption needs. The mission was to create a robust producer to consumer value chain and in the process create sustainable value for all stake holders. This initiative has now grown into a 1300 store business spanning 18 states in India. It is a business in

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which we have attained a clear leadership position within a short period while competing with more established players in each of the markets that we participate in.

We are created new employment opportunities for over 50000 people. Around 25000 of them are directly employed by Reliance retail. In the past year we have opened new stores across all formats. Our value formats Reliance Fresh, Reliance Super and Reliance Mart and in our specialty formats like Reliance Digital, Reliance Trends and Reliance Footprints, have the largest loyalty customer base of over 90 lakh people who visit our stores and buy from us regularly. Each week we have over 30 lakh footfalls into our stores, 30 lakh people visit our stores every week. I am confident that we will have over 1 crore people shopping with us every week in the next three to four years.

In the past we have consolidated our position as the largest food retailer in the country. We engage with 70 lakh farmers and procure fresh produce and milk from there.

In apparel retailing we have established the largest chain of stores in the country. We provide an attractive mix of fashion and comfort at affordable prices. In digital retailing we achieved several milestones in the past year. We tripled the number of stores, expanded product offerings and are the fastest growing digital retailer in the country.

Through our newest format Reliance Markets, we are creating a partnership framework with the kiranas and other small shopkeepers. This partnership leverages our supply chain, large assortment of products, sourcing capability and ability to supply at competitive prices.

Our first Reliance Market store operates in Ahmadabad on this partnership model. By scaling up on this format, we will be supplier of choice to a very large number of kiranas and small retailers and this is our vision that we will grow retail in partnership with small retailers.

This really has been the Reliance philosophy since its inception. When we grew in the textile business we always grew with the power loom industry and that is what we are replicating and we are very successful in Ahmadabad with our model.

Reliance is fulfilling the vision of creating an inclusive growth framework by forging enduring bonds between millions of farmers, consumers and small retailers. Source: Moneycontrol.com ONGC, CNPC to jointly bid for assets The deal could also see the Chinese firm participating in efforts to develop and exploit ONGC’s domestic assets Utpal Bhaskar New Delhi: India’s Oil and Natural Gas Corp. Ltd (ONGC) and China National Petroleum Corp. (CNPC) inked an agreement in New Delhi on Monday to jointly bid for energy assets overseas in a move that could have a significant impact on the global race for oil and gas blocks.

The memorandum of understanding also involves cooperation in so-called upstream, midstream and downstream opportunities. Upstream activities refer to exploration and production from hydrocarbon assets; midstream to transportation pipelines and the liquified natural gas business; and downstream refers to refining, marketing and distribution of petroleum products. The agreement was signed between Sudhir Vasudeva, chairman and managing director, ONGC, and Jiang Jiemen, chairman, CNPC. The deal could also see CNPC participating in efforts to develop and exploit ONGC’s domestic assets.

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The primary purpose of the agreement, however, seems to be to ensure that bidding for global energy assets doesn’t get out of hand as it has in the past.

“We should collaborate and bid together,” said D.K. Sarraf, managing director, ONGC Videsh Ltd (OVL). “There is no point in raising prices. A memorandum of understanding was signed.” He clarified that neither partner has an immediate property in mind for which they can bid together.

To be sure, the two firms did have an earlier arrangement, but that was limited to hydrocarbon exploration and production, and didn’t result in much cooperation or coordinated bidding.

“This (the new agreement) is for examining possibilities of mutual interest in upstream, downstream and all related areas,” Vasudeva told Reuters.

With India importing more than 80% of its energy needs, state-owned firms have been scouting overseas for securing assets and have invested Rs 64,832.35 crore in the effort.

This push has pitted the country against China in a race for the world’s resources. This competition for resources has in turn raised prices for the assets of both Indian and Chinese firms.

While OVL, the overseas arm of ONGC, and CNPC had earlier collaborated in Sudan and have worked together on projects in Syria and Myanmar, an institutional arrangement will bring the two rivals together and will have a global impact. OVL invested $2.5 billion in petroleum exploration and production in undivided Sudan as part of Greater Nile Petroleum Operating Co., in which it owns a 25% stake. Its partners are CNPC (40%), Petronas Carigali Overseas Sdn Bhd (30%) and Sudapet Co. Ltd (5%).

“We have to build on this association,” an ONGC executive said, speaking on condition of anonymity. “Apart from jointly scoping overseas assets, the Chinese are also interested in investing in our domestic assets. They have asked us to show them what we have. It is now dependent on the security establishment how to take this forward.”

The development comes at a time when the two countries have been discussing ways to double bilateral trade to $100 billion by 2015 and to plug a yawning trade gap in China’s favour.

“Securing energy supply continues to be a key strategic objective for China and India, both of whom continue to generate growth, and are concerned with the high energy prices,” said Gokul Chaudhri, a partner at audit and consulting firm BMR Advisors Pvt. Ltd. “This requires both nations to undertake geopolitical risks in frontier areas like Africa and Myanmar, with significant financial outlays. In the past also, the two countries have sought to collaborate rather than compete in view of their mutual need for overseas acreages and energy security.”

“This renewed effort, in the backdrop of improved economic ties, should yield long-term benefit to not just India and China, but also to the nations in which such joint energy projects are developed,” he added.

China and India will be the world’s largest and third largest economies and energy consumers by 2030, respectively, jointly accounting for about 35% of the global population, gross domestic product and energy demand, according to the BP Energy Outlook 2030.

A strategic affairs specialist said the move will also ensure India maintained its relationship with China.

“This is in a way (about) India trying to keep equidistance between China and the US. It wants to maintain equidistance between the two,” said R.N. Das, a senior analyst with the

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Institute for Defence Studies and Analyses. “India already has an agreement with China in energy cooperation and this has worked in the case of Sudan.”

According to India’s oil ministry, the country’s energy demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalents today to around 1,500 million tonnes.

OVL is the only company among Indian state-owned firms with producing assets overseas.

It has a presence in 15 countries through participation in 33 projects and has proven balance of oil and gas reserves of 202.908 million tonnes. But while its producing properties in Sudan have been affected by South Sudan’s decision to cap wells, the ones in Sakhalin and Syria are in decline.

Elizabeth Roche and Reuters contributed to this story. utpal.b@livemint.com India cuts May Iran oil imports 38% trade

Moneycontrol Indian refiners cut imports from Iran by 38% in May from a year ago, tanker discharge data showed, in a second month of steep reductions as they switch suppliers to cushion the impact of new US sanctions on Tehran. The cutbacks raise New Delhi's chances of winning a waiver similar to that granted by the United States to Japan and some European countries after "substantial" reductions in their imports.

India is discussing with Washington an exemption from the sanctions, which focus on banking and are being imposed over Iran's disputed nuclear programme, a source said last month. China and India are Iran's biggest crude clients and reductions in their purchases are crucial to Western attempts to crank up the pressure on Tehran. Neither has officially sought a waiver, although both have cut volumes.

India imported about 243,000 barrels per day (bpd) of oil from Iran in May, down about 10% from April and about 38% from 394,000 bpd a year ago, the data made available to Reuters showed. In April - the first month of new contracts - imports from Iran slid nearly 40% from a year ago. Falling imports from the OPEC member have pushed Iran to fifth position in the list of India's crude suppliers in April-May, compared with the third position it enjoyed a year ago and second in the first quarter of 2012.

Refiners are expected to cut volumes they ink under term deals that started April 1 by more than 20%, according to Reuters calculations, while the government says it aims for imports to be down 11% from 2011-12 liftings to about 310,000 bpd. Indian refiners may lift significantly lower volumes out of Iran from July, when European sanctions will severely reduce the availability of insurance cover for cargoes and vessels.

Among Iran's other Asian buyers, South Korea plans to halt all imports by the time the European measures hit, industry sources have said, and Japan could follow suit unless Tokyo provides a sovereign insurance guarantee for oil tankers. Indian refiners have been asked privately by the government to cut Iranian oil imports by at least 15%, even though publicly New Delhi does not support unilateral sanctions, according to government officials.

June 2012

The refiners are making up for the shortfall in Iranian cargoes by raising imports from the world's biggest exporter, Saudi Arabia, as well as fellow OPEC member Iraq. The 12member Organization of the Petroleum Exporting Countries (OPEC) pumped 31.80 million bpd in May, up from 31.75 million bpd in April, a Reuters survey of sources at oil companies, OPEC officials and analysts found.

India's overall oil imports in January-May rose about 11% from a year ago to 3.6 million bpd as the country expanded its refining capacity. With some of that capacity in maintenance in May, however, total oil imports in the month declined 3.6% from April. They were up 14.5% from a year ago, the data showed.

Reliance Power, Shell to build LNG terminal Economic Times, Jun 1, 2012 "We are pleased to have reached an agreement with Reliance and Kakinada Sea Ports to implement the LNG terminal in AP," Royal Dutch Shell global head of LNG De la Rey Venter said in a statement. Several power projects in the region with a combined capacity of 8,000 MW urgently need natural gas. These include Reliance Power's 2,400 MW Samalkot unit, and others being built by GMR Energy, GVK Power and Lanco Infratech.

Reliance Power, which is setting up a 2,400 MW gas-based power plant in Andhra Pradesh, is one of the largest consumer of natural gas in the region. "Kakinada, with its proximity to our Samalkot power plant and several other gas consumers, is a natural choice for setting up an LNG terminal," Reliance power CEO JP Chalasani said. "The floating unit would not require land, besides, such terminals are faster in commissioning," he added.

Kakinada Sea Ports, which operates the Kakinada deepwater port in Andhra Pradesh, will be a minority partner in the project that industry officials say would require an investment of about $1 billion (Rs 56,000 crore). ET reported this first on January 3.

According to industry sources, Shell and Reliance Power would hold about 40% equity stake each, while Kakinada Port would hold the balance. The companies, however, did not disclose their equity holdings in the consortium. The partners had agreed to set up the venture in December 2011. The oil ministry estimated India's gas demand to soar to over 356 million standard cubic meters per day by 2014-15 while domestic output would almost remain static at about 113 mmscmd. Most of the shortfall would be met through imported LNG. ESSAR REPLACING MRPL Essar Oil, which raised Iranian imports in January-March to stock up and meet last fiscal year's commitments, bought about 33,000 bpd in May, down more than 70% both from April and a year ago, as it turned to Latin America. But overall during January-May, Essar was the top Indian client of Tehran, ousting state-run Mangalore Refinery and Petrochemicals Ltd. MRPL nearly halved annual imports from Iran in January-May to about 80,800 bpd. It bought about 52% less oil in May from Iran compared with April at 43,000 bpd, the data showed, due to a full shutdown of its refinery during the month.

June 2012

State-run Hindustan Petroleum Corp emerged as the biggest buyer of Iranian oil in May, importing 99,000 bpd, up 66% from April and about 1.4% more than a year ago. "May volumes are higher as HPCL took delayed delivery of an April cargo," said a source privy to HPCL's imports. Essar has renewed its annual deal of 100,000 bpd with Iran for this fiscal year starting April 1 but aims to lift 15% less oil from there, while MRPL has reduced the size of its deal to 100,000 bpd compared with 142,000 bpd in 2011/12.

HPCL aims to buy 60,000 bpd oil from Iran compared with 70,000 bpd in 2011-12. Indian Oil Corp , the country's biggest refiner, bought 67,600 bpd oil from Iran while Bharat Petroleum Corp. Ltd. did not buy any Iranian oil since February.

Eliminate petroproduct subsidies: Firm decision will improve the health of OMCs Economic Times, Jun 12, 2012, RK Pachauri, Director-General, Teri & Chairman, Inter governmental Panel on Climate Change Global oil prices have been high in recent years even as our oil imports keep rising.

Plunging value of the rupee adds to this import burden.

Government's decision to raise petrol prices is merely the thin end of the wedge, revealing an aspect of irrational pricing that has afflicted the country for much too long. Meanwhile, the daunting challenge of bringing down our fiscal deficit looms large. Against this background, the burden of government subsidies has been discussed extensively, but little done to arrest the increasing trend of pricing distortions in the country. By far the most important challenge in these relates to the energy sector. It is for this reason that The Energy and Resources Institute (Teri) has brought out A Citizen's Guide to Subsidies in India.

Let us look at prices of petroleum products. In 2010-11, the figures estimated for subsidies on petroleum products were staggering, and are getting worse. The accompanying graphic shows the break-up of these subsidies and their volumes. Three petroleum products kerosene for the public distribution system (PDS), domestic LPG and diesel - are sold at far less than international market prices with the government providing a fiscal subsidy.

However, this subsidy provides only part of the difference between the cost price (including marketing costs) and the selling price of these petroleum products - resulting in underrecoveries for the oil marketing companies (OMCs) - which are calculated as the difference between the cost price and the regulated price at which the petroleum products are sold by OMCs to retailers after accounting for subsidies paid by the government. The argument for providing subsidies on LPG is totally irrational, given that LPG is largely the preferred domestic fuel used by the rich and the middle classes, and that too mainly in urban areas.

With kerosene, the perverse nature of subsidies is highlighted by the fact that every reliable survey has found 40-50% of the subsidised kerosene produced going into adulteration of other petroleum products. Two bright young officers of the OMCs were killed for whistleblowing on acts of adulteration, and possibly hundreds may be keeping mum under threat of a similar fate. The political argument for subsidies on kerosene advanced by those favouring status quo is that kerosene is the poor man's fuel for lighting in a large part of

June 2012

rural India. It is unfortunate but true that almost 400 million people in India have no access to electricity, and kerosene is used by a large number of them for lighting.

But if a subsidy is justified for that very reason, which in itself is highly questionable, why is it that a country as advanced in electronics and smart technologies cannot come up with a system of smart cards that could target subsidies only for those below the poverty line and do away with subsidised kerosene in the open market?

It is also relevant to observe that recent research shows emissions from kerosene lanterns in homes as harmful and, in fact, worse, than emissions from cooking with inferior quality biomass burned in inefficient stoves. If the human and health costs of this pollution were beaccounted for, the questionable benefits from kerosene subsidies would appear negative. It is also significant that in Bangladesh, our neighbour with a lower per-capita income than ours, kerosene is priced at a much higher level than here. Policies such as subsidising kerosene have become holy cows that politicians are afraid to touch, and which undesirable elements, such as those in the business of adulteration, are delighted to benefit from.

Public initiatives have largely ignored the fact that lanterns based on solar energy are now a viable technology that can compete effectively even with subsidised kerosene, as Teri programme, Lighting a Billion Lives, has established. This option is pollution free, vastly more reliable and devoid of the danger of accidental fires from kerosene. Subsidies on diesel also result in growing distortions. First, the move towards passenger diesel vehicles, often the most expensive brands, is only subsidising the rich.

At the macro-level, rational pricing of diesel would certainly make railway freight and passenger options relatively attractive. It is, of course, true that the Indian Railways has for long shown a lack of vision in expanding and modernising its services. Its shortcomings only compound the incentive that diesel subsidies provide for a shift to greater road transportation even as air pollution in our cities and highways is becoming worse. Overall, the total value of under-recoveries on petroleum products and the manner in which these have changed in recent years are shown in the accompanying graphic.

The spurt in values during 2008-09 was the result of a sudden spike in global oil prices during that period. A similar spike in future cannot be ruled out even as our dependence on oil imports keeps growing rapidly. The problem with oil subsidies is also leading to haemorrhage of the OMCs that would otherwise be expected to generate healthy surpluses to facilitate improving their infrastructure and, thereby, reducing the cost of marketing for the benefit of the consumer. Successive governments have failed to bite the bullet, ironically, even as the administered pricing mechanism was officially dismantled in 2002.

When will disastrous politics in this area give way to sensible economics?

ONGC extends pact with Hinduja Group for sourcing LNG The Economic Times NEW DELHI: State-owned Oil and Natural Gas Corporation (ONGC) has extended pact with Hinduja Group for sourcing of liquefied natural gas from Iran and other Middle East nations by one more year.

June 2012

ONGC had in November 2006 signed an MoU with Hinduja Group promoted Ashok Leyland Project Services Ltd (ALPS) to use the diversified group's influence in oil and gas rich nations to get a lucrative LNG deal. The MoU expired on May 4 and ALPS and ONGC have mutually agreed to extend the MoU by another year, sources privy to the development said.

The pact calls for the two firms to form a company which would source LNG from Iran, Qatar, Kuwait, Libya, Oman, Saudi Arabia and UAE. ONGC is to hold 49.98 per cent stake in the venture with ALPS, which will get 48.02 per cent. The remaining two per cent would be held by banks and financial institutions. Sources said ONGC is keen to leverage the clout of Hindujas in Gulf region, particularly in Iran and Qatar, to source LNG for its proposed Rs 25,000 crore Mangalore integrated project that includes an LNG import terminal, a 1,445 MW power plant and a basic petrochemical complex.

However, an agreement for a similar venture with Gulf Oil Corp for pursuing exploration projects in West Asia never materialised over differences on shareholding pattern. Sources said for the JV with Gulf Oil, Hinduja group was seeking a majority stake, which was not acceptable to ONGC. The MoU between ONGC and ALPS was first executed on November 7, 2006 with subsequent extensions during 2007-11. The MoU provided for Hinduja Group joining the LNG import terminal planned by ONGC at Mangalore besides petrochemical plants in case sourcing of LNG through networking of ALPS materialised.

Sources said the ONGC-ALPS had made some headway in negotiating for a 4 million tons a year Iran LNG Project but the progress has been stalled due to uncertainties on project completion in view of stringent sanctions imposed on Iran by US and UN. MRPL looks to acquire Haldia Petrochemicals

Livemint.com The company seeks the state govt’s permission to conduct a due diligence exercise at Haldia Petrochemicals Romita Datta Kolkata: Key officials of Mangalore Refinery and Petrochemicals Ltd (MRPL) on Monday met West Bengal’s commerce and industries minister Partha Chatterjee to seek the government’s permission to conduct a due diligence exercise at Haldia Petrochemicals Ltd (HPL), formally announcing for the first time its interest in acquiring the beleaguered firm.

Mounting burden: West Bengal’s commerce and industries minister Partha Chatterjee.

HPL’s total debt is approaching Rs 4,000 crore. Photo: Indranil Bhoumik/MintThe West Bengal government, which is one of HPL’s co-promoters, owns 40% of the firm. The state is looking to sell its stake in HPL, but The Chatterjee Group (TCG)—the other co-promoter of the firm—isn’t willing to wash its hands of HPL. TCG owns 41% in HPL. The state government cannot, under existing agreements with TCG, unilaterally sell its stake in HPL.

June 2012

MRPL, a subsidiary of government-owned Oil and Natural Gas Corp. Ltd (ONGC), is looking to acquire HPL for “forward integration”, MRPL managing director U.K. Basu said in Kolkata on Monday. “We made a presentation to the West Bengal government and asked for permission to conduct the due diligence exercise,” he added.

Partha Chatterjee, who is also HPL’s chairman, refused to comment on Monday’s discussions. He, however, said he would inform HPL’s board about MRPL’s proposals at its next meeting on 19 June. HPL managing director Partha S. Bhattacharyya appears to be in favour of handing the reins of the company to a public sector company from the petrochemical sector, according to the firm’s employees. Addressing HPL’s employees at a town-hall meeting last week, Bhattacharyya said the company needs integration with a naphtha-producing refinery for long-term viability.

Naphtha is HPL’s key feedstock. Strapped for cash, HPL is unable to buy naphtha and has had to scale back production to 50-55% of its peak capacity. A spokesperson for TCG wasn’t immediately available for comments. Asked why MRPL was looking to buy HPL despite its financial woes, Basu said MRPL faced similar uncertainties until ONGC bought majority control in it in 2003 and helped restructure its debts by infusing cash.

HPL’s lenders have already told its co-promoters that unless they inject cash into the company or commit to bring in a strategic investor, working capital loans wouldn’t be forthcoming. HPL’s total debt is approaching Rs 4,000 crore—more than three times its equity capital. HPL needs at least Rs 300 crore in fresh working capital loans immediately to step up production, according to a finance department official, who did not want to be named. “Naphtha prices have lately declined, and if HPL is able to buy naphtha again, it will be able to scale up production to at least 90% (of its peak capacity),” this person said. “This will lead to more optimal recovery of fixed costs and help the management cut losses significantly.”

The firm’s management is going to make another attempt to convince banks to make fresh loans at a meeting of HPL’s loan monitoring committee on 13 June. The meeting has been convened by banks in Mumbai to review whether the two co-promoters had made any progress in injecting cash into the company.

CPCL wants ban to go on new projects at Manali N Ravikumar, The Hindu Chennai Petroleum Corporation Ltd, (CPCL) is hoping that the Ministry of Environment and Forests lifts the moratorium on new projects in the Manali industrial region soon for it to go ahead with the residue upgradation and refinery expansion. “If the moratorium is removed, the first project we will implement is the residue upgradation project at a cost of Rs.3,110 crore. It will increase the yield of LPG, petrol and diesel by eight per cent and improve availability [of products] without any real capacity expansion,” according to S. Venkataramana, Managing Director (incharge) of CPCL. The project would boost the gross refining margin by $1.5-2 a barrel. The incremental distillate yield, he explained, would be equivalent to one million tonne and help feed more products to Tamil Nadu and parts of Karnataka and Andhra Pradesh.

June 2012

The ban on new projects, including expansion, in Manali was imposed in January, 2010, with the Cumulative Environment Pollution index, pertaining to effluents, air and solid waste, exceeding the limit. After initiating measures to address the issues, the units through the Manali Industries Association appealed to the Ministry to reconsider its decision.

“We have also written to the Chief Minister stating that an early action in this regard would be beneficial considering that Rs.5,000 crore projects not just of CPCL, but also of Tamilnadu Petroproducts, Cetex Petrochemicals and Indian Additives are pending,” he told The Hindu in an interview.

Final detailed feasibility report for the residue upgradation has been completed and investment approval obtained for the project. From the date of environment clearance, it would take 33 months for completion.

“In the next 4-5 years, we want to go ahead with our six million tonne refinery expansion project in Manali. We have sufficient land available and already completed pre-feasibility study,” he said, adding that there would be considerable demand for petroleum products in the region even after commissioning of the Nagarjuna refinery in Cuddalore.

Keywords: Chennai Petroleum Corporation, CPCL, residue upgradation, refinery expansion Vikram S Mehta

The political economy of petroleum prices

Mon Jun 04 2012, 02:30 hrs…from the pages of INDIAN EXPRESS / FINANCIAL EXPRESS Desired outcomes can be reached through a series of ‘imperfect’ small initiatives What is to be done? How can we untie the Gordian knot that has so entangled the political economy of petroleum product prices? This is the question that now exercises our most experienced politicians and our ablest economists.

Most well informed people know that a country that imports 80 per cent of its oil requirements cannot de-link itself from the international market; and that if it did the supplies would eventually dry up; industry would sputter to a slowdown and the macroeconomy would hit the skids. But what they do not know is how to keep this linkage and at the same time reconcile the different and often conflicting demands of the multiple stakeholders impacted by it. Politicians, for instance, want to be elected and are unconcerned about the economic logic.

They want the oil companies to shield their electorate from high prices. The government wants to contain the fiscal deficit and to create a pricing mechanism that minimises the subsidy outgo. The oil companies want the autonomy to run their business on commercial principles and the consumers want security of supply, quality, access and low prices.

These demands are varied and it is not easy therefore to get the stakeholders onto the same page.

So “what is to be done”. How can the demands of these interest groups be made to converge onto a point of equilibrium. Several eminent public servants, such as Vijay Kelkar, C. Rangarajan, B.K. Chaturvedi and Kirit Parekh have provided a catalogue of sensible suggestions that flow from “good economics” but do not ignore “good politics”.

They have recommended that the price of diesel and petrol should be aligned to the international market but also that the low-income consumers should continue to receive subsidies. These subsidies should not be channelled through the oil companies but

June 2012

transferred directly from the budget. They have accepted that subsidised LPG should not be totally withdrawn because of politics, but they have suggested that an upper limit be placed on the number of cylinders that can be purchased at concessional rates. They have urged the government to unshackle the oil companies from the bureaucracy and to allow the management operational autonomy.

They have argued for a simplified customs and tax duty structure and the inclusion of petroleum products within the ambit of GST. These recommendations are notable for their pragmatism; notwithstanding they have not passed political muster. The reports containing the recommendations are gathering dust in various government offices.

Paradoxically, the cynics have taken the rejection of these reports to suggest an alternative answer. “Let the situation spiral out of control and use the opportunity created by the ensuing crisis to reform the system.” It is their view that an “oil supply” crisis could provide the trigger for catalysing a radical overhaul. They may well be right. The severity of the recent petrol price hike is in part because there was no alternative.

The oil companies were looking into a cash abyss. The point however that should not be forgotten is that change induced through crisis can be extremely painful. We all remember and applaud the reforms of 1991. But we forget that these reforms were preceded by years of inflation, unemployment, foreign exchange restrictions and general economic hardship.

The government was compelled to reform because of the consequences of bad policy that caused great unhappiness. Crisis should never be sought as the point of departure for policy change. But if and when it strikes, the opportunity to reinvigorate and recreate should not be foregone.

So is it that the answer to the above question distils down to essentially two policy options.

One generated by the experts after careful thought and the other compelled through financial and economic mismanagement. I do not think so. I think conceptually there is a third middle-of-the-road answer. A stumbling block to change is the tendency to overlook what is good in the hope of securing the perfect. A first step is often not taken until and unless the aspired destination is in sight. This hesitancy can be counter-productive.

It perpetuates the status quo and dilutes the significance of incrementalism. A small initial step can often lead to a larger next step and thereon. It is not necessary that only policies that swing the needle 360 degrees should be pursued. Less ambitious initiatives that move it say 5 degrees should also be considered. Such initiatives can trigger movements that eventually push it full circle. The mistake that we might be making today regarding petroleum deregulation is that suggestions to initiate incremental albeit imperfect small steps are being stalled because they are imperfect and small. The idea of dual pricing for the two grades of diesel has for instance been blocked because of the concern that it will lead to black marketing, smuggling and diversions.

These are valid concerns. Dual pricing is complex to administer and it is distortionary. But relative to current conditions the proposal should be considered. At a minimum it should be studied whether in view of the severity of the subsidy burden and the consequent imperative to deregulate diesel prices, the cost of continued inaction might not be greater than the cost of taking a small albeit “imperfect” first step. Especially if by doing so the ground work for a larger second step is laid.

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The Gordian knot will not be easily or quickly untied. There are too many fingers involved and not all are working to loosen it. It has to however be untangled. The issue is how. The economists have chalked out one route. The balance of power between the stakeholders is however such that this has not been preferred. The other alternatives are operationally imperfect. They have therefore not been considered. Should they be? It is not obvious that they should but it should be acknowledged that the desired outcome can sometimes be reached through a sequence of “imperfect” small initiatives.The author is Chairman of the Shell Group in India. Views expressed are personal Rangarajan team to review oilfirm-govt contracts Rangarajan panel to review existing PSCs HindustanTimes, New Delhi, May 30, 2012 The government on Wednesday announced constitution of acommittee under C Rangarajan, chairman, PM’s Economic Advisory Council,to review the existing production sharing contracts signed between the oil andgas companies and the government for developing exploration blocks. “The committeewill review the existing PSCs, including in respect of the currentprofit-sharing mechanism... and recommend necessary modification for the futurePSCs,” said an official statement.

Officialssaid the committee has been constituted after intervention of the PrimeMinister’s Office (PMO), following increasing disputes between thedevelopers of the oil and gas blocks and the government. The Committeehas been asked to submit its report by August 31.The trigger for this review isclearly seen as the ongoing spat between Mukesh Ambaniled Reliance IndustriesLtd (RIL) and the oil ministry over declining gas production and the costrecovery from the block.RIL has already dragged the government into arbitrationfor disallowing a recovery of $1 billion (R5,500 crore) from the producingKG-D6 gas field.

Besides, RIL has also sought an increase in the price of gasthat is being produced from the KG-D6 field from the existing government fixedprice of $4.2 a unit.

Thepetroleum ministry has recently issued a R5,500 crore penalty notice to thecompany earlier this month for not fulfilling obligations and failingrepeatedly to meet targets, factors, which it said caused considerable lossesto the government. Besides, the Committee shall also be exploring variouscontract models with a view to minimise expenditure monitoring of thecontractor without compromising, firstly, on the hydrocarbons output acrosstime and secondly, on the government’s take. The Committe would be“a suitable mechanism for managing the contract implementation ofPSCs,” the statement said.“Suitable governmental mechanisms tomonitor and to audit Government of India (GOI) share of profitpetroleum,” have been listed as another term for the Committee.

IGL-PNGRB case ruling adds regulatory uncertainty for CGD ICRA has come out with its comments on recent Delhi High Court Ruling in IGL Vs PNGRB case. The research firm notes that, the recent judgment of the Honourable Delhi High Court (HC) in the case between Indraprastha Gas Limited (IGL) and the Petroleum and Natural Gas Board (PNGRB or the Board) regarding powers of tariff determination, while offering immediate relief to the company, has created a fair degree of uncertainty regarding the functioning and regulation of the City Gas Distribution (CGD) sector in the country.

Fundamentally the recent High Court verdict has raised several issues about the role of the PNGRB with respect to tariff determination. The ruling of the HC suggests that as per the provisions of the PNGRB Act as they stand today, the only tariff element which can be

June 2012

regulated is the transportation tariff which is applicable incase of usage of the distribution infrastructure of an entity by another entity i.e a third party marketer operating under an open access regime. In IGL’s case with the company being both transporter and marketer, the said transportation tariff regulation shall not apply with respect to the gas it sells on its own account. It is however not clear from the judgment that with respect to the third party access/common carrier system applicable upon expiry of marketing exclusivity[1], whether the network tariffs as determined by the regulator currently shall be valid or not. Considering that the network tariff is the base for the working of the open access system, lack of clarity on its determination is likely to delay the implementation of the common carrier system in the NCT region as well as other regions where marketing exclusivity will be expiring over the near term.

Further the HC has observed that given that the transportation tariff is only one of the components of the overall price[2] charged for sale of PNG/CNG and the other elements of tariff have not been placed within the purview of the PNGRB’s control, it seems that the regulation of the end selling prices charged by a CGD entity to its consumers is not intended to be within the scope of the regulators powers’ as per the current legislation.

The judgment also corroborates the recent PNGRB’s stance on determination of marketing margin for gas marketers, wherein the GoI had asked the regulator to determine the marketing margin to be charged by the marketers but the regulator later opined that it did not have the powers under the PNGRB Act to determine the same.

Mr K. Ravichandran, Senior Vice President and Co-Head, Corporate Ratings, said "Most of the facets of the recent judgment seem to indicate that the provisions of the PNGRB Act as they stand today, give limited powers to the regulator as far as the tariff regulation function for the CGD sector is concerned. This may prompt a re-examination of the Act itself so as to bring about clarity and determine the nature of powers to be given to the regulator with respect to tariff setting. This is likely to be a time consuming process and the associated uncertainties may have some moderating impact on the investment climate in the CGD sector despite favourable demand potential".

Following the HC ruling, the PNGRB may exercise the option to approach the Apex Court against the verdict, which may take quite some time to resolve. Besides entailing uncertainty for the entities involved, these legal tussles underline that there are quite a few areas of dispute between the Board and CGD entities which is a concern from the perspective of the sector. As it is, the anomalies in the bidding criteria, frequent litigations, delays in granting authorization are some of the factors that have impacted the pace of new investments in the CGD business. The recent developments have only added to the regulatory uncertainty of the sector and would remain an event based risk for the industry participants till such time that it is resolved.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Source: Moneycontrol.com

June 2012

GAIL selects Axens technology for petchem plant GAIL (India) Ltd. will build a new ethylene dimerization unit at Pata, using Axens’ AlphaButol technology. The unit will have production capacity of 20,000 tonnes/year of high purity 1-butene. The technology is designed to ensure a flexible and reliable source of high quality comonomer 1-butene for downstream polyolefins applications, said the Axens announcement.

GAIL operates a gas-based integrated petrochemical plant of 410,000 tpy polymer capacity that is further being expanded to a capacity of 900,000 tpy.

The company also owns 70% of the Brahmaputra Cracker and Polymer Ltd., which is setting up a 280,000 tpy polymer plant in Assam.

Further, GAIL is a copromoter with 17% equity stake in ONGC Petro-additions Ltd., which is implementing a greenfield petrochemical complex of 1.1 million tpy ethylene capacity at Dahej in the Gujarat state.

Fuel subsidies perverse : JairamRamesh TNN | May 26, 2012, 03.32AM IST NEW DELHI: Rural development minister Jairam Ramesh on Friday called fuel subsidies perverse and wanted them phased out, wading into the battle over the petrol price on the side of reformists as the Centre struggled to douse the anger over the hike.

Ramesh said, "In our country, if we combine diesel, kerosene and LPG, Rs 1,90,000 crore is the amount of subsidy, while the budget of the rural development-drinking water ministries is Rs 99,000 crore." The minister touched the sensitive issue of diesel subsidy, saying 23% of subsidized diesel went into SUVs and captive power generators. "What kind of country is this? For development of rural areas, Rs 99,000 crore, and such heavy subsidy for SUVs," he said.

Ramesh backed the government to bite the bullet on diesel subsidy even as the Rs 7.50 petrol price hike triggered outrage across the country. Congressmen are wary of revision of diesel price since it is used by farmers who are critical political and social constituency.

He said the problem with fuel pricing would remain if petrol prices were hiked without touching diesel. "You are going to have a problem," he warned. Coming out in strong defence of fuel price hike, Ramesh said taxes had to be imposed on petrol to fund development work. "Where does the tax go? Where does the money come for MGNREGA? Where does the money come for Prime Minister's Gramin Sadak Yojana? It comes from tax," he said.

Ramesh advocated subsidies for poor households. "There are many lower and middle income families which use LPG, but there are many rich, including myself, who get subsidy on LPG cylinders despite not needing it. There is a subsidy of Rs 503 on every LPG cylinder," he said.

Ramesh conceded that kerosene will have to be underpriced. "There will always be some element of subsidy in kerosene. There is a plan to have a more rational approach to LPG

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where average family uses about eight cylinders a year... four cylinders come at market price, four cylinders will be subsidized. That is a very rational solution," he said.

Duelling hard over diesel Sumant Banerji, Hindustan Times, 16.06.12 The oil ministry is baying for it. Environmentalists have started targeting it and the finance ministry is eyeing it for garnering extra revenue.

Suddenly, diesel car makers are finding themselves in the limelight, literally. The only ray of hope for a struggling domestic automotive industry, they are finding themselves under attack from all sides.

Barely three months after finance minister Pranab Mukherjee left excise duties on diesel cars untouched in the Budget, oil minister Jaipal Reddy’s recommendation to increase the duty on diesel cars between R1.7-2.6 lakh, has stoked the hornet’s nest yet again.

The share of diesel cars in overall sales has gone up substantially from just 38% in 200910 to over 52% this year, at a time when the industry is witnessing sluggish growth. To cash in on this growing trend, carmakers including Maruti Suzuki, Ford and Mahindra and Mahindra have lined up investments in diesel engine plants. The future of such investments will be uncertain if the trend changes dramatically.

“Our investments in diesel engines were made on the basis of certain assumptions based on market conditions,” said Michael Boneham, president and MD, Ford India. “It will be unfair if things are changed dramatically.....we will have to look at what kind of capacity we are installing.”

After two consecutive years of high double-digit growth, car sales grew by just 4.7% in 2011-12 and is expected to grow between 11% and 13% in the current fiscal year.

The domestic car industry is, however, not amused by oil ministry’s suggestions.

“It will have a huge impact on the automobile industry which is already under stress,” said Sandeep Singh, deputy managing director, marketing and sales, Toyota Kirloskar Motor.

“The best option would be to take a small increase in diesel prices that would generate more revenue for the government.”

While an increase to that magnitude is unlikely, the significant gap between petrol and diesel prices would ensure that diesel cars would remain attractive even if duties are hiked marginally.

But diesel cars have come under attack from other quarters as well. A World Health Organisation report recently blamed noxious fumes from diesel vehicles for causing lung cancer and tumours in the bladder. It has further exacerbated the case for diesel cars and given fresh ammunition to domestic environment lobbies.

“India must note that this decision has come from a rigorous review of the latest scientific evidence on the cancer-causing potential of diesel and petrol exhausts,” said Anumita Roychowdhury, head of air pollution control unit at CSE. “Evidence on diesel’s toxicity has been mounting over the past 20 years, which has already compelled stringent regulatory action on diesel quality and emissions standards in other regions of the world.”

The industry has hit back saying that the report is misleading and based on outdated data.

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“It does not take into account the new age diesel engines that are more fuel efficient and less polluting,” said a senior industry official. “What other reason could be that 75% cars in Europe, one of world's most developed car markets, are run on diesel.”

RIL says may be forced to seek damages from govt Claims denial of requisite approvals could contribute to further fall in output BS Reporter / New Delhi June 13, 2012, 0:09 IST Taking on the government, Reliance Industries (RIL) has said denial of approvals for capital expenditure (capex) at its KG-D6 fields could lead to a further decline in gas production and force the company to seek damages.

In a letter to the petroleum ministry last week, the company’s legal counsel, A S Dayal & Associates, said uncertainty resulting from the denial of approvals to the company’s capex programmes and budgets for FY12 and FY13 had an “adverse impact” on petroleum operations and could directly contribute to a further decline in production. “It is extraordinary, particularly given the government’s duties to the nation to maximise production, that you maintain your refusal to provide requisite approvals,” the letter stated.

The government has, however, blamed RIL for the decline in output, saying non-drilling of the required number of wells had led to the fall. The petroleum ministry said lower-thananticipated production had led to under-utilisation of field facilities and restricted cost recovery.

According to the approved field development plans, RIL was scheduled to record production of 61.88 million standard cubic metres of gas per day (mscmd) from 22 wells by April, and 80 mscmd from 31 wells by the end of the year. However, though the company has drilled 22 wells in the fields so far, only 18 are used for production. The remaining wells have not been connected to the production system yet, as these contain uneconomical reserves. Of the 18 wells, six had to be shut due to high water and sand ingress and a fall in pressure.

RIL maintained the fields were not as predicted and, therefore, indiscriminate drilling would drain costs. The ministry, however, held RIL responsible for violating its committed work programme in the production sharing contract (PSC), slapping a notice disallowing cost recovery worth $1.2 billion last month.

In a pre-emptive move, RIL had, in November, issued an arbitration notice to the ministry, saying the PSC allowed operators to recover the entire capital and operating expenditure on oil and gas fields. It added the contract, in no way, linked cost recovery to production.

So far, the ministry has refused arbitration, saying there was no dispute. However, the company’s latest notice brings out the dispute over how much cost could be recovered.

Since the government did not appoint an arbitrator, RIL had, in April, moved the Supreme Court with a plea seeking the appointment of an arbitrator.

Though the company is open to holding a meeting to seek a negotiated resolution, its letter stated the preferred course now would be to seek a resolution through an arbitral panel.

Playing the petro price change Devangshu Datta / New Delhi June 6, 2012, 0:19 IST One theme that could take centre-stage over the next few days is the price of crude oil. On one hand, a slowing world economy means that crude oil prices have softened. How-ever,

June 2012

the West Asia–North Africa region, key to global supply, is in political turmoil. That may lead to a sudden spike in prices on fears of supply disruption.

Whatever happens to the price of crude oil, the government has tied itself in knots by its confused subsidy policy. There are massive under-recoveries (read losses) on diesel, kerosene and natural gas. If the current price structure is maintained, there would be losses even if the price of crude fell 15-20 per cent.

There is a reluctance to raise prices to compensate. There is also a reluctance to cut or rationalise taxes, especially so on the part of state governments. As a result, there is massive pressure on government accounts, including the external balance of payments.

The entire PSU refining and oil marketing sector is on life-support.

In the economic sense, the simplest thing would be to raise retail prices. Ideally, prices should be freed. India has excess refining capacity and if prices were freed, competition (including the entry of new retailers) would ensure no company could charge a massive premium.

However, the government believes this is politically impossible. In the political sense, higher crude prices may actually, be easier to handle since that would provide an obvious reason to raise retail prices. If crude oil prices drop, the government will find it difficult to raise prices, even though it should.

The impact of this push-and-pull on an entire group of energy PSUs is interesting. BPCL, HPCL and IOC are directly in the line of fire. If crude oil prices drop, their share prices could rise. If controlled retail prices are raised, their share prices will rise. If retail prices are raised and then rolled back, their share prices will first rise, and then fall. GAIL will also respond in this fashion, since the company has to bear part of the burden of under-recoveries.

The cases of OIL and ONGC are more nuanced. Both companies should stand to gain if global crude oil and gas prices rise. However, they also have to share the burden of underrecovery. We’d need to know specific policy details and the nitty-gritty of price structure before being able to figure out whether a given change in crude oil/gas price versus a given change in retail pricing will be beneficial or not to OIL and ONGC. The resulting volatility could be very useful for traders who are prepared to move in either direction. If diesel prices are indeed raised, long positions in BPCL and HPCL will pay off. If not shorts could pay off.

The author is a technical and equity analyst BPCL, Videocon's Mozambique gas reserves more than KG-D6 BS Reporter / Mumbai June 12, 2012, 0:18 IST State-owned Bharat Petroleum Corporation (BPCL) and Videocon Industries’ Mozambique block may have up to 100 trillion cubic feet (tcf) of in-place gas reserves, operator Anadarko Petroleum Corp said on Monday.

Bharat PetroResources, a wholly-owned subsidiary of BPCL, and Videocon Hydrocarbon Holdings, a wholly-owned subsidiary of Videocon Industries, hold 10 per cent stake each in the Mozambique block, for which US energy major Anadarko Petroleum is the operator.

Anadarko holds 36.5 per cent stake in the block.

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Anadarko said the total estimated recoverable natural gas resource in Offshore Area 1 was 30-60 tcf, while the upside for total gas in place in the discovered reservoirs in the block was approaching 100 tcf. The reserves are more than the 11 tcf of resources in Reliance Industries’ KG D6 fields.

In a statement, Anadarko said its “Atum exploration well discovered another significant natural gas accumulation within Offshore Area 1”.

Cove Energy Mozambique Rovuma Offshore holds 8.5 per cent in the block, while Mitsui E&P Miozambique accounts for another 20 per cent. The remaining 15 per cent stake is held by Empressa Nacional de Hidrocarbonetos, Mozambique’s national oil company.

The consortium plans to set up a liquefied natural gas (LNG) plant to ship the gas to other destinations. “Initially, we will have two trains, expandable by four trains later. The two LNG trains will have a capacity of five million tonnes per annum. There is not much demand for the gas locally,” said a senior BPCL official. “Even the port facility will be augmented to facilitate this,” he added.

The Atum discovery well, which encountered more than 300 net feet (92 metres) of natural gas, is connected to the recent Golfinho discovery, about 16.5 km northwest of Offshore Area 1.

“We estimate this new complex, located entirely within the Offshore Area 1 block, holds more than 10-30 tcf of incremental recoverable natural gas resources,” said Bob Daniels, senior vice-president, Worldwide Exploration. “We plan to immediately commence a fourwell appraisal programme of this complex, which has the potential to underpin a large LNG development,” he added.

Consortium members estimate there is sufficient gas in place in Area-1 for up to 10 LNG trains, for 50 million tonnes a year of LNG capacity.

While BPCL’s scrip closed at Rs 711, a rise of 1.22 per cent over the last close, the Videocon Industries scrip was trading at Rs 175, 3.21 per cent higher than its previous close.

OGE NEWS GlobeScan Crude price hit record in 2011 : BP ANNUAL REPORT Posted on June 13, 2012 at 12:10 pm by Simone Sebastian in Commodity Prices, Energy demand, Opec,Supply and Demand World oil prices reached a record high in 2011, despite normal demand growth and an increase in crude supplies from Saudi Arabia, according to BP’s annual world energy report released Wednesday.

Revolutions and political unrest in Libya and some oil-rich Arabian countries contributed to a 40 percent increase in the average annual world Brent price of crude. The price rose to $111.26 per barrel, exceeding $100 per barrel for the first time in history, according the report.

June 2012

BP released its 61st Statistical Review of World Energy, an analysis of the global dynamics impacted energy supplies and demand during 2011.

“Political unrest and violence caused outages in oil and gas production in parts of the Arab world,” said BP Chief Economist Christof Ruhl while presenting the report Wednesday.

“And yet nothing in the aggregate data indicates anything out of the ordinary. In fact, both GDP and energy consumption growth last year landed right at their long-term average.”

Saudi Arabia pumped out an additional 1.2 million barrels of crude per day, offsetting declines from Libya, and global oil consumption grew by just 0.7 percent.

Notably, outside of OPEC countries, the United States saw the largest jump in crude oil production for the third year in a row, adding 285,000 barrels per day to its annual output, according to the report. The nation became a net exporter of refined products for the first time on record.

On the demand side, economic troubles in Europe and the United States led to a 0.8 percent drop in energy demand in developed countries in 2011. But that decline was offset by a 5.3 percent increase in energy needs in emerging countries, the report found. About 71 percent of the growth in world energy consumption occurred in China.

China also surpassed the United States as the largest power generator in 2011.

However, most of the energy demand growth wasn’t for oil. Only coal demand grew faster than average, at 5.4 percent. Oil demand grew less than 1 percent and natural gas grew by less than 2.2 percent, the report noted.

Coal use expanded to more than 30 percent of global energy consumption, its highest share since 1969. Meanwhile, nuclear plant closures in Japan and Germany led to the largest decline in nuclear output on record, down 4.3 percent.

Renewable power generation grew by 17.7 percent, with wind dominating the expansion. http://fuelfix.com/blog/2012/06/13/report-crude-price-hit-record-in-2011/ EIA lowers expectations of oil prices, gas demand The price of West Texas Intermediate crude oil will average about $95/bbl over this year’s second half, and the US refiner acquisition cost of crude will average $100/bbl over the period, the US Energy Information Administration projects in its latest Short-Term Energy Outlook.

The average for both is almost $11/bbl lower than EIA forecast in its previous STEO a month ago. EIA expects 2013 crude oil prices to be relatively flat compared with this year €™s prices.

This forecast assumes that US real gross domestic product will increase by 2.2% this year and by 2.4% nextyear. The recent economic and financial news that points towards weaker economic outlooks could lead tolower economic growth forecasts and further downward revisions to these price forecasts, EIA warned.

EIA also lowered the average regular gasoline retail price forecast for the April-September 2012 summer driving season to $3.60/gal from $3.79/gal in last month’s outlook. EIA expects full-year regular gasoline retailprices, which averaged $3.53/gal in 2011, to average $3.56/gal in 2012 and $3.51/gal in 2013.

US oil demand this year will decline by about 70,000 b/d, or 0.4%, to average 18.76 million b/d, EIA forecasts.

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In the first quarter, total consumption fell by 3.7% from the same period last year as high prices and record warm weather depressed consumption.

For this year’s second half, EIA expects a 1.2% year-over-year increase of 230,000 b/d in liquid fuels consumption. The bulk of that increase comes from distillate fuel due to projected economic growth and nearnormal winter weather, the report said.

In 2013, EIA forecasts that US oil demand willrise by 120,000 b/d, with gasoline demand declining by 30,000 b/d from this year. Distillate fuel oil demand, however, is projected to climb by 90,000 b/d next year.

US crude oil production will average 6.3 million b/d this year, up 600,000 b/d from last year and the highest level of production since 1998, EIA said. Projected US crude oil production is 6.7 million b/d in 2013.

Global oil supply, demand EIA expects worldwide oil demand growth of 800,000 b/d in 2012 and 1.1 million b/d in 2013, with China, the Middle East, Central and South America, and other countries outside the Organization for Economic Cooperation and Development (OECD) accounting for “essentially all consumption growth, the report said.

Projected OECD liquid fuels consumption will decline by 400,000 b/d in 2012, and in 2013, OECD liquid fuels consumption will remain essentially flat, with consumption growth in the US offsetting some of the decline in Europe.

EIA expects that OPEC members will continue to produce more than 30 million b/d of crude oil over the next 2 Years to accommodate the projected increase in world oil demand and to counterbalance supply disruptions.

US natural gas Forecast average US gas demand in 2012 is 69.46 bcfd, up 4.1% from last year and down 0.7 bcfd from EIA. previous monthly outlook. This new projection revises downward the forecast for residential and commercial consumption to reflect a decline in total projected 2012 heating degreedays as reported by the National Oceanic and Atmospheric Administration.

EIA expects that large gains in electric power use will offset declines in residential and commercial use. Projected consumption of gas in the electric power sector grows by nearly 20% in 2012, primarily driven by the increased relative cost advantages of natural gas over coalfor power generation in some regions. US gas demand in 2013 is forecast to average 71.3 bcfd.

While EIA expects year-over-year production growth to continue in 2012, the projected increase of 3.4% is below 2011 growth, as low prices reduce new drilling plans.

Natural gas working inventories ended May at an estimated 2.9 tcf, up about 31% from the same time last year.

EIA’s average 2012 Henry Hub natural gas spot price forecast is $2.55/MMbtu, which is 10¢/MMbtu higher than last month’s outlook. EIA expects that Henry Hub spot prices will average $3.23/MMbtu in 2013.

To access this Article, go to: http://www.ogj.com/content/ogj/en/articles/2012/06/eia-lowers-expectations-of-oil-pricesgasdemand.htm

June 2012

EIA cuts 2012 world oil demand growth forecast, raises non-Opec output Raises forecast for non-Opec production growth in 2012 by 120,000 bpd to 800,000 bpd, taking total non-Opec output to 52.72 million bpd.

Reuters / June 12, 2012, 23:53 IST The U.S. Energy Information Administration (EIA) on Tuesday cut its 2012 world oil demand growth forecast by 150,000 barrels per day (bpd) to 810,000 bpd, while raising its expectations for output growth from countries outside of the Organization of the Petroleum Exporting Countries (Opec). The EIA said it had increased its forecast for non-Opec crude oil and liquid fuels production growth in 2012 by 120,000 bpd to 800,000 bpd, taking total non-Opec output to 52.72 million bpd. Estimates of lower demand growth and higher production growth have added to signs the oil market is well supplied, which has contributed to Brent crude oil falling by more than $30 a barrel since the beginning of March.

On Tuesday Brent was trading near $97 a barrel, well below March's post-2008 peak of $128.40 a barrel. U.S. crude oil futures, which have been pushed lower by higher production in the Midwest of the United States, were around $83 a barrel. "The largest area of non-Opec growth is North America... resulting from continued production growth from U.S. onshore shale and other tight oil formations and Canadian oil sands," the EIA said, adding that production increases in the United States and Canada would total 890,000 bpd in 2012 and 470,000 bpd in 2013.

Higher output in North America as well as from within Opec, which is pumping well above its 30 million bpd output target due to production increases by Saudi Arabia, has helped calm market fears about the impact of existing and pending sanctions against Iran's oil industry and exports.

The EIA said it expects Iran's crude oil production to fall by 850,000 barrel per day (bpd) by the end of 2012 because of a lack of investment, reducing its output to 2.7 million bpd from 3.55 million bpd at the end of last year.

The EIA said its forecast did not factor in the potential further impact of more "recent sanctions targeting Iran's central bank and the impending European Union embargo on Iran's crude oil production," which come into effect on July 1.

The EIA said it expects Iran's crude oil production to fall by another 200,000 bpd in 2013.

OPEC chief hints at action to reduce oil glut Reuters / By Peg Mackey, June 11, 2012 OPEC's president signalled on Monday it could act to reduce a glut of oil that has knocked the price down towards double digits, but said it was unlikely to set individual country production quotas at a meeting this week. Abdul Kareem Luaibi, who also serves as oil minister of Iraq, said maintaining the price at $100-$120 a barrel was "reasonable and acceptable", but repeatedly declined to specify what action if any OPEC might take when it meets on Thursday. Supply from OPEC is running nearly 2 million barrels per day (bpd) above a self-imposed production ceiling of 30 million barrels per day set when ministers last met in December. At the time, individual targets for countries were not allocated.

"It's very clear there is a tremendous surplus that has led to this severe decline in prices in a very short time span," Luaibi told reporters. "This will not serve anyone." Oil is now

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trading at about $100 a barrel after falling back from a four-year high of $128 in March.

Worries about the slow pace of global economic recovery have helped depress prices, which had been boosted earlier this year by tension between the West and Iran over its nuclear programme. The OPEC president said that ministers of the 12-nation group would decide what action to take after a review of market conditions, but declined to give further details.

"We have our own view about the surplus, but it's not diplomatic to talk about if for the time being," he said. He did make clear that new individual quotas for countries were unlikely to be agreed, as long as the prospect looms of sanctions on Iran. "It's rather difficult at this conference to talk about individual quotas because there are outside conditions beyond the control of OPEC," he said. Iran, which has seen its own production sink to the lowest level in two decades as a result of EU and U.S. sanctions, blames Gulf Arab countries for overproducing and wants cuts to support higher prices.

Luaibi said his own country, Iraq, would export 2.9 million bpd next year - up from 2.4 million bpd now. That implies total Iraqi output of 3.4 million bpd, which would allow it to overtake Iran as OPEC's second biggest producer. Iraq has ambitious plans to expand production held back by decades of war and sanctions. Iran is especially frustrated by the lofty production rate of Saudi Arabia, which has exceeded 10 million bpd to reach a 30-year high. The kingdom's aim was to help drive the price down to $100 - a level it feels is ideal and help cushion consumers from a loss of supply from sanctions-hit Iran. But there are signs that Saudi Arabia could be turning down the taps. It pumped 9.8 million bpd of crude oil in May, an industry source said on Saturday.

Traditional allies of Iran - Venezuela and Algeria - have also criticized OPEC overproduction, with Algiers even suggesting the possibility of a supply cut. After oil fell below $100 last week, Venezuelan President Hugo Chavez said he was worried about OPEC members violating the agreed production ceiling.

US oil majors eye TAPI gas project

Richa Mishra Exxon, Chevron keen on upstream, pipeline participation New Delhi, June 12 Turkmenistan's South Yolotan – Osman gas fields, which will be source for the Turkeminstan-Afghanistan-Pakistan-India (TAPI) Gas Pipeline project, is attracting ExxonMobil's and Chevron's of the world for upstream participation.

However, the Turkmen authorities have made it clear that no equity participation in the upstream development of this giant field, recently renamed Galkynysh, could be considered, according to their present Government policy. The Turkmen will offer service contracts for this purpose, sources privy to the development said.

Phase I of South Yolotan is being developed (for gas supplies to China beginning 2013) on service contract basis. Those engaged in the job include Hyundai, Petrofac, and CNPC. Phase II of this giant field is for supplies to TAPI pipeline.

In a ‘service contract', payment is made in accordance with the services rendered.

However, the company rendering such services is not entitled to any share in oil/gas in that block. While in a production-sharing agreement (PSA), the company concerned takes

June 2012

calculated risk in investing in an upstream venture and is entitled to its share (as stated in the agreement) in the resulting oil/gas production.

The licensing round in India is based on production-sharing contracts. This helps as the company brings both investment and technology for upstream development and if commercial discovery is made, for the development of the field. This also helps in increasing the pace of upstream work.

Most countries award PSAs but a few countries go along the service contract route. Iran and Turkmenistan (for onshore fields) are among the few favouring service contracts.

Roadshows Sources said that pipeline building and operation is in itself an economically viable proposition. Some of these global majors have envisaged interest for participating in the TAPI pipeline.

“But, we have to await response during the roadshows to decide further,” the sources said.

The roadshows will be held at Singapore, New York, London and Ashgabat, in a quick succession in September.

The four member-countries of TAPI will provide the agreed set of their respective information, to be put in a package, by July 15 by ADB for dissemination, prior to the roadshows, among all those interested in participating in the pipeline consortium.

“Though the TAPI member-countries are keen to be minority partners in the consortium, we need one big company to act as a prime mover to take this project forward,” sources said. richam@thehindu.co.in Keywords: Turkmenistan's South Yolotan – Osman gas fields, Turk BP looks for growth in Gulf, starts new field Posted on June 12, 2012 at 11:16 am by Zain Shauk in Gulf of Mexico The Ensco 8501 semi-submersible rig in the Gulf of Mexico (Jennifer A. Dlouhy/Houston Chronicle) BP has started production at a key new oil operation under more than a mile of water in the Gulf of Mexico, where it expects production to peak at 60,000 barrels a day of oil equivalent, the company said Tuesday.

Production started up on June 3 at the Galapagos development, which currently includes three wells that BP owns jointly with Noble Energy, Red Willow and Houston Energy, BP said.

It is located about 140 miles southeast of New Orleans, far from its namesake Galapagos Islands in the Pacific Ocean, and is under about 6,500 feet of water. The project began development in 2006, but one of the wells, the Santiago, was the first to receive a permit after a moratorium was lifted following the 2010 oil spill at the BP-owned Macondo well.

“The start-up of this project in the Gulf of Mexico is one of BP’s key operational milestones for 2012, one of six high-margin projects we expect to come on stream this year,” CEO Bob Dudley said in a statement. “I expect that the operational progress we are now making will deliver increasing financial momentum for BP as we move into 2013 and 2014.”

Despite the 2010 spill, for which the company is still engaged in restoration efforts and settlement negotiations, BP has continued to bank on major hydrocarbon developments in the Gulf of Mexico.

The company said it is the largest leaseholder in the Gulf, with more than 650 leases, and has interests in more than 20 fields there.

June 2012

“The Galapagos development marks another significant step forward for BP in the Gulf of Mexico, and reflects the potential we continue to see in this world-class basin, now and in the future,” James Dupree, regional president of BP’s U.S. Gulf of Mexico business, said in a statement.

The Galapagos development includes the Isabela, Santiago and Santa Cruz fields.

Noble Energy discovered the Santiago prospect last year while using a Ensco 8501 drilling rig. Noble is operating the Santiago and Santa Cruz fields, while BP is operating the Isabela field, BP said.

BP has a 56 percent stake in the project. It is the first new development to come online for BP since the spill, although the company has drilled and begun production at a new well this year in the existing Thunder Horse development.

Drug problems hindering offshore recruiters Posted on June 1, 2012 at 10:16 am by Dan X. McGraw in Offshore, Workforce It’s no secret that a drilling boom has created a staffing crunch in the energy industry, but drug use is also hindering companies from hiring qualified workers.

According to KUHF, Hercules Offshore Chief Executive Officer John Rynd said the drug problem has also factored in to the industry’s ability to hire skilled workers.

“We have about a 30 percent attrition just alone on the drugs, not passing the drug test,” he told the radio station. “We cannot afford to allow anybody under the influence of alcohol and/or drugs to board one of our vessels.”

Offshore companies have zero tolerance policy on drug and alcohol use while on duty because of the potential safety concerns associated with both.

Increased gas use, efficiency help U.S. slash carbon emissions Financial Times, 24 May 2012 The United States led all countries in cutting energy-related carbon dioxide emissions, reducing output by 450 million tonnes over the past five years, IEA Chief Economist Fatih Birol told the Financial Times in a Page One article. Increased efficiency and a shift to gas from coal in the power sector drove the shift: "This is a success story based on a combination of policy and technology -- policy driving greater efficiency and technology making shale gas production viable," he said. But the world as a whole emitted an entire gigatonne more last year than in 2010, for a total of 31.6 gigatonnes, led by China.

Despite fall, oil prices threaten global recovery Reuters, 16 May 2012 IEA Chief Economist Fatih Birol warned that oil prices remain a threat to the fragile global economic recovery. "Even current prices are far too high for the current economic context," Birol told the 2012 Reuters Global Energy & Environment Summit, adding, “I'm concerned for Europe and I'm also very concerned that these high prices would hit the still hesitant and slow U.S. economic recovery.”

IEA Chief Economist sees threat from Oil Prices In an article assessing the prospects and risks of geoengineering – intentional human modification of the earth’s atmosphere to stem global warming – The New Yorker quotes

June 2012

Fatih Birol, the chief economist for the International Energy Agency, on how current levels of human consumption “put the world perfectly on track for a six-degree Celsius rise in temperature. … Everybody, even schoolchildren, knows this will have catastrophic implications for all of us.”

Global crude demand should rise sharply in coming months – Oil Market Report June’s Oil Market Report (OMR) highlights a ‘better-supplied’ rather than an ‘over-supplied’ market.

13 June 2012 It notes sharp recent falls in prices, as economic news flow has worsened. The report’s base case retains 2012 demand growth unchanged at 0.8 million barrels per day (mb/d), but highlights a low-GDP sensitivity that would result in growth of nearer 0.35 mb/d.

OECD industry stocks have recovered closer to five-year norms and 2012 has so far also seen substantial builds in stocks in emerging markets. European refining operations are constrained by weak margins, but global crude demand should rise sharply in coming months, as refiners return from maintenance and new capacity is added. Summer power generation demand and potential continued non-OECD stockpiling could boost crude demand further. Non-OPEC supply is expected to recover slowly from recent unplanned outages.

Recent OPEC output stands around 1 mb/d above the 2H12 ‘call’, but with Iran having to potentially shut-in crude over the summer as a result of sanctions, markets may remain tighter than recent fundamentals suggest.

Oil prices to ease further this year: Shell CEO Sorce: moneycontrol.com, June5,2012 Oil prices will weaken further in the second half of this year as demand reacts to a slowing global economy, while international political tensions ease, Royal Dutch Shell CEO Peter Voser said on Tuesday.

Brent crude this week dropped to a 16-month low below USD 96 a barrel as weak economic data from the United States and China added to ongoing worries about the euro zone crisis, though prices moved back up to above USD 99 a barrel on Tuesday.

"Global demand is softening, we have got recessionary elements in Europe, a small slowdown in Asia Pacific," Voser told Reuters in an interview on the sidelines of the World Gas Conference in Malaysia's capital.

"At the same time, some of the geopolitical elements of price volatility over the past few months have kind of receded, and therefore we see a softening of prices which I expect to go well into the second half of this year."

The pace of oil demand would recover slowly in 2013, and prices would rise with it, Voser predicted.

Ministers and central bankers from the United States, Canada, Japan, Britain, Germany, France and Italy will discuss the euro zone debt crisis later on Tuesday in a sign of heightened global alarm about the strains in the 17-nation European currency area.

Concern over the state of the world economy and ample global crude supplies have taken the spotlight from lingering tensions between Iran and Western powers, which just three months ago helped push Brent crude prices to above USD 128 a barrel.

June 2012

Those concerns have eased, and Voser said the global oil market had enough supply to deal with the impact of the sanctions. US sanctions on Iranian crude buyers come into effect at the end of this month, while a European Union embargo banning its members from importing take effect on July 1.

"I think the world has dealt with that," Voser said, when asked about the impact of sanctions on exports.

All units operated by Shell have stopped importing Iranian crude, Voser said, though he declined to comment on Japan's Showa Shell, in which Shell has around a one-third stake and which imports Iranian crude.

Output from Iraq's giant Majnoon oilfield, which Shell is developing and operates, will reach 175,000 barrels per day (bpd) before 2015, up from around 65,000-75,000 bpd now, he said. Shell is in talks with Iraq to cut its eventual output target from the field from 1.8 million bpd to 1 million bpd in 2017, Reuters reported last month.

LNG NEEDS Speaking on the liquefied natural gas (LNG) market, Shell said exports of the fuel from the United States would help meet rapid growth in world demand.

"It's hard to see how the industry can lift supply to meet the speed of demand without a contribution from North America," De la Rey Venter, Shell's head of global LNG, told the same conference earlier, adding he expected the global LNG market to remain tight until at least 2015 due to a dearth of new supply projects coming on stream as a result of a slowdown in investment after the global financial crisis.

The market may be tight for longer, as the track record for project delays in the industry means that those scheduled to start in 2015 could actually start later. "Projects with a notable delay have become the rule, not the exception," Venter said.

Rex Tillerson, CEO of Exxon Mobil Corp, said his company, the world's largest publicly traded energy firm, is considering exporting LNG from the United States. Exxon Mobil has been North America's largest natural gas producer since it bought XTO Energy Inc in 2010.

Asked at the conference whether Exxon Mobil planned to export LNG from the United States, Tillerson said: "We are studying it."

Shell's Voser said he expects global LNG demand to double by 2025. Shell sold 18.83 million tonnes of LNG in 2011, up 12% from 2010 on higher output from Qatar, Nigeria and Russia. The company has 8 million tonnes per annum (mtpa) of LNG under construction, all in Australia, and has some 15 mtpa of new LNG capacity under study globally.

Shell, whose gas output is likely to outpace its oil output for the first time this year, is to anchor the world's largest floating offshore production vessel off northwestern Australia.

The Prelude project, likely to cost over USD 10 billion, will produce 3.6 mtpa of LNG by 2017 for energy-hungry Asia.

In March, Shell signed a production-sharing contract with China National Petroleum Corporation (CNPC) to develop a shale gas block in China, the first deal of its kind in the country.

Analyst sees near-term natural gas prices below $3/MMbtu Natural gas prices are expected to hover below $3/MMbtu for 6-24 months, primarily bouncing between $1.75/MMbtu and $2.50/MMbtu, David Cunningham, managing director of Tudor, Pickering, Holt & Co., told a Mayer Brown LLP energy conference on May 23.

Long term, we see the price at $5/MMbtu,― Cunningham said, referring to average prices

June 2012

on the New York Mercantile Exchange in 3-5 years. He noted that gas producers are getting more efficient and lowering their costs so future break-even levels could move lower.

Currently gas production is not economic because the break-even point for most US gas basins is at least $3/MMbtu, he said. Investors instead have shifted their focus toward liquids plays. A price of $5-5.50/MMbtu is the price level at which investors will regain confidence in the gas industry, Cunningham said.

Associated gas from unconventional liquids plays is a popular topic, Cunningham said.

Even though the US currently is in a gas supply overhang, associated gas production still brings revenue for producers. Today we are flaring gas in the Bakken because we don’t have the infrastructure in place, Cunningham said. Many pipeline projects are under way or in the planning stages for the Bakken formation in North Dakota and Montana. The US needs additional demand for gas, Cunningham said. He believes the rig count will fall in coming months KMEP to reverse Cochin Pipeline, ship diluent to Alberta Kinder Morgan Energy Partners LP (KMEP) has completed a successful binding open season for its Cochin Reversal project, allowing the company to offer service to move light condensate from Kankakee County, Ill., to existing terminalfacilities near Fort Saskatchewan, Alta. KMEP received more than 100,000 b/d of binding commitments for a minimum 10-year term. The roughly $225 million project involves KMEP modifying the western leg of its Cochin Pipeline to connect to Explorer Pipeline Co’s pipeline in Kankakee County and to reverse the product flow to move condensate northwest to Fort Saskatchewan. Condensate will be sourced from the both the Eagle Ford shale and US Gulf Coast, KMEP said. Cochin is a 1,900-mile, 12-in. OD multiproduct pipeline operating between Fort Saskatchewan, Alta., and Windsor, Ont. It currently moves propane and ethane-propane mix to the US Midwest and eastern Canadian petrochemical and fuel customers. Explorer Pipeline is a nearly 1,900-mile common carrier pipeline system moving refined petroleum products, feedstock, and diluent from the Gulf Coast throughout the Midwest. Light condensate shipments could begin as early as July 1, 2014, pending regulatory approvals. KMEP has yet to determine the nature of future eastbound service from Illinois to Windsor, Ont. (OGJ Online, Apr. 23, 2012).

Contact Christopher E. Smith at chriss@ogjonline.com.

Canadian oil output seen doubling by 2030 HOUSTON, , 06/06/2012

By OGJ editors Production of crude oil wills more than double to 6.2 million b/d by 2030, largely from oil sands, according to the Canadian Association of Petroleum Producers.

Production last year was 3 million b/d, of which 1.1 million b/d came from conventional resources in Western Canada, 1.6 million b/d from oil sands, and 300,000 b/d from Eastern Canada, CAPP says in a new report.

The trade group expects conventional production in Western Canada to rise to 1.3 million b/d in 2015 and 2020 before slipping to 1.2 million b/d in 2025 and back to 1.1 million b/d in 2030.

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Production from the oil sands region climbs steadily in the CAPP projection: to 2.3 million b/d in 2015, 3.1 million b/d in 2020, 4.2 million b/d in 2025, and 5 million b/d in 2030.

Conventional production from Eastern Canada, CAPP says, will slip to 200,000 b/d in 2015 and stay at that level through 2025 before falling to 100,000 b/d in 2030.

IEA SEES CHINA DOUBLING GAS DEMAND BY 2017 O&G Journal June,4 China will more than double its gas consumption over the next 5 years, while lower prices from the unconventional gas revolution will continue to benefit the US, according to a new report from the International Energy Agency.

IEA's Medium-Term Gas Market Report 2012, released June 5 at the World Gas Conference 2012 (WGC 2012) in Kuala Lumpur, says China will become the third-largest importer of gas behind Europe and Asia Oceania, driving a 2.7%/year average growth in global gas demand through 2017. This is up from the 2.4%/year growth rate predicted in last year's report.

Also during the period, North America will become a net exporter of LNG, although low gas prices will result in gas generating almost as much electricity as coal in the US by 2017, according to IEA. Japanese imports will increase, although by how much will hinge on the country's nuclear policies, IEA said.

The so-called "Golden Age of Gas" has dawned in North America, but its continued expansion worldwide depends on producing gas and bringing it to market in a way that is friendly to investors and society as a whole, IEA Executive Director Maria van der Hoeven said at the report's launch.

"As gas competes against other energy sources in all market segments, notably in the power sector, pricing conditions are a key element to keep it competitive everywhere. This medium-term report aims to facilitate investor decisions by providing a timely, in-depth analysis of the current trends and what we expect to take place over the coming 5 years," Van der Hoeven said.

The report said natural gas is the most important commodity without a global market price.

Divergence among regional gas prices will decline but remain a feature of global gas markets over the forecast period, and the emergence of a spot price in Asia would aid regional producers and buyers, according to the report.

While the outlook calls for a rise in gas demand in most regions, demand in Europe will be limited by low economic growth, relatively high gas prices, and strong growth of renewable energy. The report noted that successful and timely developments of new resources should lift gas demand in the Middle East, Africa, and Asia.

The report identifies other future sources of supply, with most incremental production coming from the former Soviet Union and North America. Further growth in unconventional gas will come mostly from shale gas in North America in addition to tight gas and coalbed methane production elsewhere. Shale gas developments in other regions are likely to be concentrated in China and Poland.

The report noted that global gas trade will expand by 35% over the forecast period, driven

by LNG and pipeline gas exports from the FSU region. Most of this expansion occurs from 2015 onwards, following a time of further tightening of global gas markets.

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ExxonMobil gas outlook Meanwhile, ExxonMobil Corp. forecasts that by 2025, gas will overtake coal to become the second most widely used source of energy worldwide.

"The need for natural gas resources is greatest in regions like the Asia-Pacific, where energy demand is projected to grow by more than 50% over the next 3 decades," Rex W. Tillerson, ExxonMobil chairman and chief executive officer said June 5 at WGC 2012.

North America has been the proving ground for unconventional gas development, and the results have been encouraging, confirming the enormous potential of this resource. "The challenge now is to confirm the size of the global unconventional resource and to fully apply these breakthrough technologies to nations outside North America," Tillerson said.

"Our future success will depend not only on geologic conditions and technological innovations, but also on government policies, effective business partnerships, and disciplined investments," Tillerson said, adding, "Fortunately, as government and industry leaders consider the growing importance of natural gas and the need for its development, they can study and learn from the successes and shortcomings of the North American experience."

Tillerson noted that these policies needed to responsibly develop gas should hold the industry accountable to operational integrity and excellence without stifling innovation and investment.

ExxonMobil plans expansion at Baytown petrochemical complex 06/05/2012, By OGJ editors ExxonMobil Corp. reported plans for a major expansion at its Baytown, Tex., refining and petrochemical complex just east of Houston. Plans call for construction of a 1.5 million tonne/year ethane cracker at the complex as well as two 650,000 tpy polyethylene production lines nearby its plastics plant in Mont Belvieu, Tex. ExxonMobil has already filed approval requests with the US Environmental Protection Agency and the Texas Commission on Environmental Quality. The project’s final decision will be taken following the completion of the review and approval procedure, which is expected to take about a year. ExxonMobil anticipates the facilities to be online in 2016.

ExxonMobil's Baytown complex is the largest in the US. Apart from generating 10,000 temporary construction jobs as well as 350 permanent jobs, this expansion will likely create 3,700 jobs in the Baytown area, the company said.

“The proposed investment reflects ExxonMobil’s continued confidence in the natural gasdriven revitalization of the US chemical industry,” a company spokeswoman said.

ExxonMobil became the largest US gas producer when it acquired XTO Energy Inc. in 2010 HONEYWELL’S UOP HYDROGEN PURIFICATION TECHNOLOGY SELECTED FOR CLEAN FUEL REFINING IN RUSSIA Antipinsky Refinery will use Honeywell’s UOP Polybed™ PSA System to increase crude oil processing by as much as 7 million tons per year DES PLAINES, Ill., June 5, 2012 -- UOP LLC, a Honeywell (NYSE: HON) company, announced today that it has been selected by Haldor Topsoe to provide technology to purify hydrogen from a steam reforming unit to be installed at the Antipinsky Refinery in Tyumen, Russia.

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Honeywell’s UOP Polybed™ PSA (Pressure Swing Adsorption) System will recover and purify hydrogen to help the refinery meet the increasing need for clean transportation fuels such as diesel and gasoline.

“UOP’s hydrogen purification technology will allow the Antipinksy Refinery to meet today’s challenge of producing cleaner fuels more efficiently,” said Rebecca Liebert, vice president and general manager for gas processing and hydrogen at Honeywell’s UOP. “The impressive hydrogen recovery rates and proven reliability of our solution will help the refinery improve its profitability and ensure dependable operation.”

The new hydrogen unit, which is scheduled to start-up in 2013, is part of the refinery’s plan to increase its capacity of crude oil processing by as much as 7 million tons per year. It will also enable the production of fuel products that meet the European Union’s Euro-5 emission standards aimed at reducing emissions from light duty vehicles.

Refineries use hydrogen in the hydrocracking process to convert heavy oils to lighter, higher-value products such as transportation fuels. Hydrogen is also used in the hydrotreating process to remove contaminants and improve the quality of end products.

To date, Honeywell’s UOP has provided more than 900 Polybed PSA Systems worldwide, including more than 390 units to purify hydrogen from steam reformers, such as at the Antipinsky Refinery. Honeywell’s UOP has provided Polybed™ PSA Systems for many Haldor Topsoe hydrogen plants around the world.

The Polybed PSA System is a skid-mounted, modular unit that comes complete with vessels, valve skid, adsorbents, control systems and embedded process technology. The process uses proprietary UOP adsorbents to adsorb impurities at high pressure from hydrogen-containing waste streams and subsequently reject them at low pressure. The system allows hydrogen to be recovered and upgraded to more than 99.9 percent purity to meet downstream processing requirements.

In addition to recovering and purifying hydrogen from steam reformers, Polybed PSA Systems can be used to produce hydrogen from other sources, including refinery off-gases, ethylene off-gas, methanol off-gas and partial oxidation/syngas.

Haldor Topsoe is a global supplier of catalysts and technologies, headquartered in Lyngby, Denmark.

UOP LLC, headquartered in Des Plaines, Illinois, USA, is a leading international supplier and licensor of process technology, catalysts, adsorbents, process plants, and consulting services to the petroleum refining, petrochemical, and gas processing industries. UOP is a wholly-owned subsidiary of Honeywell International, Inc. and is part of Honeywell’s Performance Materials and Technologies strategic business group. For more information, go to www.uop.com.

Honeywell (www.honeywell.com) is a Fortune 100 diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; turbochargers; and specialty materials. Based in Morris Township, N.J., Exxon, Shell See U.S.-Led Gas Boom Boosting Global Growth

By Dinakar Sethuraman, Rakteem Katakey and James Paton on June 05, 2012 Exxon Mobil Corp. (XOM) (XOM), the world’s biggest energy company, and Royal Dutch Shell Plc (RDSA) said a U.S.- led transformation of the natural-gas market will boost the global economy even as oil becomes more expensive.

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“Natural gas is quickly becoming a key enabler of economic growth and environmental progress around the world,” Rex W. Tillerson, chief executive officer of Exxon, said at a conference today in Kuala Lumpur. “We are living at a historic moment in the evolution of energy markets. How we respond will shape the quality of life for generations to come.”

A shale boom in the U.S. has helped it surpass Russia as the world’s biggest producer of natural gas and brought the country close to energy independence. Gas is poised to overtake coal as the second-most widely used source of energy worldwide by 2025, with demand in Asia projected to grow by more than 50 percent over the next three decades, Tillerson said.

Reserves of gas, a cleaner-burning fuel, are helping rebuild the U.S. economy and enabling China to replace more- polluting coal, Peter Voser, Shell’s chief executive office, said in a separate speech at the World Gas Conference in the Malaysian capital today.

U.S. gas production increased 8.1 percent last year alone, about the same as in four years in the previous decade, the International Energy Agency said in report released today.

U.S. Surplus Gas “While the U.S. has yet to export LNG, it is already physically exporting its gas surplus to neighboring countries,” including Canada and Mexico, according to the report. While Australia’s LNG production was stagnant last year, the country is expected to be the largest LNG supplier by the end of the decade, the IEA said.

Shell, Exxon, Chevron Corp. (CVX) (CVX) and Woodside Petroleum Ltd. (WPL) are among companies leading $180 billion of liquefied-natural-gas ventures in Australia that are underpinned by demand from Asia’s biggest economies. China, estimated to hold triple the shale reserves of the U.S., and Australia will see the next wave of the gas revolution as world LNG demand doubles in the next decade, Voser told delegates at the conference.

Woodside, Australia’s second-biggest oil and gas producer, said the U.S. is unlikely to grant new natural-gas export permits until after the presidential election and volumes eventually shipped may be lower than some predictions.

U.S. Obstacles “Some people speculate about numbers up to 100 million tons per year” of liquefied natural gas exports, Chief Executive Officer Peter Coleman said in an interview at the Kuala Lumpur conference. “I don’t see that. It’s unlikely there will be a lot of movement on additional expansion until after the election cycle in the U.S.” Woodside, operator of the A$15 billion ($14.6 billion) Pluto LNG project in Western Australia, expects the U.S. to export 30 million to 50 million metric tons of the fuel “In the U.S., you are always going to have constraints with the need for gas in power generation and the chemicals industry,” Coleman said. “That says a lot of gas will stay in the U.S.,” he said. “Australian LNG has its place.”

Benchmark gas prices in the U.S. have slumped to the lowest in a decade amid a supply glut.Gas futures slid to $1.90 per million Btu on the New York Mercantile Exchange April 19, the lowest since September 2001.

Oil prices are unlikely to collapse as they did in 2008 because long-term fundamentals haven’t changed and supply will struggle to meet a projected increase in global demand, according to Voser.

U.S. crude futures, which slumped to an eight-month low near $81 a barrel yesterday, have declined because of concern over economic growth this year and as geopolitical tension in producing regions subside, the Shell CEO said.

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Oil Prices “The softening of the oil price at the moment is a reflection of some of the geopolitical issues being less dominant and the lower demand outlook,” Voser said. “The long- term fundamentals haven’t changed, which means that most probably, given energy-demand growth in the world in the longer term, supply will struggle to keep pace.”

Oil dropped from a record high of $147.27 a barrel to $32.40 between July and December 2008 as the global recession sapped demand. Futures on the New York Mercantile Exchange tumbled 17 percent last month, the most since December 2008, and traded today as high as $84.92 a barrel.

“We’ve seen a lot of volatility, mainly on the demand side,” Voser said after delivering a keynote address at the industry gathering. “We’ve had some geopolitical dimensions around the Middle East, in Iran and Syria, following the political tensions in Libya a year ago, so I think that’s reflected in the price in the more short to medium term.”

Oil traded as high as $110.55 a barrel March 1 on speculation that international sanctions against Iran threatened supplies from the world’s fourth-biggest producer. Prices have since dropped as Iran resumed talks with the West over its nuclear program while Europe’s debt crisis and China’s slowing economy damped the outlook for oil demand.

To contact the reporters on this story: Dinakar Sethuraman in Kuala Lumpur Rakteem Katakey in Kuala Lumpur at dinakar@bloomberg.net; at rkatakey@bloomberg.net; James Paton in Kuala Lumpur at jpaton4@bloomberg.net Keystone XL can help U.S. achieve energy independence Houston experts discuss America’s future energy dependence Houston Business Journal by Molly Ryan, Reporter Date: Thursday, May 24, 2012, 1:23pm CDT Related: Energy, Houston, Oil & gas, Mining and Drilling, Events The U.S. can achieve energy independence in 12 years if it takes advantage of domestic drilling opportunities and Canada's crude resources, said John Felmy, the American Petroleum Institute's chief economist. Environmentalists should support TransCanada's Keystone XL pipeline because it has low shipping emissions, Felmy said during The Houston Energy Forum. "The Canadian oil sands ... are worth about $14 trillion in terms of value. The GDP of Canada is $1.4 [trillion]. The notion that they wouldn't develop something like that isn't realistic. It's silly," Felmy said.

The Houston Energy Forum was moderated by Robert Thomas (left), and panelists included Bobby Tudor (second from left), Floyd Wilson and John Felmy.

At the Houston Business Journals’ Celebrate Enterprise conference Thursday morning, John Felmy, the American Petroleum Institute’s chief economist, proclaimed that in 12 years, America could become 100 percent self-sufficient in terms of energy production.

Felmy’s statement was greeted with a round of applause from the 300 people attending The Houston Energy Forum, where one of the main topics of discussion was if and how America could become energy independent. The forum was moderated by Robert Thomas, partner and head of the energy section of Porter Hedges LLP, and featured a panel that included Bobby Tudor, CEO of Tudor, Pickering, Holt & Co. LLC; Floyd Wilson, CEO of Halcón Resources Corp.; and Felmy.

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In order to move toward energy independence, America needs to act fast, said Felmy, who was also the event’s keynote speaker. The country needs to take advantage of national drilling opportunities and crude resources in Canada to achieve this self-reliance, he said.

Although environmentalists have put up a strong fight against the Keystone pipeline transmitting crude oil from Canada to the U.S., Felmy said they should support it because the pipeline has low shipping emissions. Also, there is no way environmentalists can stop Canada from producing oil, since it is such a rich resource for the country.

“The Canadian oil sands … are worth about $14 trillion in terms of value. The GDP of Canada is $1.4 (trillion). The notion that they wouldn’t develop something like that isn’t realistic. It’s silly,” Felmy said.

Environmentalists and politicians should embrace the resources we have available, Felmy argued. However, the issue remains that “energy policy is too often divorced from reality,” he said.

Other panelists during the discussion stressed America’s role as an innovator driving its future energy independence despite what policies are in effect.

Wilson said he is not a fan of politics because “we are usually the victim of politics;” however, America has to be commended for it’s innovative spirit. There is no other place where there is such an abundance of opportunity and creativity in business, and the government will never take that away, he said.

With the shale technology boom, Wilson said things are looking up for national energy in ways that have never been seen before.

“This tech explosion has led to places you wouldn’t have even thought about before,” he said.

Tudor said his side of the business, investment banking, has also seen this type of new innovation. In the last three to four months, he said he has seen multiple ideas from companies that want to convert drilling rigs and trucks to compressed natural gas because it is such an abundant resource now.

However, more capital is needed for companies that want to continue exploring new options for oil and gas in the U.S. Tudor said he is worried that the development of new emerging basins is so expensive, and if the “equity market window isn’t open,” companies cannot continue as much new activity.

Molly Ryan covers manufacturing, transportation and logistics.

ALTERNATIVE & RENEWABLE ENERGY SHALE GAS China could be biggest shale gas producer by 2030 06/07/2012, By OGJ editors China has the potential to become the world’s largest shale gas producer by 2030, delegates at the World Gas Conference in Kuala Lumpur, Malaysia, said in survey results according to a June 6 poll conducted by GL Noble Denton. Survey results said 81% of 438 people polled indicated they believe China will become the largest shale gas producer in the next 18 years, while 19% believe that it will not. Independent technical advisor GL Noble Denton conducted the poll on the conference’s second full day.

Richard Bailey, GL Noble Denton’s executive vice-president, Asia Pacific, said, “The Chinese Ministry of Land and Resources has estimated that the country may have 25

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trillion cu m of potentially recoverable shale gas. The impact of those reserves could be even greater than in North America, which has turned from a gas importer to a potential exporter in less than a decade.”

Bailey noted that Asian unconventional gas projects were widely considered to be in their infancy just a year ago.

“The result of this poll highlights the optimism for unconventional gas production in the region,” Bailey said. “It reflects the belief of some players in the industry that China’s shale gas resources could radically alter the dynamics of supply for the world’s biggest energy consumer, just as shale gas is changing the situation in the United States.” WGC survey Exxon Mobil Says Huge Oil Potential In Western Siberia Published June 05, 2012, Dow Jones Newswires ExxonMobil and Russia's Rosneft are beginning their assessment of western Siberia's shale oil reserves, said Rex Tillerson, Exxon's chairman and CEO. "There is huge shale potential in shale rocks in west Siberia ... we just don't know what the quality is," Tillerson said. The project is included in a strategic partnership between the companies that was forged earlier in the year. Fox Business/Dow Jones Newswires Exxon Mobil Corp. (XOM) is starting work with Russia's OAO Rosneft (ROSN.RS) in assessing what could be massive reserves of shale oil in Western Siberia, the U.S. giant's Chief Executive Rex Tillerson said Tuesday. "There is huge shale potential in shale rocks in West Siberia...we just don't know what the quality is," Mr. Tillerson said in an interview with Dow Jones Newswires. The exploration work will take years to establish if the reserves are commercially viable, and are part of a strategic agreement Exxon reached earlier this year with state-controlled Rosneft, Russia's largest oil producer.

"Rosneft wished to participate in some resource development opportunities outside of Russia and we have invited them to farm into some areas in Canada and in Texas, in tight oil," Mr. Tillerson said, adding the agreement also called for Exxon to also help evaluate similar tight resources opportunities in Western Siberia.

Tight oil is mostly, but not exclusively, oil trapped in shale rock formations that requires advanced fracturing technology to release.

"The shales are basically the source rocks for conventional production in the region and anywhere you have large existing conventional production you are going to find source rocks," he said. Mr. Tillerson also said he didn't rule out Exxon joining the Russia Barents Sea Shtokman natural gas project. "On the right terms," he said, when asked if Exxon might want to farm into the project, possibly by taking part of the stakes held by Statoil ASA (STO) or Total SA (TOT) in the OAO Gazprom-led project. "At this point, we don't have any discussions ongoing with them," Mr. Tillerson said. "We were engaged in the early days on discussions to participate in that project, we weren't selected," he said. "We had put forward our views on how that resource might be developed over the long term."

Exxon is also exploring shale gas opportunities in China, he said, where shale could potentially have as big an impact as it had in the US. "We are in discussions with a couple of the Chinese national oil companies," Mr. Tillerson said, without identifying them. "We are doing some joint studies. We haven't taken a position yet, we are still talking about that and the terms around that." China's shale gas would have a slower lead-up process than in the

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U.S. as "they don't have the existing infrastructure as in the U.S., built over a 50- or 60-year period that is needed to facilitate rapid commercialization, such as pipelines, gathering systems, distribution systems. It will be significant for China eventually," Mr. Tillerson said.

Write to Simon Hall at simon.hall@dowjones.com Shell Says Early Shale-Gas Drilling in China Encouraging Published June 05, 2012, Dow Jones Newswires Shell notes progress in China shale gas drilling operations Royal Dutch Shell's initial shale natural gas drilling results in China are encouraging, the company said. Shell is "very pleased" with developments there, CEO Peter Voser said. "It is geologically more complex [in China], but I think we can achieve similar cost optimization and progress like we have done in North America. We think we can make this a profitable proposition, and that's what we're seeing with the encouraging results so far," he said. Fox Business/Dow Jones Newswires European oil major Royal Dutch Shell PLC (RDSA) said Tuesday that the results of early drilling for shale gas in China are encouraging and it expects shale-gas development in the country to be a profitable proposition. Shell in March became the first foreign company to sign a production-sharing contract to explore, develop and produce shale gas in China, a move that reflects China's strategy of using foreign technical and operational expertise to develop its untapped shale-gas reserves, which are projected to be massive. "We are very pleased with the progress there," Chief Executive Peter Voser said at a news conference.

The explosion in shale-gas production in North America over the past decade has revolutionized the global natural gas industry, sending U.S. prices to multi-year lows and turning oil majors' focus toward China, which by some estimates has greater shale-gas reserves than the U.S. In addition to Shell, Total SA (TOT) and Chevron Corp. (CVX) are also seeking to exploit shale-gas reserves in China.

"It is geologically more complex [in China], but I think we can achieve similar cost optimization and progress like we have done in North America. We think we can make this a profitable proposition, and that's what we're seeing with the encouraging results so far," Mr. Voser said. Under the agreement signed earlier this year, Shell will apply its technology, operational expertise and global experience to jointly develop shale gas with state-controlled China National Petroleum Corp. over a 3,500-square-kilometer area in the Fushun-Yongchuan block in the Sichuan Basin.

International oil majors are investing billions of dollars to develop natural gas reserves as growing resource nationalism worldwide limits access to new crude oil reserves. Shell this year will produce more natural gas than crude oil for the first time, a milestone that reflects the industry's shift toward the cleaner-burning fuel, which was once considered a waste product encountered during oil drilling. Much of the shift is the result of growing global capacity to ship gas as liquefied natural gas, breaking the industry's previous dependence on pipelines to transport natural gas.

Shell, one of the world's largest LNG players, has an LNG production capacity of 20 million metric tons a year and another 8 million tons in various stages of development.

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Mr. Voser said Shell will make a final investment decision on adding another 15 million tons of capacity in the near future.

Write to Gurdeep Singh at gurdeep.singh@dowjones.com Chesapeake to sell Utica Shale assets Posted by Jay F. Marks June 4, 2012M Chesapeake Energy Corp. is putting some of its acreage in the Ohio’s lucrative Utica Shale on the market. The company is looking to sell more than 330,000 net acres in eastern Ohio, according to a prospectus with Meagher Energy Advisors. Chesapeake holds more than 1.3 million net acres in the play that officials estimated last yearcould be worth as much as $20 billion to the company. ”This is part of our previously announced plans,” spokesman Jim Gipson said. “We will focus our development on those counties in Ohio where our land ownership is more concentrated than the land ownership in the counties being offered for sale.”

Chesapeake is looking to raise as much as $11.5 billion this year, so it is selling assets that are outside of its core holdings. The nation’s No. 2 natural gas producer also is focusing more of its efforts on more lucrative oil and liquids production, although its cash flow issues have caused Chesapeake to scale back some of its drilling plans.

Chesapeake puts more assets on the market Posted by Adam Wilmoth, May 30, 2012M As part of its continuing effort to sell assets and raise cash, Chesapeake Energy Corp. has put on the market more than 57,000 net acres of leasehold in the oil-rich Woodbine in East Texas. The oil-rich leases are for a rock layer beneath the Eagle Ford shale and above the Buda Limestone formation. The assets for sale include four 90 percent-operated Woodbine wells, five 100 percent-operated vertical Subclarksville and Bossier wells and one nonoperated Subclarksville vertical well, according to a prospectus posted on the website of Meagher Energy Advisors, which is helping Chesapeake with the sale. Meagher Energy Advisors also is working with Chesapeake on its sale of 500,000 net acres in Wyoming and Colorado. Chesapeake has said it plans to sell $9.5 billion to $11 billion by the end of the year as part of its plan to pay down debt and fund its increasing oil and natural gas liquids production.

Chesapeake has said it plans to sell off noncore assets it defines as areas where it is not either the No. 1 or No. 2 leaseholder. The Woodbine leasehold is part of the non-core assets Chesapeake has said it plans to sell.

Shell's Orion project put on block

BY DAN HEALING, CALGARY HERALDMAY 29, 2012 Shell Canada has put up for sale its underperforming Orion thermal oilsands project in the Cold Lake region of northeastern Alberta. The 2,070-hectare asset, located immediately south of Imperial Oil Ltd.'s prolific Cold Lake heavy oil acreage, is producing about 5,000 barrels per day, according to an offering memorandum posted on the website of adviser

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Scotia Waterous. A spokesman, Stephen Doolan, said Shell has given the Orion asset a lower priority on its list of investments.

"The decision to divest this asset is part of our ongoing efforts to manage our overall heavy oil portfolio to focus on our core assets," he said in an e-mail. "We have decided to focus our in situ growth aspirations on our Peace River oilsands assets where we have a significant resource base." In 2008, Shell withdrew an application for a 100,000-bpd in situ thermal oilsands project called Carmon Creek in the Peace River region, saying it would not be economic. In January 2010, it submitted an application for a scaleddown 80,000-bpd project and it is now working through engineering and design processes.

Its existing Peace River thermal operations have a 12,500-bpd capacity and its cold production facilities there have capacity of about 50,000 bpd, Doolan said. Orion was acquired in 2006 as part of the $2.4-billion purchase of BlackRock Ventures of Calgary. In October 2010, Shell wrote off about $1 billion in oilsands assets, including some from the BlackRock deal. Phase 1 of Orion commenced in 2007, but growth has been stalled at half of its 10,000-bpd regulated capacity. In recent investment bank surveys of steam-to-oil efficiency ratios, Orion has placed near the bottom in comparison with other thermal projects. About 40 people work at Orion and would probably continue to work there for the acquiring company, Doolan said, adding a sale will probably take several months to finalize.

BMO Capital Markets analyst Randy Ollenberger, who covers Imperial but not Shell, said he doesn't think Imperial would buy the property based on past practise. "Imperial is not typically a big acquirer, they see themselves as having enough assets already in the hopper," he said. "But I'm sure there are a lot of folks that might be interested." Imperial spokesman Jon Harding said the company would not comment on whether or not it would look at Orion. Based on the current output and the potential for future production gains, Shell could garner as much as $200 million for the operation, Chad Friess, an analyst with UBS Securities, said. That assumes an average unit value for such projects of $35,000$40,000 per producing barrel a day.

"They are probably getting rid of it because it's such a small part of the portfolio," Friess said. Shell uses steam-assisted gravity drainage technology at Orion, injecting steam into a horizontal well to soften the sticky bitumen and allow it to be produced through a parallel horizontal well. "The offering represents the rare opportunity to acquire an oilsands project with established current production in the proven Cold Lake region," reads the offering memo.

"Shell's Orion SAGD project has been successfully producing for over 10 years from the Clearwater formation." Shell has 22 well-pairs at Orion, which achieved operating income of $15.6 million in the first quarter of 2012, the memo says, adding it has regulatory approval for an initial two phases of 10,000 bpd and could add a third to take capacity to 30,000 bpd.

At the time of the 2010 writedowns, Royal Dutch Shell chief financial officer Simon Henry said they applied to its "rather scattered in situ and cold heavy oil positions" which had turned out to "look less good than we've previously expected."

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ExxonMobil CEO says natural gas will be ‘global economic enabler’ 6/5/2012 Increased supply of natural gas resources will help advance global economic growth with fewer emissions, Rex W. Tillerson, chairman and CEO of Exxon Mobil Corp. said in a speech at the 25th World Gas Conference in Malaysia and widely reported by media sources. By 2025, ExxonMobil predicts natural gas will overtake coal to become the second most widely used source of energy worldwide. The historic shift of global energy markets toward increased use of natural gas will create new opportunities for economic growth and environmental progress, Tillerson said today. "Natural gas is quickly becoming a key enabler of economic growth and environmental progress around the world," Tillerson said.

"We are living at a historic moment in the evolution of energy markets. How we respond will shape the quality of life for generations to come."

The need for natural gas resources is greatest in regions like the Asia-Pacific, where energy demand is projected to grow by more than 50 percent over the next three decades, Tillerson said. Natural gas can help meet needs for electricity, chemicals, and plastics that increase quality of life while reducing environmental impacts. Two key factors influencing the market’s evolution include --An Asia-Pacific region that is poised to benefit greatly from access to abundant, cleanerburning natural gas --Sound policy pathways are needed to ensure natural gas resources are unlocked in a safe, economically competitive, and environmentally responsible way Access to natural gas has been made possible in large part by industry advances in largescale liquefied natural gas (LNG) production and transportation, and in development of unconventional gas sources such as shale gas, coal bed methane, and tight sands through hydraulic fracturing and horizontal drilling techniques. "To date, North America has been the proving ground for unconventional gas development — and the results have been encouraging, confirming the enormous potential of this resource," Tillerson said. "The challenge now is to confirm the size of the global unconventional resource and to fully apply these breakthrough technologies to nations outside North America."

By learning from the North American experience, industry and government can work together to develop a legal and policy framework that encourages the safe, sustainable and environmentally responsible development of global natural gas resources. "Our future success will depend not only on geologic conditions and technological innovations, but also on government policies, effective business partnerships, and disciplined investments," Tillerson said. "Fortunately, as government and industry leaders consider the growing importance of natural gas and the need for its development, they can study and learn from the successes and shortcomings of the North American experience."

Tillerson said the policies needed to responsibly develop natural gas should hold the industry accountable to operational integrity and excellence without stifling innovation and investment.

"We know that when governments establish long-term, market-oriented policies, our industry will respond with the long-term planning, partnerships and projects that reshape

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the future for the better," he said. "With sound policies in place around the world, we can help nations and peoples achieve their economic, environmental, and energy security goals -- and as we do so, we can create opportunity and progress for all."

Renewable Energy Sustainable Development is Not Possible Without Sustainable Energy

By Timothy E. Wirth Published: June 8, 2012 In rural villages in East Africa, nearly 150 women entrepreneurs are selling solar lamps and cell phone chargers that provide clean and reliable lighting and connectivity to remote and energy-poor communities. These women, empowered by the social enterprise Solar Sister, are the ground troops of social and economic development.

Oil Refiners Launch Counter Offensive on Obama's 'War on Fossil Fuels' On June 20, world leaders will gather in Brazil for Rio+20, the UN Conference on Sustainable Development. Their mission is to set a development agenda for the next 20 years. As shown by groups like Solar Sister, the starting point for such an agenda should be clear: Energy is essential for development, and sustainable energy is essential for sustainable development.

Even in today's modern world, one in five people do not have access to electricity. Their daily reality is life without light or refrigeration, without energy for water pumping or computers. Twice as many people, nearly three billion, still rely on wood, charcoal or animal waste for cooking and heating, breathing in smoke that harms their lungs, killing nearly 2 million people a year. This energy poverty is an enormous impediment to economic progress.

In industrialized countries, the energy challenge is different – a problem of waste and pollution, not shortage. Inefficient energy use harms economic productivity. Emissions from fossil fuels, especially coal and oil, foul the air and are causing the planet's climate to change. But rapidly falling costs for renewable energy technologies are now making them the cheapest choice in many parts of the world, and more than $260 billion was invested globally in clean energy last.

CIL invites firms to assess coal bed methane reserves Press Trust of India / New Delhi June 11, 2012, 17:09 IST State-owned CIL has invited expression of interest from companies for carrying out studies to assess methane reserves of coalfields as part of efforts to increase energy supply and overcome fuel crunch.

"Central Mine Planning & Design Institute (a CIL arm) invites expression of interest for undertaking R&D (research and development) work under...Ministry of Coal from established R&D/scientific institues...For carrying out scientific studies on...CBM (coal bed methane) reserves estimation for Indian Coalfields," CIL said on its website. The tender which opened last week will expire next month, Coal India Ltd (CIL) said. "India has large

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coal reserves which may be amenable for harnessing of coal bed methane. Several blocks have been carved out and alloted for commercial extraction of CBM. "Carving out more blocks in the greenfield areas for commercial development of CBM is to be taken up on priority basis to augment energy supply in the country. For reliable assessment of CBM resource for carving out CBM blocks in greenfield areas, proving of coal reserves is a pre-requisite," the tender document said. India's CBM production is estimated to reach 4 million standard cubic meter per day (mmscmd) by 2016-17, as compared to the current level of 0.23 mmscmd in 2011-12. In order to increase production of CBM, 33 bocks have been awarded so far, according to a government release. The total commercial production of CBM in the country in 2011-12 (up to February, 2012) was 74.833 mmscmd.

The gap between the demand and supply of coal touched 161.5 million tonnes in the last fiscal. The demand was 696 MT in 2011-12, while the supply was 534.5 MT. CIL, which accounts for over 80% of domestic coal output, produced around 436 MT fuel last fiscal. year.

UN Secretary-General Ban Ki-moon has set out three intertwined energy objectives for the world to achieve by 2030: ensuring universal access to modern energy services, doubling the global rate of improvement in energy efficiency, and doubling the share of renewable energy in the global energy mix.

These are ambitious objectives, but they are also achievable.

Development is central to the United Nations' mandate, and now this global institution is advancing energy as critical to achieving development goals, whether in health care, education or poverty reduction, or to produce more food or clean water.

To deliver sustainable energy for all, government action is necessary but not sufficient. Development assistance from governments will never be enough to deliver the new investment that is needed. And businesses won't invest where there is not an opportunity for profit.

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“Energy is the golden thread that connects economic growth, social equity, and environmental sustainability." - Secretary-General Ban Ki-moon The UN is bringing both parties to the table to agree on sound policies that can unleash the flow of capital: Governments can enact policies and regulations that expand energy access and encourage private investment. Companies can invest in research and create new energy products, services and markets that will deliver solutions on the needed scale. They can also improve efficiency and adopt renewable energy in their global business operations and supply chains. Investors can provide funding for clean technologies and help scale up successful models.

At the Rio summit, governments, businesses, and non-profit groups will announce their commitments to action on Sustainable Energy for All, demonstrating early progress – a "down payment" toward transforming the world's energy systems over the next 20 years.

To read more about the UN's efforts toward achieving sustainable energy for all, click here, and to read about the initiative in Ban Ki-moon's own words, click here.

This is a unique moment. National leaders, corporate executives, and now the UN have put energy at the top of the global agenda. In the Secretary-General's words, "Energy is the golden thread that connects economic growth, social equity, and environmental sustainability."

Achieving sustainable energy for all will require a significant investment in our collective future – but one that will pay off by improving lives, growing businesses, creating new markets, and generating jobs. And by using energy more efficiently and investing in renewable energy sources, we can build the clean energy economy of the future we want.

Timothy E. Wirth is President of the Better World Fund and the United Nations Foundation. He previously served in the U.S. House and Senate and as the Undersecretary of State for Global Affairs.

Biofuels Producer Launching Ethanol Replacement

By Jared Anderson Published: May 1, 2012 http://energy.aol.com/2012/05/01/biofuels-producer-launching-ethanol-replacement/ In the race to commercialize the next generation of advanced biofuels created from inedible plant material, 50/50 BP - Dupont joint venture Butamax is pushing to make biobutanol the next big thing. The company is moving toward the commercial phase of its program to make biobutanol the US fuel blend of choice.

"We are very excited about this product - biobutanol is the highest value biofuel that can be made," Butamax CEO Paul Beckwith recently told AOL Energy.

In 2003, Dupont was looking to leverage their work with industrial chemicals derived from biomass and approached BP to discuss the feasibility of entering the transportation fuel

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market. The companies spent the next several years addressing technical details and securing a large patent portfolio. The partners officially formed their joint venture in 2009.

Biobutanol is a four-carbon alcohol that can be produced from the same feedstocks currently used to make ethanol. The goal is to ultimately move toward cellulosic biobutanol in line with industry trends in this direction. Both BP and Dupont have cellulosic biofuel facilities under construction, said Beckwith.

The industrial alcohol provides increased efficiency to refiners when blending gasoline by allowing lighter components like pentane, ethane and butane to remain in the blend. When using biobutanol as a blend stock, refiners can produce a greater volume of gasoline from a barrel of crude oil.

Dethroning Ethanol as the Fuel Blend of Choice The Butamax business model is to work with existing biofuels producers to make biobutanol by retrofitting ethanol plants in the US. Biobutanol is considered a "drop in fuel," which means it can be dropped directly into existing fuel transportation and distribution infrastructure.

The economics of biobutanol are driven by feedstock costs, or the spread between oil prices and corn prices, at least until cellulosic technology becomes widespread. It costs about 25% more to produce a gallon of biobutanol than it does to produce an equivalent volume of ethanol, but biobutanol's value to the market is greater, according to Beckwith.

Butamax is breaking ground on its first commercial plant in 2013 and expects to achieve initial production by late 2014. Ethanol producers are being approached with the prospect of becoming butanol producers, and Beckwith says his company has a pipeline of producers ready to retrofit their plants. In fact, Butamax announced last week its partnership with industrial contractor Fagen, a company that has constructed 60% of the ethanol production capacity in the US. Butamax's current goal is to bring its first commercial plant on stream, then scale up to 5 or 10 plants throughout the course of the decade.

"We will seek to match supply with demand," said Beckwith.

Regulatory uncertainty is one of the larger challenges Butamax faces as it looks to grow its operation. As with other alternative energy technologies, a Renewable Fuel Standard in the US provides to momentum and stability around that policy is important to the firm. Any legislation that weakened RFS requirements would be a major setback for biobutanol commercialization.

Another challenge will be constructing new plants designed to process cellulosic feedstock.

"Retrofits are no problem, but building new facilities will require a big effort," Beckwith said.

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Other companies committed to biobutanol commercialization include Gevo, Cathay Industrial Biotech and Cobalt Technologies.

BIOENERGY India to Seek 15% of $50 Billion for Renewables From Overseas

By Sally Bakewell on June 12, 2012, landberg@bloomberg.net India may seek at least $7.5 billion of the $50 billion it’s planning to invest in clean energy in five years from foreign direct investment, a government official said.

“We’d like a bare minimum of 15 percent of that coming as FDI over the next five years,” Gireesh Pradhan, secretary at the Ministry of New and Renewable Energy, said today in an interview in London.

Prime Minister Manmohan Singh plans to spend more than $300 billion in the five years to March 2017 to expand India’s electricity systems in an attempt to spur 9 percent economic growth by then. An increasing share of that may be allocated to renewable projects as lenders shun new conventional power projects that face rising fuel costs.

India would like to “get the maximum that one can get” from overseas investors, Farooq Abdullah, minister for new and renewable energy, said in the same interview. He said he was assuring investors of concerns about whether policies and tax structures for renewable energy projects will remain.

“We feel that renewable energy is the future, not only of India but also the world,” Abdullah said. “Fossil fuels are gradually disappearing and the environmental damage that has been done by them has been of an immense nature.”

Vineet Mittal, managing director of Welspun Energy Ltd., India’s largest solar photovoltaic developer, is planning to add 1 gigawatt of wind and 750 megawatts of solar over the next three to four years, he said in an interview in London.

India outpaced the rest of the world in investment in clean energy in 2011 due to improving cost competitiveness of wind and solar projects, according to Bloomberg New Energy Finance. India’s clean energy investments were $10.3 billion last year compared with $6.8 billion invested in 2010, the highest growth figure of any significant world economy, according to the London-based industry analyst.

“Serious players are coming in and looking at renewables in a serious way,” Pradhan said.

To contact the reporter responsible for this story: Sally Bakewell in London at Sbakewell1@bloomberg.net To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net Biofuels At The Tipping Point Posted on May 29th, 2012 Earth-Techling is proud to repost this article courtesy of AOL Energy. Author credit goes to Margaret Ryan.

While the “food versus fuel” debate has grabbed headlines, biofuels technology worldwide -has been accelerating down the learning curve and is at a “tipping point” for commercialization.

That was the consensus of an expert panel recently at the International Finance

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Corporation‘s Cleantech Workshop. The IFC is part of the World Bank group.

Image via Boeing Early attempts at biofuels commercialization were in the US and Europe, but are now concentrated in Asia and Latin America, moving “to where the feedstock and customers are,” said Roger Wyse, Managing Director, Burrill & Co. Bioprocesses “can be very specific to what a country needs,” said Michael Rosenberg, Vice President of OPXBIO. Technologies are being adapting to use feedstock including agricultural waste that’s locally available, not food.

Ethanol in the US is already produced from livestock feed corn, not food corn, and experts spoke of substantial progress on a variety of technologies to process a range of plant materials into sustainable fuels and other products now produced from fossil fuels.

K’Lynne Johnson, CEO, Elevance Renewable Sciences, said her company is building a biorefinery in Indonesia that will produce mixed olefins, saturated esters and other materials now derived from crude oil and used as inputs by the local chemical industry.

The biorefinery will utilize sustainably produced local palm oil, she said, noting sustainability was a vital criterion when her company chose an Indonesian partner.

Environmentalists have raised concerns that virgin forest is being leveled to make palm-oil plantations, and Johnson said her company will not buy from such ventures.

Finding Value in Sustainability Jim Matheson, General Partner of Flagship Ventures, said venture capitalists considering any biofuels investment today put “a lot of work into life cycle analysis.” Much innovation in biofuels, he said, has gone into trying to reuse byproducts like carbon dioxide or waste, to make processes fully sustainable.

Rosenberg said the end customers for bio-refineries, as well, are “very interested in sustainability” and perform their own life cycle analyses that check environmental impacts “every step of the way.”

Tony Lent, Senior Managing Director, Wolfensohn & Co., said biotechnology offers a “tremendous” opportunity for developing nations to take local products and turn them into higher value products for export, rather than exporting low-value crops.

Wyse agreed, noting his firm is working with Malaysia’s chemical industry to substitute feed-stocks refined from palm and other agricultural sources for imported crude oil the industry now uses.

Speakers said the challenge has been cost, because the chemical industry pays “no green premium,” as Wyse put it.

Creative Cost Control Johnson said the chemical industry is cautious about substituting bio-based products, but beyond proving equivalent or better performance, she agreed bio-products can’t cost more.

Matheson pointed to Brazil where, he said, “They really have figured this out.”

In that country, ethanol made from sugar cane wastes is blended at the pump by consumers choosing mixtures that minimize price, to use in cars that can burn widely varying ethanol-gasoline mixtures.

Anil Jain, Managing Director of Jain Irrigation Systems, described a biodigester used by his company in processing mangos in India for the Coca-Cola Company. He said the $4 million facility was “economic” because it takes processing wastes and feeds fuel gas back to the processing plant, waste heat to the refrigeration unit, and natural fertilizer back to mango

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farmers. Ernesto Brovelli, Senior Manager of Sustainable Agriculture, The Coca-Cola Co., said finding sustainable sources for food and fuel has become a “pre-competitive issue” for global companies like his own, which is looking to secure its supply chain decades into the future.

One big step needed, said Antonio ValleNeto of Bunge Environmental Markets, is an international certification process for sustainably produced agricultural products. He said the industry needs reliable certification that extends to whole crops or growing areas, rather than, as now, just “this load of soybean.

Algae, new-age biofuel for green tomorrow Chetan Chauhan, Hindustan Times11:47 PM, JUNE 04, 2012 Algae have emerged as a low cost tool to capture global warming causing carbon.

Algae, a latin word for seaweed, are a very large and diverse group of simple, typically tropical organisms. They are like plants but grow on water. They produce more than 71% of the Earth’s oxygen, as per estimates of some scientists. Carbon dioxide and water are the basic requirements for algae’s growth and this in turn releases oxygen as a by-product.

Since its clean credentials are established, algae is become a solution for capturing carbon from vehicular emissions, for providing oxygen to solders in high peaks and for reducing oceanic acidification, algae is providing possible answers to increasing carbon emissions across the globe.

The latest in the spree of innovators in Professor Dinabandhu Sahoo of Department of Biology of Delhi University, who has developed algae based apparatus for carbon capturing and reusing the same as bio-fuel.

Sahoo, who tested over 1,000 algae strains, found a few strains that can capture carbon from vehicle’s tail pipe and around 40 % of the total fluid generated can be processed into a bio-fuel or other oils for different industries.

“The initial cost R20,000 to R25,000 can be recovered in three to four years,” Sahoo told HT at his laboratory in DU. Sahoo installed a tank on his Maruti 800 car and filled it half with water having algae. The car’s emission pipe was connected to the tank. As he drove around Delhi, the carbon dioxide from his car was being captured by algae, resulting in less toxic emissions into Capital’s air.

Member of the global association of algae scientists, Sahoo, believes his experiment can work wonders if the government or oil companies promote algae for capturing dirty emissions. “It requires a complete supply chain mechanism where the used algae can be brought and processed to produce bio-fuels,” he said.

He believes that investing in algae based solutions make sense as India imports 70% of fuel oil and its dependence on imported fuel would increase in coming years. Algae also have advantage over jatropa as it can be grown in any temperature and in varied environmental conditions.

Orissa appears to have taken a clue and launched R95 lakh project to grow algae around polluting thermal power plants in Angul district of the state.

Such are the benefits of algae that the Defence Research and Development Organisation (DRDO) has decided to use them to provide oxygen to solders in high altitudes in Ladakh in J & K.

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Although India is now waking up to wonders of algae, countries like US, China, South Korea, Canada have invested heavily on technologies to capture carbon with help of algae and produce bio-fuels.

Purdue University researchers develop cost-effective process for creating biofuels 6/12/2012 WEST LAFAYETTE, Ind. — Purdue University researchers have developed a new costeffective, high-yield process for converting biomass into liquid fuels.

An economic analysis shows that the cost of the thermo-chemical H2Bioil method is competitive when crude oil is about $100 per barrel. If a federal carbon tax were implemented, the biofuel would become even more economical.

H2Bioil is created when biomass, such as switchgrass or corn stover, is heated rapidly to about 500 C in the presence of pressurized hydrogen. Resulting gases are passed over catalysts, causing reactions that separate oxygen from carbon molecules, making the carbon molecules high in energy content, similar to gasoline molecules.

The conversion process was created in the lab of Rakesh Agrawal, Purdue's Winthrop E. Stone Distinguished Professor of Chemical Engineering. He said H2Bioil has significant advantages over traditional standalone methods used to create fuels from biomass.

"The process is quite fast and converts entire biomass to liquid fuel," Agrawal said. "As a result, the yields are substantially higher. Once the process is fully developed, due to the use of external hydrogen, the yield is expected to be two to three times that of the current competing technologies."

Biofuels: Better for Airplanes, Too?

By Margaret Ryan, Published: June 13, 2012 Biofuels could be a "game changer" for both military and commercial aviation, says Assistant Secretary of the Air Force Terry Yonkers, because they're proving to have advantages over petroleum-based jet fuels that go beyond the environment.

Biofuels are produced from plant feedstocks or organic wastes. Public and private research has been focusing on production from non-food sources like algae, camelina, and jatropha, and on sustainable and economic ways to cultivate them.

Fischer-Tropsch fuels are derived from mixtures of coal, natural gas and/or biomass. This synthetic fuel process was developed in Germany in World War II, and adapting it to use biomass feedstocks has been a focus of research by the US Departments of Energy and Defense.

Easy on the Environment and the Wallet Burning biofuels is considered neutral for greenhouse gases because they release only carbon dioxide the plants absorbed while growing.

Both fuels can be blended with petroleum-based feedstocks, or burned alone if engines are adapted to them. Both the Defense Department and commercial airlines have been testing out various blends to make sure they perform at least as well as conventional fuels in real flight conditions – so far with success in both sectors.

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Speaking to the Joint US Army/US Air Force Renewable Energy Industry Day in Arlington, VA, June 12, Yonkers said the Air Force is working toward certifying all of its jets to fly on biofuels and Fischer-Tropsch fuels.

Both are made from domestic feedstocks rather than imported sources, and an original goal was to add security to the military's fuel supply.

But the testing has found unexpected benefits, he said. "Our tests show that these fuels burn cleaner and cooler." it makes good business sense to do it." - Yonkers Lower burn temperatures in particular make a substantial difference in engine materials fatigue, and consequently engine life. Testing indicates "we can get 10 times as many hours on drop-in biofuels as on conventional fuels," Yonkers said.

In addition, biofuels have less mass than fossil-based fuels, allowing longer flights for the same weight, he said.

Check back shortly with AOL Energy for additional coverage from the Joint US Army/US Air Force Renewable Energy Industry Day. For commercial aviation, where aircraft weight is a key component of airline economics, that could make biofuels preferable to conventional jet fuel.

The Air Force spent $8.3 billion on aviation fuel in fiscal 2011, a cost that went up $1.5 billion from the previous fiscal year as world oil markets rose.

Yonkers said that illustrates that the Air Force is pursuing biofuels, and renewables on its land installations, "because it makes good business sense to do it."

Big Oil's Big in Biofuels

By Ken Wells on May 10, 201 BP (BP) has invested $7 billion in alternative energy since 2005. ExxonMobil (XOM) is spending $600 million on a 10-year effort to turn algae into oil. And Royal Dutch Shell (RDS/A) has invested billions of dollars in a Brazilian biofuels venture, buying up sugar cane mills, plantations, and refineries to make ethanol. In the U.S., Shell produces small lots of so-called drop-in biofuels—engine-ready products that can replace gasoline—from a pilot plant in Houston that uses sugar beets and crop waste.

On the way to a renewable energy future, a funny thing has happened: Big Oil has become the biggest investor in the race to create green fuels. In the last decade, the industry says, it has put $71 billion into zero- and low-emission and renewable energy technologies. The U.S. government, by contrast, has spent about $43 billion on similar efforts during the same period, according to the American Petroleum Institute (API), a trade group. “We are making huge bets” on biofuels and also investing in wind and low carbon technologies, says Katrina Landis, chief executive officer of BP Alternative Energy, noting that her division has grown from a handful of employees in 2005 to 5,000 today. BP is now “winding down” its solar operations, says Landis.

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Algae secreting oil-like lipids Many environmentalists doubt that these investments represent more than window dressing. An API report shows that just $9 billion of the $71 billion is for renewable energy while the rest has gone toward greening up Big Oil’s fossil-fuel business. And the industry has, after all, bankrolled research casting doubt on climate change while lobbying to defeat a White House-backed climate bill in 2010, says Simon Mui, a scientist with the Natural Resources Defense Council. “Their interest is a validation of the promise of cleantech,” he says. “But I don’t want to imply that this is something we should be falling out of our chairs over.”

The investments are less impressive, Mui says, when measured against Big Oil profits— ExxonMobil reported 2011 net income of $41 billion—and the money the companies still devote to the hunt for conventional oil and gas. Mui estimates the industry has spent about $341 billion developing tar sands, which contain heavy crude that is energy-intensive to recover and refine, over the same period that it touts its $71 billion in carbon reduction and renewables. The API dismisses such criticisms, saying it put together the report on clean investing to dispel the notion that the industry isn’t interested in climate change or reducing greenhouse gases.

Algae: Exxon; Dishes/Hands: David MaungExxon says it's still unclear whether algaebased fuels can be commercially viable The oil industry also has a major incentive for its green spending: the federal Renewable Fuel Standard. The law, signed by President George W. Bush in 2005, now requires about 15 billion gallons of alternative fuels such as ethanol in the nation’s energy mix annually, and that number is mandated to grow to 36 billion gallons by 2022. (U.S. drivers consume about 134 billion gallons of gasoline a year.)

Oil and gas companies, the act says, are among the “obligated parties” to help the U.S. reach these goals. “Inside these companies the thinking is, ‘We can’t get caught out without having an answer and a way to meet our obligations,’ ” says Wesley Bolsen, chief marketing officer for Codexis (CDXS), a Redwood City (Calif.) enzyme maker that has a five-year-old partnership with Shell. “In some ways they can’t afford not to invest. On the other hand, I think a lot of oil companies today think, ‘If we do this right, we can make a lot of money.’ ” For Sheeraz Haji, CEO of Cleantech Group, a 10-year-old green technology consulting firm, the industry’s investments represent pragmatism, since oil companies see that long term they won’t be able to meet demand with conventional oil and gas. While PR concerns are a factor, with cleantech providing cover for carbon-centric core businesses, Haji also says it’s a matter of pride and fear. He notes that oil companies, with their technological prowess at deepwater drilling and the like, don’t want to be seen as stodgy—or worse, wake up one day to find the renewables world exploding with profits they aren’t sharing.

“We’re not talking about oil companies turning into green activists,” says Haji. “It’s tied to their view that this is economically rational.” And the scale of their investments is immense.

Sizing up Exxon’s algae play, he says, “$600 million is big money. Maybe it’s not big dollars to Exxon, but it’s still big dollars for the sector.”

Exxon’s algae project is a partnership with Synthetic Genomics, a La Jolla (Calif.) company co-founded by human genome pioneer J. Craig Venter. On paper, algae has a lot going for it. It produces energy-storing molecules called lipids similar to those extracted from crude oil. And it can be grown in saltwater on marginal land, so it won’t compete for fresh water or

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valuable farm acreage. Although the project, in its third year, recently moved out of a San Diego greenhouse to an outdoor facility in Texas, Exxon says billions more in research dollars are needed before it will know whether commercial production is possible.

Shell’s partnership with Codexis uses enzymes to turn grass, stalks, and sugar cane waste into biofuels. The company has so far put about $60 million a year into the project. Such research portends the production of renewable fuels without displacing food crops. And there’s a ready supply of raw material: The Department of Agriculture estimates that U.S. farms produce 1 billion tons of crop residue each year.

Mark Brownstein, chief counsel for the Environmental Defense Fund’s energy program, warns that Big Oil will have trouble winning over skeptics. “This is an incredibly conservative and hard-headed industry,” he says. “They have a lot to prove before people are willing to believe that there has been a fundamental shift about how they think about climate and other environmental matters.” Nonetheless, Brownstein adds, “I wish ExxonMobil all the success in the world in figuring out how to commercialize biofuels. That would be great for everybody.”

The bottom line: Big Oil says it has invested $71 billion in green tech. Environmentalists question the sincerity of the industry’s environmental efforts.

SOLAR Wrinkles and twists boost power from solar panels Posted In: Editors Picks | R&D Dail Taking their cue from the humble leaf, researchers have used microscopic folds on the surface of photovoltaic material to significantly increase the power output of flexible, lowcost solar cells.

The team, led by scientists from Princeton University, reported in Nature Photonics that the folds resulted in a 47% increase in electricity generation. Yueh-Lin (Lynn) Loo, the principal investigator, said the finely calibrated folds on the surface of the panels channel light waves and increase the photovoltaic material's exposure to light.

"On a flat surface, the light either is absorbed or it bounces back," said Loo, a professor of chemical and biological engineering at Princeton. "By adding these curves, we create a kind of wave guide. And that leads to a greater chance of the light's being absorbed."

The research team's work involves photovoltaic systems made of relatively cheap plastic.

Current solar panels are typically made of silicon, which is both more brittle and more expensive than plastics. So far, plastic panels have not been practical for widespread use because their energy production has been too low. But researchers have been working to increase that efficiency with the goal of creating a cheap, tough, and flexible source of solar power.

If researchers can increase the plastic panels' efficiency, the material could produce power from an array of surfaces from inserts in window panels to overlays on exterior walls or backpacks.

"It is flexible, bendable, lightweight, and low cost," Loo said.

In most cases, researchers have focused on increasing the efficiency of the plastic photovoltaic material itself. Recent developments have been promising: In a separate study, a team from the University of California-Los Angeles recently announced a system with a 10.6% efficiency. That approaches the 10% to 15% level seen as the target for

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commercial development. (Efficiency represents the percentage of photons striking the solar cell that creates an electric charge.)

Loo said the folding method pioneered at Princeton promises to increase efficiency levels even further. Because the technique works with most types of plastic photovoltaic materials, it should provide a boost to efficiency across the board.

"This is a very simple process that you can use with any material," she said. "We have tested it with other polymers and it works as well."

Jong Bok Kim, a post-doctoral researcher in chemical and biological engineering at Princeton and the paper's lead author, explained in the Nature Photonics paper that the folds on the surface of the panels channel light waves through the material in much the same way that canals guide water through farmland. By curving the light through the material, the researchers essentially trap the light inside the photovoltaic material for a longer time, which leads to greater absorption of light and generation of energy.

As shown in this rendering, folds on the cell's surface increase efficiency by guiding light waves. Image: Illisa Ocko "I expected that it would increase the photocurrent because the folded surface is quite similar to the morphology of leaves, a natural system with high light-harvesting efficiency," said Kim, a postdoctoral researcher in chemical and biological engineering. "However, when I actually constructed solar cells on top of the folded surface, its effect was better than my expectations."

Although the technique results in an overall increase in efficiency, the results were particularly significant at the red side of the light spectrum, which has the longest wavelengths of visible light. The efficiency of conventional solar panels drops off radically as light's wavelength increases, and almost no light is absorbed as the spectrum approaches the infrared. But the folding technique increased absorption at this end of the spectrum by roughly 600%, the researchers found.

"If you look at the solar spectrum, there is a lot of sunlight out there that we are wasting," Loo said. "This is a way to increase efficiency."

The research team created the folded surface in the laboratory of Howard Stone, the Donald R. Dixon '69 and Elizabeth W. Dixon Professor of Mechanical and Aerospace Engineering. To create the folds, the researchers used ultraviolet light to harden a layer of liquid photographic adhesive, a process called curing. By controlling how fast different sections of the adhesive cured, the team was able to introduce stresses in the material and generate ripples in the surface. The shallower ripples were classified as wrinkles and the deeper ones are called folds. The team found that a surface containing a combination of wrinkles and folds produced the best results.

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Although the math underlying the process is complex, the actual production is straightforward. Loo said it would be quite practical for industrial purposes.

"Everything hinges on the fact that you can reproduce the wrinkles and folds," Loo said. "By controlling the stresses, we can introduce more or fewer wrinkles and folds."

Another benefit of the process is that it increases the durability of the solar panels by relieving mechanical stresses from bending. The researchers found the panels with folded surfaces were able to retain their effectiveness after bending. A standard plastic panel's energy production would be diminished by 70% after undergoing bending.

Loo said the researchers drew their inspiration from leaves. Seemingly a simple object, the leaf is a miracle of natural engineering. Its green surface is perfectly constructed to bend and control light to ensure that a maximum amount of solar energy is absorbed to create energy and nutrients for the tree. Recent work led by Pilnam Kim, a postdoctoral researcher in Stone's lab, and by Manouk Abkarian, a visiting scientist from France, provided insight into how these folded structures develop and could be controlled.

"If you look at leaves very closely, they are not smooth, they have these sorts of structures," said Loo, who is deputy director of Princeton's Andlinger Center for Energy and the Environment. "We'd like to mimic this geometric effect in synthetic, man-made lightharvesting systems."

Source: Princeton University Some rays of light amid the gloom for thin-film PV It has been a devastating few months for thin-film PV, and the news keeps getting uglier. In terms of political theatre, the low point was the bankruptcy of Solyndra last autumn.

Thin-film’s problems are not limited to a few one-off bankruptcies or restructuring programmes, nor are they new. But First Solar’s struggles have hammered home the message that thin-film PV is fighting for its very survival.

But from an investment standpoint, even more damaging was last month’s announcement

by First Solar — the only thin-film manufacturer truly competing with the crystalline-silicon (c-Si) industry on its own terms — that it will permanently shut its production lines in Germany.

Although First Solar hung on to its position last year as the world’s second-largest maker of PV modules (behind c-Si rival Suntech), thin-film’s overall share of the global PV market fell to 11%, down from a peak of nearly 20% two years earlier. There is every reason to expect it will fall even further in 2012.

The chief reason is that c-Si modules have become cheaper at a much faster rate than thin-film panels in recent years. But that fact obscures the challenges and opportunities for thin-film.

For thin-film manufacturers, there is no getting away from the unpleasant reality that their products are much less cost-competitive than they were a few years ago. The culprit is polysilicon.

Four years ago, when polysilicon was selling on the spot market for $450 per kg, thin-film was the darling of the solar industry.

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Because thin-film modules have lower conversion efficiencies than c-Si panels, project developers have to use more of them to reach the same installed capacity. But their vastly lower price tag (as much as $1 per watt cheaper) made it well worth it.

By early 2011, however, average spot market prices for polysilicon had fallen to $80/kg, and they now stand south of $30/kg.

And with new Asian suppliers coming up, such as South Korea’s OCI and China’s GCLPoly, there is no way thin-film can hope to lower its costs at the same rate as c-Si for the foreseeable future.

Many thin-film companies are coming to grips with the fact that their business models no longer add up in the face of cheap polysilicon, says Matthias von Armansperg, managing director of German consultancy Accelios Solar.

“The thin-film industry basic ally has a frozen price model compared to c-Si,” he says. “It just doesn’t have the same elasticity in its supply chain.”

Unfortunately for thin-film, polysilicon is only one of its problems on the cost front.

The second is manufacturing scale. Only three thin-film companies — First Solar, Solar Frontier and Sharp — are producing modules at anything approaching the same league as the big c-Si players. Beyond that trio are perhaps half a dozen companies with annual production of more than 100MW, all of them based on amorphous silicon (a-Si) technology, such as Taiwan’s NexPower, China’s Trony and Japan’s Kaneka.

After that comes what one industry source describes as a “zoo” of smaller players, ranging from the promising to the hopeless. Some, such as copper indium gallium (di)selenide (CIGS) specialist MiaSolé, have raked in large sums of venture capital; others, like PrimeStar and Avancis, have patient backers with deep pockets.

But even the most promising thin-film outfits will struggle to compete with the growing list of gigawatt-plus c-Si producers.

“In order to achieve further cost reductions, you need to scale up production. But you need money to do that, and that is not in great supply at the moment in the solar industry,” comments Götz Fischbeck, president of Germany’s Smart Solar Consulting.

Exacerbating the problem, most thin-film manufacturers rely on custom-built production equipment, as opposed to c-Si manufacturers, whose factories are essentially filled with standardised, mass-produced machines.

And the roster of companies making such production equipment has dwindled as thin-film’s lustre has dimmed: Applied Materials has discontinued its SunFab line; Oerlikon has sold its solar division to Tokyo Electron; and Centrotherm is shrinking its exposure to the sector.

A final challenge for thin-film, and the one that has worsened the most over the past year, is the issue of bankability. As the corpses stack up — the most recent victims being USbased Uni-Solar and Germany’s Soltecture — it becomes harder for thin-film manufacturers to convince investors they will still be around in ten or 20 years to stand behind their warranties. That leads to higher financing costs and further dents thin-film’s waning cost advantage.

Yet even though the short-run prognosis is grim, many analysts remain cautiously optimistic about the technology’s long-term prospects.

Thin-film panels work better than c-Si in hot climates, they are better suited for fast-growing niches such as building-integrated PV, and they require much less energy to produce.

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And not all thin-film technologies are created equal. Much of the current optimism centres on CIGS, which offers higher conversion efficiencies than a-Si, cadmium telluride or flexible thin-film modules such as those made by Uni-Solar.

The CIGS sector is dominated by Saudi Aramco-backed Solar Frontier, which is ramping up a 900MW factory in Japan. Other credible contenders include Avancis, which is backed

by French glass giant Saint-Gobain and Hyundai Heavy Industries; and Q-Cells-owned Solibro.

“If they manage the production and cost challenges, CIGS players are the ones with the most potential to attack the dominance of c-Si and tip the balance in favour of thin-film on the way to 2020,” says von Armansperg.

In contrast, experts believe the road ahead will be much more difficult for a-Si, a space littered with dozens of small, undifferentiated Chinese manufacturers, whose modules have some of the lowest conversion efficiencies in the business.

“We see a-Si kind of losing its spot in the market on the way to 2020,” says Matthew Feinstein, an analyst with Lux Research. He adds, however, that the future looks brighter for higher-end players moving towards hybrid a-Si/c-Si products, such as Sharp.

One of the most confidence-inspiring moves the thin-film sector has seen in recent years was the creation in 2010 of 3Sun, a joint venture between Sharp, Italy’s Enel Green Power (EGP) and semiconductor giant STMicroelectronics. 3Sun is now producing high-quality aSi modules in Sicily.

President Andrea Cuomo acknowledges that 3Sun’s first few years have been much more difficult than its investors had ever imagined, even though it is able to shield itself from some of the market pressures by offloading much of its output to ESSE, a project developer owned by EGP and Sharp.

But Cuomo says thin-film offers far more scope for continued technological evolution than c-Si, which he thinks is reaching some of its limits. “We still believe thin-film is the most promising technology in the solar game.”

Japan poised to make large strides in use of solar power

Financial Chronicle Incentives from ministry are expected to produce billions' worth of stations Japan is poised to overtakeItaly and become the world’s second-biggest market for solar power, as incentives starting July 1p ropel sales. It could eventually top Germany, which holds the No. 1 spot.

Industry Minister Yukio Edano on Monday set a price for solar electricity that is about triple what industrial users now pay for conventional power. That may drive at least $9.6 billion in new installations with 3.2 gigawatts of capacity, BloombergN ew Energy Finance forecast. That is about equal to the output of three atomic reactors. ‘‘The tariffi s very attractive,’’ said Mina Sekiguchi, associate partner and head of

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energy and infrastructurea t KPMG in Japan. ‘‘Ther ate reflects the government’s intention to set up many solar power stations very quickly.’’ Prime Minister Yoshihiko Noda’s effort to cut dependence on atomic energy,w hich provided about 30 percent of Japan’s powerbefore the Fukushima nuclear meltdown in 2011, will help a solar industry suffering from incentive cuts across Europe.

Under the new program, utilities will buy solar, biomass, wind, geothermal and hydrop ower. Allc osts willb e passed on to consumers in surcharges, which the government estimates will average about ¥100 a month.

Them easures beginning in July expand on a program started in November 2009 that requires utilities to buyu nused solar power. That expanded the market for rooftop residential panels.

The five largest Japanese solar projects planned or under consideration were all announced between October and April, as the government worked out details of the feed-in tariffprogram, according to New Energy Finance.

Dozens of companies have announced plans to take advantage of the subsidies. Yingli, a solar energy companyb ased in Baoding,C hina, has set up a unit in Japan. ‘‘Being closer to the customers is extremely important for Yingli,’’ Masaki Mizuta, managing director of Yingli Japan, said May4 . ‘‘We also believe that this is a key success factor in Japan.’’

Kyocera is ‘‘aggressively’’ expanding its solar division, said Sanae Iwasaki, a spokeswoman for the company, which is in Kyoto, Japan. ‘‘Morep layers will enter the market for investment purposes,’’ Ms. Iwasaki said. ‘‘There willb e more importance on the quality. We will pursue cost-cutting by producing panels with higher conversion efficiency.’’ But the push is also raising concern among Japanese business groups that aid for clean powerw illr aise bills and slow the Japanese economic recovery. ‘‘This is a mechanism with a high de gree of market intervention, by setting tariffs artificially high and making users shoulder the cost,'' said Masami Hasegawa, senior manager of the environmental policy bureau of Keidanren, the most powerful Japanese business lobby, which counts Toyota Motor and Nippon Steel as members. ``We question the effectiveness of such a scheme.'' Utilities will pay ¥42, or about 53 cents, per kilowatt-hour for 20 years to solar power producers, almost twice the rate in Germany, the world's biggest market by number of installations. The solar tariff was among incentive rates for clean energy announced Monday by the Ministry of Economy, Trade and Industry.

Developers are counting on the subsidies and have accelerated construction plans this year for solar parks. ‘‘We hear every dayanew announcement of a megawatt-scale project,’’ Izumi Kaizuka, asolar industry analyst at RTS, said in Munich, referring to projects of one megawatt or bigger.

Japan ranked sixth worldwide by new installations last year, when it added 1.3 gigawatts of solar to raise its installed base to 5 gigawatts. Next year, builders willc onstruct roughly triple that level, or another 3.2 gigawatts to 4.7 gigawatts, New Energy Finance forecasts. Ag igawatt is enough to supply about 243,000 homes in Japan.

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Only China will exceed Japan in terms of solar capacity growth, New Energy Finance estimates.

Japanese companies likeKyocera and Sharp, which kept the photovoltaic industry alive when the United States scrapped investments in the 1990s, are gearing up to supply their home market. ‘‘We no longer have enough electricity, especially during the day, and that is when solar powercan help,’’ said Mikio Katayama, chairman of the electronics manufacturer Sharp and the Japan Photovoltaic Energy Association. ‘‘This is a very good rate to promote investment and megasolars.’’

TheG erman companyQ -Cells overtook Sharp as the biggest solar cell producer in 2007, according to the International Energy Agency. Now Chinese manufacturers likeS untech Power Holdings and Yingli dominate the industry as their lowerp rices helped push Q-Cells and several other Western rivals into bankruptcy protection.

Japan got about 1.6 percent of its energy from renewables in 2011, the smallest portion among the Group of 7 industrialized countries after Canada. It trailed the United States and France in the Group of 7 in atomic power consumption. The shift toward solar reflects concern that the cost of fossil fuels will rise in the coming decades. ‘‘Japan’s manufacturing economy was severely challenged by the oil crisis of the 1970s,’’ said Arthur Mitchell, senior counselor in the Tokyo office of the lawfirm White &Case, whose expertise includes environmental and power policies. ‘‘A ssuming that the price of energy and almost everything else will rise, Japan is betting it will once again become the most efficient user of energy.’’ The ¥42 rate, aimed at 10-kilowatt or bigger plants, is above the ¥38 price the industry expected, Takashi Watanabe and Daiki Takayama, Tokyo-based analysts for Goldman Sachs Group, wrote in a note in April.

Germanyi s cutting subsidies and plans to offer ¤0.14 to ¤0.19,or 17 to 24.6 cents, per kilowatt-hour, depending on size. Italy’s rate is ¤0.13 to ¤0.24.

Utility-scale projects mayearn 6percent internal rates of return, and that could increase to more than 18 percent if developersc an bring system costs closer to international levels, Travis Woodward, a New Energy Finance analyst, wrote in a note on June 6. He also estimates residential solar systems are being sold in Japan for $6.28 a watt, more than double the $2.70 a watt price in Germany.

Japan is one of the highest averageselling-price markets, dominated by a few large installers, the Jefferies Group analysts JessePichel, Min Xu and Scott Reynolds said in an April 30 report. ‘‘We expect Chinese and Taiwanese producers to erode the high domestic sharet hrough local partnerships to drive down cost,’’ the analysts said.

3Sun chairman says PV can learn lessons from microchip-makers The PV sector has the potential to improve its production efficiency as consistently as the semiconductor industry has over the past four decades – but is currently on the wrong track to accomplish such a feat.

That is the claim of Andrea Cuomo, a veteran of the microchip business who is also chairman of thin-film PV specialist 3Sun.

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The biggest danger for PV on the cost front is that many of its most powerful companies have locked themselves into technologies that have only a limited scope for further evolution, says Cuomo.

“Utilisation and production scale are important, but this industry needs to allow room for the emergence of new technologies, new production processes, new materials,” he says, referring to Asian manufacturers’ single-minded drive towards economies of scale.

“We’re coming to a point where I doubt existing technologies can deliver electricity much below $0.10/kWh.” Cuomo is a 30-year veteran of the semiconductor business, and currently executive vice president for advanced systems technology and special projects at STMicroelectronics, the €10bn-a-year ($13bn) Geneva-based semiconductor giant.

In addition he is chairman of 3Sun, the thin-film PV manufacturer formed in 2010 by STMicroelectronics, Italy’s Enel Green Power and Japan’s Sharp. Last year 3Sun opened its first module plant in Sicily, where it has ramped production to about 200MW. Cuomo says it is fair to apply some of the same thinking behind Moore’s Law – which in 1965 accurately predicted that the computing power of processing chips would double every 18 months – to PV cells.

But thus far, PV manufacturers have not shown themselves to have the same mettle as semiconductor makers – in part due to the sector’s technological fragmentation.

One of the most obvious candidates for improvement is on production efficiency, Cuomo says. “Despite advances in production-equipment and automation, this is one end of the PV business that very clearly has not yet been squeezed as it should be squeezed.”

But Stephan de Haan, principal PV analyst at IHS, warns the solar industry that it should be very careful about courting comparisons to the semiconductor sector – and particularly Moore’s Law. The scope for lowering costs purely through incremental improvements in technology is far greater for semiconductors than for PV cells, de Haan says. Moreover, while the cost of PV modules will continue falling for many years, it is naïve to think they will decline forever.

“At some point – and this is probably very far away – PV will turn into a commodity business, with module prices moving according to material prices, not technology,” he says.

“That’s not the case with semiconductors.”

But de Haan says this is no reason for despair among solar proponents, as by the time this happens PV will be as cheap as, or cheaper than, any other form of electricity production in many parts of the world.

Karl-Erik Stromsta, Verona Nascent markets in Asia and Africa are set to be the next PV battlegroundsPhotograph: AP/PA Market upheaval won't stop global PV growth, analysts agree The year ahead may look like a minefield for PV manufacturers – many of whom might not be not be around to greet 2013 – but for the broader solar industry it is shaping up to be one of steady, if unspectacular, growth.

After a murky beginning to 2012, punctuated by a spate of bankruptcies and ongoing political pressure in many Western countries to continue reducing support for solar energy,

June 2012

analysts have emerged united in their belief that the global PV market will continue to grow this year – with the only uncertainty being the scope of the expansion.

At the pessimistic end of the spectrum is Boston-based Lux Research, which predicts that after last year – when capacity additions soared 66% on the back of record-low module prices and looming incentive reductions across the Western world – the industry will put up a far more muted performance in 2012.

Matthew Feinstein, an analyst for Lux, believes the global market will grow just 400MW this year – reaching 26.9GW on an annual basis – while industry-wide revenues drop to $92bn from $110bn as PV prices continue to fall.

Rival research house IMS has a more bullish take on the year ahead, forecasting full-year additions of anywhere from 27.8GW to 32.6GW, with Europe’s contribution to the global total tumbling to 50% from 69% last year.

“When you consider only a handful of countries like Germany, Italy and France, it’s easy to be pessimistic about demand,” says Ash Sharma, research director for PV at IMS. “But despite many in the industry still expecting further doom and gloom, we in fact see a pick-up in demand driven by falling system prices, a rush to beat incentive cuts, and the growing number of mid-size emerging markets.”

Perhaps surprisingly, given Berlin’s recent decision to amend the country’s landmark renewable-energy law, Sharma believes Germany will reclaim its title as the world’s largest solar market from Italy in 2012 – although it may not spend much time at the top.

Due largely to surge of demand in the first quarter of the year – an unusual season for a PV boom – Germany is on track to add another 6GW-8.5GW of capacity in 2012, according to IMS. Such an outcome, driven by consumers looking to jump onto the feed-in tariff train before it leaves the station once and for all, is likely to lead to even more draconian measures from Berlin.

The short-term picture for manufacturers looks bleak, with module prices expected to continue falling.

Tier 1 Chinese manufacturers saw their gross margins fall to 7% in the final quarter of 2012, while vertically-integrated Western and Japanese producers recorded negative margins for the third straight quarter.

“Major PV companies no longer have the balance sheet flexibility to absorb large additional cuts in prices,” says Michael Barker, analyst at NPD Solarbuzz.

Investors have expressed concerns about companies like Suntech and LDK Solar after Chinese Premier Wen Jiabao remarked that Chinese banks earned profits “too easily” and urged a break-up of their virtual monopoly.

Chinese PV companies have benefited from cheap loans handed down by many of the state-run banks in question.

But while cheaper modules will continue driving consolidation in the manufacturing sector, they will also act like rocket fuel for developers, with nascent markets in Asia and Africa emerging as the next battlegrounds.

If there is one thing all analysts can agree on it is that after a modest 2012, the industry will rebound to strong growth in the years ahead.

Lux believes the global market will hit 38.3GW in 2017, by which time South Asia alone will be soaking up 4.5GW a year.

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Meanwhile, the Chinese market may be on the verge of an explosion if the government decides to take further action to spur demand, says IMS’s Sharma.

“China remains one of the most unpredictable factors in the global supply and demand balance,” says Sharma.

“With European demand faltering, the Chinese government is under increased pressure to accelerate domestic deployment to support its huge manufacturing base.

“Installations of up to 8GW would be unlikely in China this year – but still a possibility.”

Karl-Erik Stromsta, London China's Hanergy in talks to buy Q-Cells thin-film firm Solibro Chinese power company Hanergy is in discussions to acquire Solibro, the solar thinfilm panel maker owned by Germany’s Q-Cells.

The acquisition, two months after Q-Cells filed for insolvency, would be one of the first of an anticipated wave of Chinese investment in overseas solar markets as the sector enters a phase of consolidation.

A huge glut of production capacity amid cuts to the subsidies driving demand in major European markets has seen panel prices drop by half in the past year bringing severe pressure on manufacturers.

Dozens of US and European solar firms have filed for bankruptcy in recent months saying they cannot operate at such low prices.

Chinese companies with the lowest production costs in the industry have been expected to take advantage of the current environment to acquire advanced technology.

Hanergy is "in the process" of negotiating a deal with Solibro, Wang Shuqin, vice president, tells Recharge, without elaborating.

A Q-Cells spokeswoman says: "We do not comment on ongoing talks."

The company had said last year that it was looking for investors to take over its thin-film business.

Privately owned Hanergy operates hydropower plants and wind farms but has ambitious plans to expand in the solar sector, revealing last year that it wanted to ramp up its production capacity from 300MW to 2GW this year.

Unlike many of China’s solar companies, Hanergy produces thin film panels, after buying technology to produce amorphous-silicon panels from local company Apollo. Solibro was founded in Sweden and was bought out by Q-Cells in 2009. Last year it sold 66MW of CIGS solar panels, putting it behind the CIGS leader Japan-based Solar Frontier. The company has production capacity of 135MW and 430 staff, mostly in Germany.

In November it announced that a prototype Solibro module had reached 17.4% efficiency, a record for CIGS solar modules. Renewable energy industry professionals surveyed by KPMG say they expect Chinese firms to make more acquisitions this year than companies from any other nation, as they take advantage of industry consolidation to expand overseas.

In March, another Chinese company, LDK Solar, bought a stake in German solar company Sunways

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Stan Ovshinsky’s Solar Revolution His inventions from 50 years ago enabled cell phones, laptops, and flat-screen TVs. Now, at age 88, he’s aiming to make solar power cheaper than coal.

by Lawrence M. Fisher “The Institute for Amorphous Studies,” reads the simple black-on-white sign at a former elementary school in the leafy Detroit suburb of Bloomfield Hills. The sign represents a bit of nerdish humor: The scientists and engineers working here know that it might prompt a visitor to imagine a new-age Silicon Valley–style think tank. But this is southeastern Michigan, and the sign is also serious, reflecting Stanford R. Ovshinsky’s discovery half a century ago of amorphous materials, the science at the core of such diverse products as nonvolatile memory chips, flat-panel displays, and rewriteable optical discs.

That discovery created an entirely new field of materials science, and Ovshinsky’s achievements have continued over the subsequent decades. Although his formal education ended with high school, he has written some 300 scientific papers; has more than 400 patents to his name for technologies that have improved daily life in myriad ways; and has been awarded dozens of honorary degrees, awards, and academic accolades. Now, at age 88, he has formed Ovshinsky Solar, a company with an audacious goal: to drive the unsubsidized cost of solar power below that of coal — to create, in effect, a Moore’s Law for energy.

The automatic response to a man late in his ninth decade announcing such an objective is disbelief, perhaps tinged with amusement. Certainly the doors of venture capital firms do not open readily to octogenarians, no matter how accomplished. But Ovshinsky has spent his entire career ignoring the naysayers, and time after time he has proved them wrong the best way he knows: by overturning conventional scientific wisdom, creating breakthrough technologies, and building things that work. In this new endeavor, feeling he has no time to waste, he has assembled a small team of scientific and engineering talent to make low-cost solar power a reality as rapidly as possible.

The Economist once called him “the Edison of our age,” and he has also been compared to Einstein. But Ovshinsky sees himself less as an inventor or a theorist than as a pragmatic problem solver. He views complex problems not as existential dilemmas or subjects for detached study, but as fundamentally comprehensible tasks lacking only an obvious solution. So global warming and foreign oil dependence are not cause for dissertations or despair, but simply tough equations to solve for multiple unknowns.

It was perhaps coincidental that amorphous materials science, Ovshinsky’s pivotal discovery, was equally suited to energy technologies, such as the nickel–metal hydride batteries in the Toyota Prius, and to computer applications, such as memory chips that retain their data after the electricity is turned off, both of which are his inventions. But that duality inevitably shaped his career and his world view.

“I picked energy and information as the twin pillars of our economy very early on, when I was quite young,” Ovshinsky says, touching on past times as a prelude to a proximate future. “If you change the energy equation to no use of coal and no climate change, you’re ending one era and opening an entirely different one. I’m an activist, but what I do is go out and do it, if I know how.”

Ovshinsky keeps his office in the former school’s library, and sits at a wooden desk surrounded by scientific texts and the scholarly journals he still reads and contributes to avidly. Pride of place here, and in nearly every room at the company, is given to a large

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chart of the periodic table of elements, which colleagues say Ovshinsky knows the way a master pianist knows the musical scales. Time after time, when those colleagues have reached an impasse, he will point to the table and remind them that the answers to their questions are all there.

He points to it today to explain why all his work, including his current focus on low-cost solar power, ultimately comes back to the primacy of the hydrogen atom. “We have a universe, and the first thing out of the Big Bang, which created it, was hydrogen, some helium, and a little bit of lithium. The hydrogen atom is what the whole periodic table is made out of. All matter that we know is, by far, hydrogen: a gas out in the universe that condenses into stars, and gives out energy by fusing hydrogen into helium. That creates the photon light particles that are absorbed onto photovoltaics to generate electricity.”

Decades before green became a modifier for technology, Ovshinsky and his second wife, Iris, opened the doors of Energy Conversion Laboratory in a small Detroit storefront. This was his third company in less than 10 years, but it would be his primary focus for the next half century. It was 1960, yet already the Ovshinskys dreamed of a world free of the wars and pollution caused by dependence on carbon-based fuels and petrochemical products.

Iris had the academic training that Stan lacked, including a Ph.D. in biochemistry from Boston University. Working as a team, they created breakthroughs in energy generation, energy storage, information systems, and atomically engineered synthetic materials, now known as nanotechnology.

Indeed, when the clean-energy economy comes to pass, it will owe much to the holistic, practical, and dogged way Ovshinsky and his colleagues have pursued it over the decades.

In Ovshinsky’s view, inexpensive solar power will make energy both plentiful and clean, eliminating the scarcity-driven conflicts and carbon-based pollution that have dogged humankind for centuries. Furthermore, he is confident that this transition, once begun, will occur rapidly, with the same relentless acceleration that has driven computers from mainframes to iPads in a scant four decades.

Ovshinsky has a touch of vanity — he clearly delights in the svelte figure he still cuts in a well-tailored suit, and he takes a similar pleasure in countering skeptics by displaying patents, peer-reviewed publications, and functioning prototypes that prove his concepts work. The wispy-haired gentleman with the modest manner awaits your interrogation with a kind smile, knowing that you may have tough questions, but that he has the answers and the data to back them up.

Birth of a New Science Ovshinsky grew up in Akron, Ohio, the elder son of working-class Jewish immigrants who fled eastern Europe in 1905. His father, Benjamin Ovshinsky, made his living collecting metal scrap, but he was also a liberal social activist who introduced his son to the Akron Workmen’s Circle, an organization focused on labor rights, civil rights, and civil liberties. In later years, Stan Ovshinsky marched in civil rights protests and hosted activists in his home.

His first jobs were in machine shops around Akron, and his first inventions and first company, Stanford Roberts, were devoted to machine tools. The Benjamin Center Drive, an automated lathe he named for his father, was used to manufacture artillery shells for the Korean War effort. Accepting an offer from the Hupp Motorcar Company, he moved to Detroit in 1951, where he invented a technology for electric power steering. But Hupp’s

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president blocked negotiations with General Motors to complete the project, and it was shelved as the industry moved toward hydraulic power steering.

But Ovshinsky was already moving on, pursuing his fascination with human and machine intelligence. He read deeply in the research literature of neurophysiology, neurological disease, and cybernetics. Despite his lack of formal education, he came to comprehend and make strides in these seemingly disparate and arcane disciplines with the same intuitive and iconoclastic bent he brought to precision machine tools. His own publications in peer-reviewed journals confirmed his insight and innovation in these fields.

With his younger brother, Herb, a mechanical engineer, he established a small company called General Automation to research and develop energy and information technologies.

Together they built, in 1959, a mechanical model of a nerve cell, a semiconductor switch they called the Ovitron, in the process pioneering the use of nanostructures. A year later, Stan and Iris opened the Energy Conversion Laboratory.

The Ovitron itself had no practical application, but in developing it, Ovshinsky made a breakthrough that would define his career, and make the “Ovshinsky effect” a science textbook phrase. He discovered that certain types of glassy thin films, known as amorphous or disordered materials, turn into semiconductors upon application of a low voltage.

Semiconductors, the foundation of modern electronics, are materials that conduct an electrical charge but can be regulated, unlike common conductors such as copper.

At the time, in the early 1960s, scientists believed that semiconductors could be formed only from crystalline materials, such as purified silicon, in which all the atoms are arranged in a long-range order. Ovshinsky demonstrated that it was possible to form semiconductors from amorphous or disordered materials, like common glass or silicon alloyed with lesscostly elements. Amorphous silicon made possible the production of devices that are now inexpensive and ubiquitous in computing and energy applications.

“He invented the field of disordered materials,” says Hellmut Fritzsche, former chairman of the physics department at the University of Chicago. “It was so revolutionary at the time that people at Bell Labs and other major research labs said, ‘This man is crazy.’ Stan’s contribution was to say that [crystalline material] is not necessary, and it is too restrictive.

You can make semiconductor materials in many ways when they are not crystalline, when they are disordered. Then you have a great freedom to alter their properties by chemical modification.”

Soon a phalanx of physicists, chemists, and engineers were making a pilgrimage to the Ovshinskys’ modest Detroit lab, including a young Robert Noyce and Gordon Moore, who were then planning a company to produce computer memory products, the future Intel Corporation. Many who came to scrutinize Ovshinsky’s work stayed on to collaborate, captivated as much by Stan and Iris’s lively warmth as by the novelty of the science.

Fritzsche and others who have known him over the years say he always exuded a remarkable confidence in his own abilities.

Ovshinsky made his major discovery while trying to develop an artificial neuron as the first step toward developing a cognitive computer, a working model of the cerebral cortex that he still dreams of completing one day. But he soon put the discovery to work. In September 1966, he filed the first patent on phase change technology, which enabled a new type of computer memory. The most common type of computer memory is dynamic random access memory, or DRAM, which replaced the magnetic core memory of the earliest digital computers. But DRAM chips lose their data when the power is switched off. Phase change

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memory, which Ovshinsky called ovonic unified memory, registers data by changing the physical characteristics of the semiconductor material, from amorphous to crystalline and back again, and that change remains in effect even without electrical current. When a cell phone user’s battery dies, but the phone retains her contact list, she has Ovshinsky’s invention to thank. The same basic technology underlies rewriteable optical discs, enabling consumers to download music onto CDs. Driven by the joy of discovery and their stated intention to use science and technology to solve serious global and societal problems, Stan and Iris kept the company small and nimble by licensing their technologies to major manufacturers. Profits were poured back into research, and growth came almost despite the founders’ intentions. Energy Conversion Laboratory licensed its phase change technology to Intel and STMicroelectronics NV, both of which continue to develop and improve such chips.

The big change to the company came when Ovshinsky applied amorphous materials technology to solar energy. In 1983, when he first began to explore the field, photovoltaic cells were still the size of a thumbnail, and made of costly crystalline silicon in small volumes. To considerable skepticism, even within his own company, Ovshinsky insisted that photovoltaic materials should be made of amorphous silicon deposited on flexible plastics by the mile, like newsprint rolling off a press. The deposition process requires high vacuum and absolute isolation from outside contaminants that the manufacturing equipment of the day could not achieve. But Ovshinsky was first and foremost a machinist, so he designed and produced his own tooling. Reflecting its move into mass production, the company changed its name to Energy Conversion Devices, or ECD. With the success of its solar panels, ECD entered a rapid growth phase that took revenues from a few million dollars a year into nine figures, and the employee roster from perhaps two dozen close associates to more than 1,000. Ovshinsky was now a manufacturer and manager of a large corporation, two roles he had never sought, and for which his iconoclastic temperament proved an awkward match. Although his company had gone public two decades earlier, in the 1960s, its small size and relatively slow growth had kept it below Wall Street’s radar. With the growth and profitability of solar products came increased attention from securities analysts, as well as pressure to concentrate on cash generation. Ovshinsky simply ignored the pressures.

Batteries and Betrayal For Ovshinsky, a clean-energy source begged for a clean-energy storage solution, but the batteries of the time were highly toxic, endangering workers’ health and the environment.

He responded by inventing a rechargeable nickel–metal hydride (NiMH) battery, made of nontoxic and recyclable (and less expensive) materials. NiMH rapidly displaced nickelcadmium cells in portable electronic devices, and in 1992 the U.S. Advanced Battery Consortium selected the Ovonic Battery Company, a subsidiary of ECD, to scale up its NiMH technology for electric vehicles. Ovshinsky’s battery technology still powers the Toyota Prius and Honda Insight hybrid cars, though more recent electric vehicles like the Tesla Roadster and Nissan Leaf use lithium-ion batteries, a newer technology developed for cell phones and laptops.

In December 1996, GM began a limited launch of its EV1 pure electric car. The California Air Resources Board (CARB) then agreed to delay implementation of the first phase of a zero-emissions vehicle mandate that had been scheduled to go into effect in 1998, ordering that the seven biggest carmakers — the largest of which was GM — would need to make 2

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percent of their fleets emissions-free by 1998, 5 percent by 2001, and 10 percent by 2003.

Powered by lead-acid batteries, the first-generation EV1 had a range of 70 to 100 miles.

What should have been Ovshinsky’s greatest triumph came when General Motors selected his tiny company over 60 other bidders to provide batteries for the second-generation EV1 in 1999. His battery doubled the EV1’s range to 140 miles. GM acquired a majority stake in the company, changing the name to GM Ovonics, and the future looked bright. Robert Stempel, who wrapped up a 37-year career at GM as chairman and CEO in 1992, joined ECD Ovonics as an advisor in 1993, and became chairman in 1995. Time magazine called Ovshinsky “a hero for the planet.” But General Motors was ambivalent about the EV1, and its small base of early adopters.

As shown in the documentary film Who Killed the Electric Car? oil industry groups lobbied successfully to end California’s zero-emissions mandate. In the meantime, GM sold its stake in GM Ovonics to Texaco, which in turn was acquired by Chevron. Despite candlelight vigils by EV1 owners, GM recalled all its leased electric cars and crushed all but a few, which were donated — minus their drivetrains — to museums.

“It’s a maze of betrayal,” says Ovshinsky. “We had an agreement that if Texaco was bought out, we could withdraw, but they lied to us. They said, ‘We’ll support you, make it happen.’

Within months it was obvious they weren’t going to do that. As soon as possible they got me off the board.”

In fairness to GM, which has clearly made its share of mistakes, the arithmetic supports the company’s argument that the EV1 was not commercially viable at the time. GM based the leases for the EV1 on an initial vehicle price of US$33,995, with lease payments ranging from $299 to $574 per month, depending on state rebates. Industry analysts estimated the production cost of the car at as much as $100,000. In justifying its decisions, GM said some EV1 parts suppliers had quit, making it hard to guarantee future repairs and safety.

Nonetheless, with the benefit of hindsight, and given the subsequent volatility of gasoline prices, some GM executives’ opinions of the EV1 have changed. Former chairman and CEO Rick Wagoner told Motor Trendmagazine in 2006 that his worst decision during his tenure at GM was “axing the EV1 electric-car program and not putting the right resources into hybrids.”

The rest is history. Japanese automakers seized the lead in hybrid gas/electric vehicles using NiMH batteries, although only after Panasonic EV, a joint venture between Matsushita and Toyota, settled a patent infringement suit brought by Cobasys, the successor company to GM Ovonics.

His treatment by “Big Oil” chastened Ovshinsky and made him wary of corporate partners, but he pressed on to develop the missing components of what he came to call the hydrogen circle, by making it possible to use hydrogen to power automobiles and other vehicles. Hydrogen is the most common element in the universe and the most abundant potential source of clean energy; a car fueled by hydrogen is completely emissions-free.

But on earth, all hydrogen is bound to other molecules. Separating hydrogen from carbon in fossil fuels, most commonly natural gas, requires reformation, which consumes energy and releases carbon dioxide into the atmosphere, exacerbating the global warming that hydrogen-based energy is supposed to ameliorate. Transporting hydrogen requires chilling it to liquid form, which is energy-intensive and expensive, or compressing it under high pressure, which is potentially dangerous and requires heavy tanks.

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To produce abundant hydrogen gas that could be used to power vehicles, Ovshinsky invented a technology he named Ovonic BioReformation. It is a single-step reaction that produces carbonate, a solid widely used in industry, instead of CO2; takes place at low temperatures requiring less energy; and can be performed using a variety of fuels, including biomass. To tackle the transport issue, he developed low-pressure metal hydride containers, which absorb and release hydrogen like a sponge, and, for the U.S. military services, demonstrated a mobile refueling system requiring no costly infrastructure. This was typical Ovshinsky: No single invention stands alone.

The next step was to develop a new type of hydrogen fuel cell, a device that generates electricity through reactions between a fuel and an oxidant, triggered in the presence of an electrolyte. Ovshinsky’s fuel cell operated at lower temperatures than others, and without the costly platinum catalysts commonly used in these technologies. For those not willing to wait for fuel cells, he installed one of his metal hydride canisters in an ordinary 2002 Toyota Prius and ran the internal combustion engine on low-pressure hydrogen. Colleagues recall a visiting Toyota engineer looking on in disbelief until he finally cupped his hands beneath the exhaust pipe and tasted the pure water it emitted. Interest in hydrogen fuel cells has waned with the reduction in U.S. government research funds and with the industry-wide move toward electric vehicles and hybrids. However, some auto executives still insist the fuel cell is the technology with the greatest future potential.

In the midst of his technological advances, Ovshinsky ran headlong into an obstacle not described by the laws of physics: corporate governance regulation in the post-Enron age.

He had always packed ECD’s board with Nobel Prize winners and world-renowned thinkers in diverse fields whose attendance was clearly more related to mutual intellectual stimulation than legal and regulatory compliance. After the passage of the Sarbanes-Oxley Act in 2002, he had to take on additional outside directors with government-mandated skill sets, who then pressured him to emphasize quarterly earnings at the expense of experimentation. He was also forced to impose a reporting hierarchy on the company, which had never known titles or more than two levels of separation between the lowestpaid employee and the CEO. The culture of the company, which had always been collegial, became more conventionally corporate. Longtime colleagues began to leave, and Ovshinsky found himself dreading days filled with meetings and administrative duties.

When Iris died suddenly in 2006 at 79, after an apparent heart attack, he abruptly retired.

It was not necessarily the board’s fault. ECD’s technological lead had never translated into sales leadership, and companies not distracted by forays into hydrogen research or other intriguing technologies claimed a greater share of the photovoltaic market. Although ECD’s sales continued to grow at a steady pace, its 2009 revenues of $302.8 million pale in comparison to the $2.1 billion of market leader First Solar.

Ovshinsky says ECD would not have fallen behind had the board listened to him, and notes that the company’s share price has fallen only since his departure. In the later years, he says, he not only had to fight to preserve his research budget, but also had to battle his own executives to develop the 30-megawatt production lines that are now ECD’s greatest asset.

“The ECD machine I developed is larger than a football field, runs 24/7, and makes miles and miles of photovoltaics,” Ovshinsky says. “When I said I was going to do that, we had only 5-megawatt machines. I lost Iris and I lost the company at about the same time. The company I could have absorbed, but Iris was a deep, deep part of me.”

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A Cultural Innovator Stan Ovshinsky always made a point of giving Iris equal credit for his insights and inventions, and longtime colleagues say she was also at least as responsible as he for the remarkably collegial corporate culture at ECD. Before Sarbanes-Oxley, formal titles, reporting hierarchies, and standardized appraisals were nonexistent. A promotion simply meant taking on more responsibilities, and new hires were constantly encouraged to work outside their specialties or to take on tasks that challenged their skill sets. Many a chemist discovered a flair for physics, and a clerical worker could rise to senior management. Although the Ovshinskys did not use the rhetoric of participative management or nonhierarchical organizations, ECD embodied both concepts.

“My mom joined as a secretary when she was 35, after being a housewife forever,” recalls Joichi Ito, CEO of the Creative Commons, whose parents both worked for ECD for many years. (See “The Ambassador from the Next Economy,” by Lawrence M. Fisher, s+b, Autumn 2006.) Ito himself, now a globe-trotting venture capitalist and digital activist, began working at ECD as a teenager, and says that Stan Ovshinsky became a combination mentor and surrogate father to him after his parents’ divorce. His mother “quickly became head of personnel, then vice president of international sales and licensing, and then was sent to Japan to be president of the Japanese division, and became the chief negotiator with the Japanese clients who were the biggest slice of the royalty fees for the technology.”

Although ECD’s growth over the decades gave many employees a comfortable nest egg, it was slow and steady and never generated the kind of intense, instant wealth that rewarded employees at firms like Microsoft, Google, or Facebook. Headhunters often recruited the company’s multitalented engineers with promises of rapid riches, and some accepted lucrative offers only to find they missed the ECD culture.

“ECD was a reflection of Stan and Iris’s personalities, and each one of us was an integral part of the firm,” says Boil Pashmakov, who left ECD to work in the semiconductor industry and has now returned to work in Ovshinsky’s new company. “In Silicon Valley, it is all about the money.”

But notwithstanding Sarbanes-Oxley, Ovshinsky sometimes showed a side of his character that suggests he should not have been at the head of a publicly traded company. Like many a high-tech entrepreneur, he might have prospered more by taking the role of chief scientific officer while handpicking a cadre of professionals to manage the company. “He truly has a different set of beliefs. He’s out to change the world, and he doesn’t care about the money,” says Patrick Klersy, another ECD veteran who has joined the new venture.

Starting Over After his retirement, Ovshinsky languished for a year. He says he felt he was waiting for his life to end. Then in 2007, in short order he married Rosa Young, a Ph.D. physicist who had worked at ECD since 1986, and launched his fourth company.

Rosa says that Ovshinsky’s proposal of marriage came as a surprise. She had already resigned from ECD herself, accepted a professor’s position in Sichuan province in southwestern China, where she was born, and purchased a small apartment there. But, she adds, Ovshinsky has been surprising her for nearly 25 years now, never more than when he hired her in the first place, and then put her in charge of projects far removed from her academic background.

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Few of Ovshinsky’s old colleagues were surprised, however, when he announced plans for a new company. Considering the spotlight on global warming and renewed concerns about dependence on petroleum products, he simply could not remain on the sidelines. President Barack Obama’s appointment of Steven Chu, a Nobel-winning physicist, as secretary of energy appeared to signal a fresh opening for sustainable energy development, and Ovshinsky felt he had to contribute.

Ovshinsky bootstrapped Ovshinsky Solar with $3.5 million of his own funds, and is now seeking $16 million in new capital to move from proof of concept to a small production facility. He says he will need an additional $350 million to reach full-scale manufacturing by 2012. The goal is a machine capable of producing a gigawatt per year of solar capacity, which is more than the output of a typical nuclear power plant, and more than 30 times the output of the largest current production lines at any photovoltaic manufacturer.

“Other people’s idea of a gigawatt is to do it serially — build one machine and then another and another,” says Ovshinsky. “If you look at all the cost and time of doing that, you are never going to get there. You can actually put a couple of our gigawatt machines in an ordinary factory. My costs will be lower than burning coal. That means pennies per watt.

And that’s the world revolution that’s needed.”

Increasing solar capacity requires improving the conversion efficiency of the semiconductor materials used or increasing the coating rate in production. It is presently impossible to have both high efficiency and high speed, and current manufacturing processes can be improved only incrementally.

Characteristically, Ovshinsky says he has found a way to push both parameters at once, and by significant amounts. “Our technology is a transformational advance in photovoltaics, combining higher conversion efficiency with 100-fold faster deposition rates,” he says.

Indeed, his tiny pilot plant recently achieved this milestone, sustaining a deposition rate of more than 300 angstroms per second, compared with 1 to 5 angstroms per second in stateof-the-art commercial photovoltaic processes. That increase alone would allow the building of a 1-gigawatt capacity plant, but Ovshinsky says he will also soon announce a commensurate increase in conversion efficiency from the current level of about 10 percent.

Ovshinsky Solar currently has eight employees, all of whom had been at ECD for 25 years or more. They work in a tiny unmarked lab packed with elaborate instrumentation and prototype vapor deposition equipment of their own devising. A convoluted maze of stainless steel, the apparatus looks like a science fair project on steroids. The company has 14 patents pending, with more in the pipeline, but until they issue, Ovshinsky explains that he has to remain circumspect about exactly what he is doing. The breakthrough, he says, rests on the invention of an entirely new amorphous material — not a refinement of something he has done before — adding that his aha! moment came when he looked beyond the narrow science of solid-state physics as practiced today, much the way he did 50 years ago with the discovery of amorphous materials. “If you’re going to do something new, you have to overlap fields,” he says. “God didn’t make disciplines; man did.”

The capital sums Ovshinsky is seeking are not big relative to the billions that venture capitalists are throwing at green energy startups, but he says he is not looking to them as investors. “Why don’t I go to the venture capitalists? They don’t care about the achievement; they care about getting out of it at the right time,” he says. “I think countries are better. All they want is for you to build the machines. I prefer to get money from groups that want to answer the problem, and that understand that it has to be revolutionary.”

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Ovshinsky won’t say which governments he is talking to about funding, but a glance at his calendar shows that he has been traveling a great deal, particularly to China. Chinese solar panels accounted for about half of total worldwide shipments in 2009, and that share is expected to grow. “China is doing the right things,” Ovshinsky says. “They have lots of good people, and they have a plan for energy. We do not have a plan for energy.”

Silicon Valley venture capitalists say that although Ovshinsky’s achievements are well known to them, so is his reputation as a difficult partner for investors. And they caution that he would find Beijing and Sichuan investors no easier to work with than venture capitalists in northern California.

“No matter what he’s come up with, people will pay attention because he has a track record of some pretty impressive breakthroughs,” says Sunil Paul, founder of Spring Ventures, a San Francisco–based fund that invests in and incubates clean-energy technologies and companies. “But Stan does have this complicated reputation; you want him to be Edison, but there’s a risk he’ll end up being Buckminster Fuller.”

For longtime participants in the solar industry, Ovshinsky’s ability to deliver a breakthrough technology is not in doubt, despite the magnitude of the advance he is claiming. They say the economic and environmental case for low-cost solar power is so compelling that it is almost inevitable but building a 1-gigawatt machine is only the first step in a long road to market. “I don’t know what technology he’s using, but it’s not something we know anything about,” says Travis Bradford, author of Solar Revolution: The Economic Transformation of the Global Energy Industry (MIT Press, 2006). “It’s not a current-generation technology.

And that next gen is five to 10 years away. Then there are business model problems, even if he can build a gigawatt line.”

At 88, Ovshinsky is well aware of the actuarial tables, and though he plans to go on working for years, he has structured the new company so that it can function without him.

But it’s also clear that he cannot function happily without a group of like-minded souls striving to take his concepts forward.

“I never did this for awards, money, power,” Ovshinsky says. “I did it because it had to be done, and because of my social drive to make a better and more beautiful world. That’s what I started doing when I was knee-high, and I don’t expect to stop now WIND Vestas signs global wind pact with methanol giant Danish turbine group Vestas will help Methanol production giant Methanex to identify and develop wind projects following a new co-operation deal between the two.

The companies will look at opportunities for wind facilities that Methanex can develop in and around its global production plants, says a joint statement.

Vestas and Methanex signed the global collaboration deal in Chile, where the latter already uses the Danish group’s turbines at its Cabo Negro wind plant in Magallanes, home to its methanol production facilities in the country.

Morten Albæk, a Vestas global senior vice-president, says: “Producing methanol is an energy-intensive process.

“With the Cabo Negro wind project, Methanex have shown both their creativity in finding a business model that reduces consumption of natural gas and their commitment to act in an environmentally responsible manner.”

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Operational since 2010, Cabo Negro includes three Vestas V52-850 kW turbines with a combined capacity of 2.55 MW connected to the internal generation system at the Methanex plant.

The two companies also agreed to “help build a robust renewable energy regulation in the Magallanes Region, contributing to the diversification of its energy mix”.

Vancouver, Canada-based Methanex says it is the world’s biggest supplier of methanol. It lists production facilities in Canada, Egypt, New Zealand and Trinidad, as well as the Chilean plants.

Long-serving Suzlon executive takes senior job at REpower REpower Systems says a senior executive from Indian parent-company Suzlon will join it as chief operating officer (COO), while it has also found a new finance supremo.

Vinod Tanti will join Germany-based turbine-maker REpower as COO in June. Tanti, a brother of Suzlon’s chairman Tulsi Tanti, is a long-serving executive at the Indian wind equipment group, specialising in supply-chain issues.

A statement says that at Suzlon, Vinod Tanti has “successfully led a cost-efficiency drive...with an uncompromising focus on reliability and safety, and has been instrumental in making it one of the most cost-competitive and profitable companies in the sector".

Marcus Wassenberg takes over as chief financial officer (CFO) at REpower, filling the job vacated in April by previous incumbent Derrick Noe, who left due to “strategic differences” with the company’s management.

Wassenberg previously served as the company’s senior vice-president of management control. He also steps up on 1 June.

REpower chief executive Andreas Nauen says: "I have worked closely with Marcus Wassenberg for a number of years now and know he will make an important contribution on the executive board as CFO. “I am also delighted to welcome Vinod Tanti to REpower – his rich experience and deep knowledge of supply chain management will benefit us significantly."

Tulsi Tanti says: "For some time now we have been looking to both strengthen REpower's executive board and also leverage some of the many synergy benefits between Suzlon and REpower."

Suzlon took full control of REpower late last year following its legal process to “squeeze out” the German group’s remaining minority shareholders.

Since then there has been intense speculation over the Indian group’s plans for its subsidiary, including speculation that it may have to sell or refloat the business.

Alstom was at one stage suggested as a potential buyer, but quickly snuffed out the suggestion. Tulsi Tanti adds in today's statement: "The Suzlon group is committed to REpower for the long term and wishes to further develop the profitable and sustainable growth of the company."

U.K. Offshore Wind Developers Able to Cut Costs With Tie-ups

By Sally Bakewell on June 13, 2012, Bloomberg News Offshore wind developers in the U.K. will be able to meet a state target of lowering power costs 30 percent in 2020 by forming industry alliances, according to a group backed by companies including Alstom SA (ALO) and Siemens AG.

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A U.K. plan to cut costs to 100 pounds ($155) a megawatt- hour by 2020 from 140 pounds is achievable, the Offshore Wind Cost Reduction Task Force, also including Vestas Wind Energy Systems A/S (VWS) and Gamesa Corporacion Tecnologica SA, said today.

That could save more than 3 billion pounds a year, wind power trade lobby RenewableUK and the U.K.’s Department of Energy and Climate Change said in a joint statement.

“It’s essential that industry recognizes and acts on the need to bear down costs to provide long term protection to consumers from volatile fossil fuel prices,” Energy Minister Charles Hendry said today at a conference.

Prime Minister David Cameron set up the taskforce in 2011 to help make offshore wind competitive with energy like nuclear power and curb household bills. The U.K. plans 18 gigawatts of offshore turbines by 2020 from about 1.9 gigawatts currently.

Developers and equipment suppliers should use “more efficient contracting” to cut the cost and risk of installing turbines, the taskforce said. The approach borrows from the experience of North Sea oil and gas companies that shared expertise to cut capital costs as oil prices fell in the 1980s.

The group also recommended creating a body with government and industry members to address possible bottlenecks and delays.

Tough Timeline “The timeline is tough so the taskforce must now work on implementing the ideas in their report,” Benj Sykes, director of U.K. wind operations at Dong Energy A/S, said in a statement.

The “lion’s share” of early investment will come from foreign companies that may manufacture in the U.K., Hendry said.

Britain in January 2010 awarded licenses for 32 gigawatts of generation in its third round of offshore wind tenders, with plans to begin installations in about 2015. The Centre for Economics and Business Research said in a report commissioned by Irish wind developer Mainstream Renewable Power Ltd. that “aggressive” development may create 215,000 jobs by 2030.

The use of larger, more efficient wind turbines may reduce costs, said the Crown Estate, which manages the U.K.’s seabed.

The estate said today in a report that greater competition among suppliers and improvements in technology may also help spur a 39 percent drop in electricity costs by 2020. Vestas and Siemens are developing 6 or 7-megawatt turbines for use at sea.

Deal structures for offshore projects should be simplified, and credit ratings agencies and insurers engaged to increase confidence in the industry, according to the taskforce.

To contact the reporter responsible for this story: Sally Bakewell in London at Sbakewell1@bloomberg.net To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net Siemens unwraps 'world's longest' wind blade at 75 metres Siemens has unveiled the world’s longest turbine blade, a 75-metre concept devised for its next-generation 6MW offshore machine.

The B75 Quantum blade, which outreaches LM Wind Power’s 73.5P model by 1.5 metres, is designed with what Siemens describes as a unique aerofoil that promises “tremendous

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strength at a low weight”. A set of the blades will be installed on the second Siemens SWT6.0 prototype, to be erected at the Østerild test station in Denmark.

The B75 lays claim to being the largest glass-fibre component cast in one piece. Made with a mould fashioned in two parts to allow for transport on the European road network, it uses the company’s IntegralBlade pro-cess, which fabricates each unit in a single process rather than gluing it together from spars and shells.

This method produces strong, light blades without joints that could crack in high winds or prove a weak point in a lightning strike. This “extreme robust ness” is expected to significantly improve the cost-efficiency of turbines.

Siemens says the blade would be 25-50% heavier if it were produced using traditional technology. Weightier blades are subject to higher loads and must be wedded to beefier nacelles, towers and foundations, while the combination of intelligent design and low weight “has a corre- spondingly positive effect on the power-generation costs”.

Siemens has re-engineered the aerodynamic and structural design of the blades for the 154- metre -diameter rotor, using its Quantum blade technology, featuring a “lift-enhancing” tip.

The flagship SWT-6.0, fitted with a 120-metre-diameter rotor and put through its paces at Høvsøre, Denmark, will be installed at Gunfleet Sands wind farm off the southeast coast of England. Dong is testing the Siemens turbines at Gunfleet Sands with an eye on its “small” UK Round 3 sites — the 1GW Njord and 2GW Heron projects.

Kitted out with the B75s, the prototype machine will have a swept area of 18,600 square metres in locations “from inland waters with moderate wind resources to the most exposed offshore site”.

The blades must withstand tremendous forces, with wind speeds of ten metres per second capturing energy from 200 tonnes of air each second.

The SWT-6.0 is Siemens’ third direct-drive machine. By swapping the main shaft, gearbox and high-speed generator for a low-speed, synchronous permanent-magnet generator, it claims 66% of the conventional drivetrain assembly is removed — meaning the turbine has 50% fewer parts than a comparable geared machine, and is lighter.

Darius Snieckus, Munich Published: Wednesday, June 13 2012 NUCLEAR Will Nuclear Plants Withstand Quakes and Floods?

MAY 29, 2012, 5:57 PM

By MATTHEW L. WALD Nuclear Regulatory CommissionThe Fort Calhoun nuclear plant in Nebraska was threatened by inundation last June.

The Nuclear Regulatory Commission should consider requiring nuclear power plants to analyze their vulnerability to natural hazards like earthquakes by using the same advanced tools that the industry uses to understand the risks from mechanical accidents, a new report from the Government Accountability Office argues.

A string of natural disasters has recently drawn attention to nuclear safety and natural disasters, including the Fukushima Daiichi quake and tsunami in March 2011, tornado damage near the Tennessee Valley Authority’s Browns Ferry complex in April 2011, the

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Missouri River flooding that nearly inundated two reactors in Nebraska last summer and the quake near Mineral, Va., last August.

Almost all of the plants now running were licensed in the 1970s or 1980s, when safety was analyzed on what is known as a “deterministic” basis. That means drawing up a list of potential malfunctions and adding enough hardware to prevent them, including redundant systems that would tolerate multiple failures.

But more recently, regulators have been pushing the industry to embrace a technique known as “probabilistic risk assessment.” This involves drawing up a chart of a potential sequence of events and calculating the probability of each step in the sequence. That allows engineers to rank the likelihood of each accident and the components most likely to fail. The commission then focuses on the higher-risk accidents and components, a technique it calls “risk-informed regulation.’’

One of the problems in applying probabilistic risk assessment to natural disasters is that it is hard to estimate the probability of the “initiating event,” like an earthquake of a certain magnitude or a flood of a certain depth.. But the technique has shown some promise.

For example, the commission’s staff analyzed the risks posed by flooding at the Fort Calhoun reactor near Omaha and concluded that certain crucial components could be knocked out by rising water. It required the Omaha Public Power District, which owns the plant, to install emergency floodgates, which proved very helpful last year when the Missouri River flooded.

But the commission has had limited success in trying to get the reactor operators to apply the technique to fire risks. One reason is the expense of performing the analyses.

Critics say it is evident, though, that the existing evaluation of earthquake vulnerability is flawed. The Virginia quake shook the twin-unit North Anna reactors last year to a degree exceeding what the plant was built to withstand, leading to months of inspection and analysis. But the quake did not produce any significant damage, indicating that the structures and hardware of the real-world plant are stronger than the license indicates.

The government auditors investigated a total of 25 reactors operated by five power plant operators; they said that probabilistic risk analyses for earthquake hazards had been prepared for 12 reactors, but that none involved high winds or floods.

The Government Accountability Office interviewed 15 experts on natural hazards and nuclear power. More than half said that the use of probabilistic analyses should be expanded.

Reviewing the report, the regulatory commission said it agreed with the recommendation that it should consider expanded use of the technique.

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The two lawmakers who requested the report, Senator Barbara Boxer of California, the chairman of the Senate Environment and Public Works committee, and Representative Edward J. Markey of Massachusetts, both Democrats, faulted the agency for not moving faster.

“There is simply no excuse for the N.R.C.’s failure to require the most up-to-date methods to assess the threat posed by natural disasters such as earthquakes,” Ms. Boxer said in a statement.

Mr. Markey said the agency should be addressing safety issues like these rather than licensing new reactors or extending the licenses of old ones. On Tuesday, the commission renewed the license of the Pilgrim nuclear plant in Plymouth, Mass., for another 20 years.

Nuclear Power After Fukushima The resignation of Gregory Jaczko, the embattled chairman of the Nuclear Regulatory Commission, means the country is losing a strong advocate for public safety who was always willing to challenge the nuclear industry and its political backers in Congress.

The White House’s choice to replace him, Allison Macfarlane, has strong credentials as an expert on nuclear waste and weapons. She will need to be as independent and aggressive as Dr. Jaczko. Both industry and her fellow commissioners will have to be pushed to implement necessary improvements highlighted by the disaster at the Fukushima Daiichi nuclear power plant in Japan.

After being hit by an unusually powerful earthquake and the tsunami it generated, Fukushima lost its connection to the off-site electrical grid and its own backup generators, making it impossible to cool the reactors to prevent a meltdown and release of radiation.

Although an equally powerful earthquake and tsunami were deemed unlikely in this country, the disaster was a warning that nuclear plants must do more to anticipate previously “unthinkable” disasters and plan for ways to mitigate the damage.

When it comes to nuclear power, the cost of any mistake can be truly unthinkable.

In the wake of Fukushima, the commission assembled an expert task force. Last July, it offered a list of three dozen thoughtful recommendations. They included specific recommendations to upgrade safety equipment and procedures, as well as an ambitious call to revamp the current regulatory approach and replace certain voluntary provisions with mandatory requirements.

Dr. Jaczko’s constant prodding in public and in private helped push the commission to set clear deadlines for taking action. It gave its staff members 24 to 30 months to develop rules to prevent the complete loss of power experienced at Fukushima. And Dr. Jaczko set a goal of implementing all of the recommendations within five years. Dr. Macfarlane will have to keep pushing for prompt and thorough action.

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Dr. Jaczko had been under heavy fire from fellow commissioners and Congressional Republicans for what they charged was a manipulative and abrasive management style, some of it described by the agency’s inspector general. (The Republicans have pressed for another report that may be released soon.) We’ve never been sure whether the attacks on him were mostly a cloak for policy disagreements or reflected a truly important management problem. Either way, they became a distraction.

In addition to her training as a geologist and work as an academic — she is an associate professor of environmental science and policy at George Mason University — Dr. Macfarlane has welcome Washington experience. She was a member of a White House panel on the future of nuclear power and has served on National Academy of Sciences panels on nuclear power and nuclear weapons.

Her nomination was applauded by nuclear watchdog groups and industry. It will likely be paired with a nomination to another term for Kristine Svinicki, a Republican commissioner and outspoken critic of Dr. Jaczko. That should enhance the chances for both to win confirmation. The commission needs strong and expert leadership to ensure that nuclear power is made as safe as possible.

2011 Japan Nuclear Crisis: Overview The earthquake and tsunami that hit northern Japan on March 11, 2011 created the worst nuclear crisis since the Chernobyl disaster. The three active reactors at the Fukushima Daiichi Nuclear Power Station 170 miles north of Tokyo suffered meltdowns after the quake knocked out the plant’s power and the tsunami disabled the backup generators meant to keep cooling systems working. A series of explosions and fires led to the release of radioactive gases.

At least 80,000 people were evacuated from around the plant. By July, the count of dead and missing was above 22,000.

Radioactive materials were detected in tap water as far away as Tokyo, as well as in agricultural produce like vegetables, tea and beef.

The blasts in the days after the earthquake cracked the containment vessel at one reactor and may have cracked two others, although the Tokyo Electric Power Company, which owns the plant, said most of the fuel stayed inside, avoiding the more catastrophic “China syndrome.”

In April, Japan raised its assessment of the accident from 5 to 7, the worst rating on an international scale, putting the disaster on par with the 1986 Chernobyl explosion, in an acknowledgement that the human and environmental consequences of the nuclear crisis could be dire and long-lasting. While the amount of radioactive materials released from Fukushima Daiichi so far has equaled about 10 percent of that released at Chernobyl, officials said that the radiation release from Fukushima could, in time, surpass levels seen in 1986.

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In December, Prime Minister Yoshihiko Noda announced that technicians had regained control of reactors at the Fukushima Daiichi Nuclear Power Plant, declaring an end to the world’s worst nuclear disaster since Chernoybl. Mr. Noda said the government will now focus on removing the fuel stored at the site, opening up the ravaged reactors themselves and eventually dismantling the plant, a process that is expected to take at least four decades. Mr. Noda became prime minister in August 2011, replacing Naoto Kan, who headed the government at the time of the disaster.

For many of the people of Fukushima, the crisis is far from over. More than 160,000 people remain displaced, and even as the government lifts evacuation orders for some communities, many are refusing to return home. And many experts still doubt the government’s assertion that the plant is now in a stable state — the equivalent of a “cold shutdown’' — and worry that officials are declaring victory only to quell public anger over the accident.

The crisis at Fukushima had effects on Japan’s overall energy policy: In May, Prime Minister Naoto Kan, who had been criticized for showing a lack of leadership, said Japan would abandon plans to build new nuclear reactors, saying his country needed to “start from scratch” in creating a new energy policy that should include greater reliance on renewable energy and conservation.

Word in early June that the amount of radiation released in the first days of the crisis might have been more than twice the original estimate chipped away further at the credibility of the nuclear industry and the government. In July, Mr. Kan went further, saying Japan should reduce and eventually eliminate its dependence on nuclear energy, saying that the Fukushima accident had demonstrated the dangers of the technology.

In interviews and public statements, some current and former government officials have admitted that Japanese authorities engaged in a pattern of withholding damaging information and denying facts of the nuclear disaster — in order, some of them said, to limit the size of costly and disruptive evacuations in land-scarce Japan and to avoid public questioning of the politically powerful nuclear industry. As the nuclear plant continues to release radiation, some of which has slipped into the nation’s food supply, public anger is growing at what many see as an official campaign to play down the scope of the accident and the potential health risks.

A Year Later, Grappling With Crucial Questions A year after the disaster, Japan grapples with the question: Was the accident simply the result of an unforeseeable natural disaster or something that could have been prevented?

Japan’s nuclear regulators and the plant’s operator, Tokyo Electric Power, or Tepco, have said that the magnitude 9.0 earthquake and 45-foot tsunami were far larger than anything that scientists had predicted. That conclusion has allowed the company to argue that it is not responsible for the triple meltdown, which forced the evacuation of about 90,000 people.

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But some insiders from Japan’s tightly knit nuclear industry have stepped forward to say that Tepco and regulators had for years ignored warnings of the possibility of a larger-thanexpected tsunami in northeastern Japan, and thus failed to take adequate countermeasures, such as raising wave walls or placing backup generators on higher ground.

They attributed this to a culture of collusion in which powerful regulators and compliant academic experts looked the other way while the industry put a higher priority on promoting nuclear energy than protecting public safety. They call the Fukushima accident a wake-up call to Japan to break the cozy ties between government and industry that are a legacy of the nation’s rush to develop after World War II. In one of the most widely watched reforms to come out of the Fukushima accident, the government is moving to restore trust in regulatory oversight by separating Japan’s main nuclear regulatory agency from the Ministry of Economics, Trade and Industry, or METI. In a bill now in Parliament, the government of Prime Minister Yoshihiko Noda wants to put the nuclear watchdog, the Nuclear and Industrial Safety Agency, known as NISA, into the more safety-minded Environmental Ministry as early as April 2012.

However, many say targeting a single ministry does not go far enough in ending the murky links between government and industry. Critics like point to other, broader problems, such as the fact that Japan’s regulators are not nuclear specialists, but are reliant for expertise on the very companies they are charged with monitoring.

Tepco and its supporters say it is easy in hindsight to second-guess the company. They said no one could have been fully prepared for the magnitude 9.0 earthquake, the largest in Japan’s recorded history, and giant tsunami that knocked out cooling systems at three of Fukushima Daiichi’s six reactors.

But many experts and industry insiders disagree, saying the plant had ample warning, including from its own engineers.

In 2008, Tepco engineers made three separate sets of calculations that showed that Fukushima Daiichi could be hit by tsunamis as high as 50 feet, according to the company.

A Tepco spokesman, Takeo Iwamoto, said Tepco did not tell regulators at NISA for almost a year, and then did not reveal the most alarming calculation, of a 50-foot wave, until March 7, 2011 — four days before the tsunami actually struck.

Asked why the company did not move more quickly to strengthen defenses at the plant, he said that the calculations were considered “provisional estimates” based on academic theories that were not then widely accepted. Officials at NISA said regulators followed their standard procedure of leaving it to Tepco to conduct so-called back checks of tsunami defenses.

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Critics say the same hands-off approach prevailed at the committees of outside experts that were supposed to serve as a check on regulators. Many former committee members, as well as current and former METI officials, say that bureaucrats not only tightly choreographed the topics for discussion by the committees, but also wrote the final reports on the committees’ findings.

This was the case in a crucial revision of seismic guidelines for nuclear plants that was completed in 2006 by the Nuclear Safety Commission, said Katsuhiko Ishibashi, a retired seismologist at Kobe University who served on a committee to create the new guidelines for tsunami preparedness.

Mr. Ishibashi, who has long warned of the dangers posed by earthquakes to nuclear plants, said he often felt he was the token critic on the 22-member committee. He ended up quitting in anger during the last meeting in August 2006, after seeing a draft of the revised guidelines that, he said, contained none of his warnings.

A Loss of Faith in Nuclear Technology A year later, all but two of Japan’s 54 commercial reactors have gone off line, and it is not clear when they can be restarted. With the last operating reactor scheduled to be idled as soon as April, Japan — once one of the world’s leaders in atomic energy — will have at least temporarily shut down an industry that once generated a third of its electricity.

With few alternatives, the prime minister, Mr. Noda, has called for restarting the plants as soon as possible, saying he supports a gradual phase-out of nuclear power over several decades. Yet, fearing public opposition, he has said he will not restart the reactors without the approval of local community leaders.

Japan has so far succeeded in avoiding shortages, thanks in part to a drastic conservation program that has involved turning off air conditioning in summer and office lights during the day. It has also ramped up generation from conventional plants that use more expensive natural gas and other fossil fuels in a nation already uneasy about its reliance on foreign sources of energy.

The loss of nuclear power has hurt in another way: economists blame the higher energy prices for causing Japan’s first annual trade deficit in more than three decades, which has weakened the yen and raised concerns about the future of the country’s export-driven economy. And as the weather warms, Japan faces a possible energy crisis, considering that in summer 2011, it still had 19 nuclear plants in operation.

On a more fundamental level, the standoff over nuclear power underscores just how much the trauma of the Fukushima accident has changed attitudes in Japan, long one of the world’s most committed promoters of civilian atomic energy. Political and energy experts describe nothing short of a nationwide loss of faith, not only in Japan’s once-vaunted nuclear technology but also in the government, which many blame for allowing the accident to happen.

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In many respects, Japan is already on the road to recovery from the huge earthquake and tsunami, which killed as many as 20,000 people, and to a lesser degree from the nuclear accident. The northeastern coastal towns that were flattened by the waves have cleaned up millions of tons of debris and are now beginning to rebuild.

But it is the nuclear accident at Fukushima Daiichi that looks likely to have a more lasting impact, even though it has yet to claim a single life. Japan is just beginning what promises to be a decades-long radiation cleanup of the evacuated areas around the plant, where nearly 90,000 residents lost their homes. The nation is also groping to find effective ways to monitor health and protect its food supply from contamination by the accident, which government scientists now say released about a fifth as much radioactive cesium as the Chernobyl disaster in 1986.

Then there are the new feelings of distrust in technology and in the government, which many Japanese now blame for hiding the true dangers of the nuclear accident. At the same time, this resource-poor nation also knows that it has few realistic alternatives to nuclear power, at least in the short term.

A Vivid Account of the Crisis In late February 2012, a report by Rebuild Japan Initiative Foundation, a private policy organization, offered one of the most vivid accounts yet of how Japan teetered on the edge of an even larger nuclear crisis than the one that engulfed the Fukushima Daiichi Nuclear Power Plant. A team of 30 university professors, lawyers and journalists spent more than six months on the inquiry into Japan’s response to the triple meltdown at the plant, which followed a massive earthquake and tsunami in March 11 that shut down the plant’s cooling systems.

The investigation found that in the darkest moments of the nuclear disaster, Japanese leaders did not know the actual extent of damage at the plant and secretly considered the possibility of evacuating Tokyo, even as they tried to play down the risks in public.

The team conducted interviews with more than 300 people, including top nuclear regulators and government officials, as well as Naoto Kan, who was prime minister during the crisis.

They were granted extraordinary access, in part because of a strong public demand for greater accountability and because the organization’s founder, Yoichi Funabashi, a former editor in chief of the daily Asahi Shimbun, is one of Japan’s most respected public intellectuals.

The report describes how Japan’s response was hindered at times by a debilitating breakdown in trust between the major actors: Mr. Kan; the Tokyo headquarters of the plant’s operator, Tokyo Electric Power, known as Tepco; and Masao Yoshida, the manager at the stricken plant. The conflicts produced confused flows of sometimes contradictory information in the early days of the crisis, the report said.

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It described frantic phone calls by the plant manager, Mr. Yoshida, to top officials in the Kan government arguing that he could get the plant under control if he could keep his staff in place, while at the same time ignoring orders from Tepco’s headquarters not to use sea water to cool the overheating reactors. By contrast, Mr. Funabashi said in an interview, Tepco’s president, Masataka Shimizu, was making competing calls to the prime minister’s office saying the company should evacuate all of its staff, a step that could have been catastrophic.

Warnings About Flawed Regulations In surprisingly frank public testimony on Feb. 15, 2012, Haruki Madarame, Japan’s nuclear safety chief, said the country’s regulations were fundamentally flawed. He laid out a somber picture of a nuclear industry shaped by freewheeling power companies, toothless regulators and a government more interested in promoting nuclear energy than in safeguarding the health of its citizens.

Mr. Madarame, head of a panel of nuclear safety experts who provide technical advice to the government, told a Parliament-sponsored inquiry that Japanese officials had succumbed to a blind belief in the country’s technical prowess and failed to thoroughly assess the risks of building nuclear reactors in an earthquake-prone country.

For example, he said, officials did not give serious consideration to what would happen if electric power were lost at a nuclear station, because they believed that Japan’s power grid was far more reliable than those in other countries. The March earthquake and tsunami cut off the Fukushima plant from the grid, leaving operators unable to keep the reactor cores from overheating.

Officials also gave too little attention, he said, to new studies raising the possibility of large earthquakes off the coast of Fukushima Prefecture. Mr. Madarame said he was to blame for some of the lapses, but that the Nuclear Safety Commission had a culture of complacency long before he took over in mid-2010.

Mr. Madarame said the government should go far beyond the lax safety checks that Japanese regulators performed for years, which he said were still being carried out in some cases using “technology three decades old.” He also said that regulators had been too cozy with the industry.

Doubts About a ‘Cold Shutdown’ The Japanese government declared in December 2011 that it had finally regained control of the overheating reactors at the Fukushima Daiichi plant. But even before it was made, the announcement faced serious doubts from experts.

A disaster-response task force headed by Prime Minister Yoshihiko Noda announced that the plant’s three damaged reactors had been put into the equivalent of a “cold shutdown,” a technical term normally used to describe intact reactors with fuel cores that are in a safe and stable condition. Some experts said that the announcement reflected the government’s

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effort to fulfill a pledge to restore the plant’s cooling system by year’s end, not the true situation.

Other experts expressed concern that the government would declare victory only to appease growing public anger over the accident, and that it could deflect attention from remaining threats to the reactors’ safety. One of those — a large aftershock to the magnitude 9 earthquake on March 11, which could knock out the jury-rigged new cooling system that the plant’s operator hastily built after the accident — is considered a strong possibility by many seismologists.

Plans to Decommission the Reactors Soon after declaring that the reactors at the Fukushima Daiichi plant had been put into the equivalent of a “cold shutdown,” the Japanese government announced plans for fully shutting them down. Doing so will take 40 years and require the use of robots to remove melted fuel that appears to be stuck to the bottom of the reactors’ containment vessels, according to a detailed government plan.

Japan’s nuclear crisis minister, Goshi Hosono, acknowledged that no country has ever had to clean up three destroyed reactors at the same time. Mr. Hosono told reporters the decommissioning faced challenges that were not totally predictable, but “we must do it even though we may face difficulties along the way.”

According to the plan, the plant’s operator, Tokyo Electric Power, will spend two years removing spent fuel rods from storage pools located in the same buildings as the damaged reactors. At least one of those pools, which are highly radioactive, was exposed by hydrogen explosions that destroyed the reactor buildings in the first days of the accident.

The most technically challenging step will be removing the melted fuel, a process that the government said will take 25 years and require new types of robots and other new technologies that have not even been developed yet. After the removal, fully decommissioning the reactors will take another 5 to 10 years, according to the plan.

A Confused Cleanup Effort Nobody really knows how to clean up after a nuclear accident. But in early 2012, the Japanese government was giving it a try, handing out an initial $13 billion in contracts meant to rehabilitate the more than 8,000-square-mile region most exposed to radioactive fallout — an area nearly as big as New Jersey.

The government’s main goal is to eventually enable the return of many of the 80,000 or more displaced people nearest the site of the nuclear disaster. It is far from clear, though, that the unproved cleanup methods will be effective.

Also disturbing to critics of the decontamination program is the fact that the government awarded the first contracts to three giant construction companies — corporations that have

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no more expertise in radiation cleanup than anyone else does, but that profited hugely from Japan’s previous embrace of nuclear power.

An Environment Ministry official said that big construction companies were best equipped to gather the necessary manpower, oversee large-scale projects like decontaminating highways and mountains, and properly protect and monitor radiation exposure among the cleanup workers.

But there is little consensus on what cleanup methods might prove effective in Japan.

Radioactive particles are easily carried by wind and rain, and could recontaminate towns and cities even after a cleanup crew has passed through, experts say.

Nuclear Power: Overview Nuclear power plants use the forces within the nucleus of an atom to generate electricity.

The first nuclear reactor was built by Enrico Fermi below the stands of Stagg Field in Chicago in 1942. The first commercial reactor went into operation in Shippingport, Pa., in December 1957.

In its early years, nuclear power seemed the wave of the future, a clean source of potentially limitless cheap electricity. But progress was slowed by the high, unpredictable cost of building plants, uneven growth in electric demand, the fluctuating cost of competing fuels like oil and safety concerns.

Accidents at the Three Mile Island plant in Pennsylvania in 1979 and at the Chernobyl reactor in the Soviet Union in 1986 cast a pall over the industry that was deepened by technical and economic problems. In the 1980s, utilities wasted tens of billions of dollars on reactors they couldn’t finish. In the ‘90s, companies scrapped several reactors because their operating costs were so high that it was cheaper to buy power elsewhere.

But recently, in a historic shift, more than a dozen companies around the United States have suddenly become eager to build new nuclear reactors. Growing electric demand, higher prices for coal and gas, a generous Congress and a public support for radical cuts in carbon dioxide emissions have all combined to change the prospects for reactors, and many companies were ready to try again.

The old problems remain, however, like public fear of catastrophe, lack of a permanent waste solution and high construction costs. And some new problems have emerged: the credit crisis and the decline worldwide of factories that can make components. The competition in the electric market has also changed.

Nonetheless, industry executives and taxpayers are spending hundreds of millions of dollars to plan a new chapter for nuclear power in the United States and set the stage for worldwide revival.

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Nuclear Energy: How It Works Nuclear power is essentially a very complicated way to boil water.

Nuclear fuel consists of an element – generally uranium – in which an atom has an unusually large nucleus. The nucleus is made up of particles called protons and neutrons.

The power produced by a nuclear plant is unleashed when the nucleus of one of these atoms is hit by a neutron traveling at the right speed.

The most common reaction is that the nucleus splits — an event known as nuclear fission — and sets loose more neutrons. Those neutrons hit other nuclei and split them, too. At equilibrium — each nuclear fission producing one additional nuclear fission — the reactor undergoes a chain reaction that can last for months or even years.

When the split atom flings off neutrons, it also sends out fragments. Their energy is transferred to water that surrounds the nuclear core as heat. The fragments also give off sub-atomic particles or gamma rays that generate heat.

Depending on the plant’s design, the water is either boiled in the reactor vessel, or transfers its heat to a separate circuit of water that boils. The steam spins a turbine that turns a generator and makes electricity.

Sometimes instead of splitting, the nucleus absorbs the neutron fired at it, a reaction that turns the uranium into a different element, plutonium 239 (Pu-239). This reaction happens some of the time in all reactors. But in what are known as breeder reactors, neutrons fired at a higher force are absorbed far more often. In this process, spent uranium fuel can be recycled into Pu-239, which can be used as new fuel. But problems with safety and waste disposal have limited their use – a fuel recycling plant that operated near Buffalo for six years created waste that cost taxpayers $1 billion to clean up.

Discovery and the Birth of an Industry The possibility of nuclear fission – splitting atoms — was recognized in the late 1930s. The first controlled chain reaction came in 1942 as part of the Manhattan Project, America’s wartime effort to build an atom bomb. That project entailed construction of several reactors, but for them, the energy was a waste product; the object was plutonium bomb fuel. On July 16, 1945, at the Trinity Site in New Mexico, the project’s scientists set off a chain reaction that was designed to multiply exponentially – the first blast of an atomic bomb.

Even before the war ended, the military was looking at reactors for another use, submarine propulsion. Work on those reactors began in the early 1950s, and on some other uses of nuclear power that never came to fruition, like nuclear-powered airplanes.

By general consensus, the first commercial reactor was a heavily subsidized plant at Shippingport, Pa. That was essentially a scaled-up version of a submarine reactor. In the

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United States and abroad, as the cold war and a vast nuclear arms race took shape, the race was on to find a peaceful use for the atom.

In December 1953, President Dwight D. Eisenhower delivered a speech at the United Nations called “Atoms for Peace,” calling for a “worldwide investigation into the most effective peace time uses of fissionable material.’’

Messianic language followed. Rear Admiral Lewis L. Strauss, chairman of the Atomic Energy Commission, told science writers in New York that “our children will enjoy in their homes electrical power too cheap to meter.’’

The “too cheap to meter” line has dogged the industry ever since. But after a slow start in the 1950s and early ’60s, larger and larger plants were built and formed the basis for a great wave of optimism among the electric utilities, which eventually ordered 250 reactors.

As it turned out, many of those companies were poor at managing massive, multiyear construction projects. They poured concrete before designs were complete, and later had to rip and replace some work. New federal requirements slowed progress, and delays added to staggering interest charges.

Costs got way out of hand. Half the plants were abandoned before completion. Some utilities faced bankruptcy. In all, 100 reactors ordered after 1973 were abandoned. By the time of the Three Mile Island accident, ordering a new plant was unthinkable and the question was how many would be abandoned before completion.

Safety – Three Mile Island and Chernobyl The core meltdown at Three Mile Island 2, near Harrisburg, Pa., in March 1979, and the explosion and fire at Chernobyl 3 in April 1986, near Kiev, in the Ukraine, are events the industry cannot afford to repeat.

Three Mile Island unit 2 was the youngest reactor in the United States. The plant, like all others on line in the United States, had been built with impressive back-up systems to guard against a big pipe break that could leave the nuclear core without its blanket of water. But here a relatively slow leak combined with misunderstandings by the plant operators about their complex controls, factors that had not been anticipated.

The operators knew that they had a routine malfunction and had taken action to deal with it.

But as problems mounted, in their windowless control room, filled with dials, warning lights and audible alarms that all clamored for attention faster than they could absorb it, they did not realze for hours that a valve they believed they had closed was actually stuck open.

Rather than resolving the problem, they had allowed most of the cooling water to leak out.

Tens of thousands of worried residents evacuated the surrounding area. The reactor core was destroyed, but with little damage beyond it.

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The reactor had shut itself down in the first few moments of the malfunction, when an automatic system triggered control rods to drop into the core, shutting off the flow of neutrons that sustained the chain reaction. And even if that had not happened, the reaction would have stopped as the cooling water boiled away, because the water acted as a moderator, slowing the neutrons down.

The plant leaked radioactive materials; post-accident estimates said the amount was very small. No one died, but in a matter of hours, a billion-dollar asset had become a billiondollar liability.

In contrast, the Chernobyl reactor in the Ukraine was moderated by graphite, a material that does not boil away. And as graphite gets hotter, its performance as a moderator improves, meaning that the reaction speeds up. When a malfunction made the plan run hot, instead of shutting down, the reaction ran out of control and the reactor blew up.

Graphite has another unfavorable characteristic: it burns on contact with air. At Chernobyl, once the reactor exploded, hundreds of tons of graphite became the fuel for a fire that lasted at least three and a half hours, providing the energy to disburse the tons of radioactive material inside.

The government said 31 people died of radiation sickness in the following weeks.

Estimates of the eventual number of dead are colored by politics, but a United National panel said in 2005 that the release of Iodine-131, a highly radioactive material that gets concentrated in the thyroid gland, would eventually cause 4,000 deaths. An “exclusion zone” 36 miles in diameter remains in place, and hundreds of thousands of people have been resettled.

Safety – Nuclear Waste When the nucleus of a uranium atom is struck by a neutron, the atom breaks into fragments. Nearly all these fission products, few of which exist in nature, are unstable.

They seek to return to stability by giving off an energy wave, called a gamma ray, or a particle, called alpha or beta radiation. Some transmute into a new, stable state in a matter of seconds; others remain radioactive for millennia.

Most fission products with very short half-lives – the length of time needed for half their atoms to be transmuted into something else — are intensely radioactive, which makes them a concern in the event of a leak. Other fission products, most of which are contained in spent reactor fuel, will remain radioactive for millions of years.

The Federal government always promised it would accept the high-level nuclear wastes, and beginning in the early 1980s, it signed contracts with the utilities, saying storage would begin in 1998. It hasn’t happened yet, and won’t before 2020, if then.

In the 1980s, the idea was to have the Energy Department study the geology of several sites and pick the best, but that job went very slowly, and Congress decided to make the

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choice itself. It chose Yucca Mountain, about 100 miles from Las Vegas, in large part because the site is extremely dry. But intensive study showed that what water does fall on the mountain runs through it far faster than scientists initially estimated.

In 2004, a federal appeals court threw out a set of federal rules for the site because they would only offer protection for 10,000 years, while scientists say the fuel would be hazardous for close to a million years.

President Obama declared that Yucca would not be used, but in June a federal judge ordered the Energy Department not to withdraw its application for an operating license, an application opposed by the state of Nevada and a range of private groups, some of whom hope the lack of a storage site will force the entire industry to shut down. The judge said Congress had required the department to file an application when it settled on the Yucca site.

California, Connecticut and other states have moved to block construction of new reactors until a repository is opened, but other states seem likely to go ahead.

In the meantime, at many plants the spent fuel is stored in casks that look like small silos, with a steel liner and a concrete shell. The fuel is put inside and dried, and the cask is filled with an inert gas to prevent rust. Then it is parked on a high-quality concrete pad, surrounded by floodlights and concertina wire, resembling a basketball court at a maximum-security prison.

Safety — Military Waste The nation’s biggest plutonium problem is not from nuclear power but from nuclear weapons. The most troubling is Hanford, a 560-square-mile tract in south-central Washington that was taken over by the federal government as part of the Manhattan Project. (The bomb that destroyed Nagasaki in 1945 originated with plutonium made at Hanford.) By the time production stopped in the 1980s, Hanford had made most of the nation’s plutonium. Cleanup to protect future generations will be far more challenging than planners had assumed, according to an analysis by a former Energy Department official.

The plutonium does not pose a major radiation hazard now, largely because it is under “institutional controls” like guards, weapons and gates. But government scientists say that even in minute particles, plutonium can cause cancer, and because it takes 24,000 years to lose half its radioactivity, it is certain to last longer than the controls The fear is that in a few hundred years, the plutonium could reach an underground area called the saturated zone, where water flows, and from there enter the Columbia River.

Because the area is now arid, contaminants move extremely slowly, but over the millennia the climate is expected to change, experts say.

The finding on the extent of plutonium waste signals that the cleanup, still in its early stages, will be more complex, perhaps requiring technologies that do not yet exist. But

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more than 20 years after the Energy Department vowed to embark on a cleanup, it still has not “characterized,” or determined the exact nature of, the contaminated soil.

So far, the cleanup, which began in the 1990s, has involved moving some contaminated material near the banks of the Columbia to drier locations. (In fact, the Energy Department’s cleanup office is called the Office of River Protection.) The office has begun building a factory that would take the most highly radioactive liquids and sludges from decaying storage tanks and solidify them in glass.

That would not make them any less radioactive, but it would increase the likelihood that they stay put for the next few thousand years.

The problem of plutonium waste is not confined to Hanford. Plutonium waste is much more prevalent around nuclear weapons sites nationwide than the Energy Department’s official accounting indicates, said Robert Alvarez, who reanalyzed studies in 2010 conducted by the department in the last 15 years for Hanford; the Idaho National Engineering Laboratory; the Savannah River Site, near Aiken, S.C.; and elsewhere.

Recent Developments: Safety and Output In 2009, reactors are producing more electricity than ever before, about 20 percent of the kilowatt-hours used in the United States, by getting more power out of old plants.

Many reactors were designed to produce more power than had been applied for. In the 1990s, a number of companies asked the Nuclear Regulatory Commission for “uprates,’’ which allowed them to make changes, often small, that increased their output.

Nuclear plants are also running longer, in part because deregulation of the industry has given companies an incentive to get as much as they can out of each plant. Plants used to run at a capacity factor – the percentage of power a plant could produce if it ran continuously — of 60 or 65 percent; now the norm is 90 percent. Such increases have been essential to the survival of plants like Indian Point 3 in New York, which has gone from 40 percent in the 1980s to around 90 percent now.

Safety issues have persisted, and one incident in an Ohio plant in 2002 in particular shook confidence in the safety of reactors and the quality of nuclear regulation. Regulators ordered plant operators around the country to inspect a spot in the lid of reactor vessels that was known to be prone to leaks. In the Ohio plant, the operators were shocked to find that the boric acid that is mixed into reactor water to stabilize the reaction had eaten away a chunk of carbon steel the size of a football, leaving the vessel vulnerable to a failure.

New Designs, New Issues On the drawing boards at government labs are all kinds of exotic designs, using graphite and helium, or plutonium and molten sodium, and making hydrogen rather than electricity.

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But the experts generally agree that if a reactor is ordered soon, its design changes will be evolutionary, not revolutionary.

Many of the new designs have focused on the emergency core cooling systems, where the new goal is to minimize dependency on active systems, like pumps and valves, in favor of natural forces, like gravity and natural heat circulation and dissipation.

Westinghouse is one of the companies trying to market a reactor, the AP1000, with what is called a passive approach to safety. Compared to Westinghouse designs now in service, it requires only half as many safety-related valves, 83 percent less safety-related pipe and one-third fewer pumps.

A French company called Areva is building the EPR, for European Pressurized Water Reactor, which has four emergency core cooling systems, instead of the usual two. That not only makes it less likely that all systems would fail, but would allow the plant to keep running while one of the systems is down for maintenance.

The third entry is General Electric’s Economic Simplified Boiling Water Reactor, derived from its boiling water reactor design. It is tweaked for better natural circulation in case of an accident, so there will be less reliance on pumps. But three of its four potential customers have backed away.

The Nuclear Regulatory Commission is also considering a proposal that it give approval to a handful of standardized, completed designs, rather than approving each plant’s design individually after construction had begun. The hope is to cut a 10-year construction process in half.

Nuclear Power and Climate Change Nuclear power has gained new adherents in recent years, including some environmentalists who had previously opposed it. The reason is growing concern over climate change, and the role of energy production in the build-up of carbon dioxide in the atmosphere. Nuclear plants do not burn fuel and so produce no carbon dioxide. Proponents of nuclear power say it is the only available method of producing large amounts of energy quickly enough to make a difference in the fate of the atmosphere.

In the 2008 presidential campaign, Senator John McCain, the Republican candidate, made expansion of nuclear power a central point of his agenda both for energy and global warming.

But expanding nuclear power to replace coal and oil would be a massive job, on a scale that some consider unrealistic. A study by the Princeton Carbon Management Initiative estimated that for nuclear to play a significant role in cutting emissions, the industry’s capacity would have to triple worldwide over the next 50 years — a rate of 20 new large reactors a year.

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At the moment, though, industry leaders in the United States wonder whether the worldwide supplier base could support construction of more than four or five reactors simultaneously. Some reactors under construction, like a prototype EPR in Finland, are over budget and years behind schedule. All new projects have to depend on a single supplier for the biggest metal parts, Japan Steel Works.

And at the moment, the price of nuclear power seems too high. In Florida, Progress Energy wants to build two reactors with a total cost, including transmission and interest during construction, that translates into about $8,000 per kilowatt of capacity — the amount of power needed to run a single window air conditioner. On a large scale, it may be cheaper to build better air conditioners, some energy experts suspect.

Recent Developments The Obama administration favors another $37 billion in new loan guarantees, beyond the $18.5 billion provided in a 2005 energy law. It opposes opening a waste repository at Yucca Mountain, although that goal has long been sought by the industry. It has favored new reactors as part of the energy picture.

In his 2011 State of the Union address, President Obama proposed giving the nuclear construction business a type of help it has never had, a role in a quota for clean energy.

But recent setbacks in a hoped-for “nuclear renaissance” raise questions about how much of a role nuclear power can play.

Of four reactor projects identified by the Energy Department in 2009 as the most likely candidates for federal loan guarantees, only two are moving forward. At a third, in Calvert Cliffs, Md., there has been no public sign of progress since the lead partner withdrew in October 2010 and the other partner said it would seek a replacement.

And at the fourth, in Texas, a would-be builder has been driven to try something never done before in nuclear construction: finding a buyer for the electricity before the concrete is even poured. Customers are not rushing forward, given that the market is awash in generating capacity and an alternative fuel, natural gas, is currently cheap.

Many Democrats and most Republicans in Congress back nuclear construction, as do local officials in most places where reactors have been proposed.

Some challenges are not peculiar to the nuclear sector. All forms of clean energy, including solar and wind power, are undercut to some extent by the cheap price of natural gas and the surplus in generating capacity, which is linked partly to the recession. And federal caps on carbon dioxide emissions from coal- and gas-burning plants, which would benefit clean energy sources, are not expected until 2012.

But some obstacles are specific to the nuclear industry, like the ballooning cost estimates for construction of reactors, which are massive in scale. Even when projects are identified as prime candidates for federal loan guarantees, some investment partners turn wary.

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The Nuclear Regulatory Commission has been working for more than 15 years to streamline reactor licensing to cut construction time and to reduce risk.

Nuclear energy has also begun to be looked on more favorably in Europe, too. The Finnish Parliament in July 2010 approved the construction of two nuclear power plants; just two weeks before, the Swedish Parliament narrowly voted to allow the reactors at 10 nuclear power plants to be replaced when the old ones are shut down — a reversal from a 1980 referendum that called for them to be phased out entirely.

The New York Times coverage of nuclear energy: Click here for a searchable archive of New York Times coverage of nuclear energy at nytexplorer.com, including articles and commentary.

HSE, CLIMATE CHANGE & SUSTAINABILITY HSE

Pumps and the Bhopal connection In the 2012 June issue of Hydrocarbon Processing, our readers will find a highly informative article that should remind equipment specialists of their professional and ethical responsibilities. These professionals have the responsibility to detect, question and resolve repeat failure events. Human lives may be at stake.

Contributing factors Fig. 1 is a fitting reminder that pumps were involved in the still incomprehensible Bhopal tragedy. The event occured due to serious equipment reliability issues. Erroneous decisions were made in the interest of coping with, and circumventing, a chronic machinery reliability problem. These decisions included devising alternative operating strategies that introduced unknown and potentially unacceptable hazards.

Creative alternative operating strategies (process optimization steps) may seem justified in the interest of confronting legitimate personal safety concerns. However, their impact on process safety can be disastrous.

Focusing instead on resolving equipment reliability defects often makes it possible to eliminate risk-inducing components or elements. Unswerving focus, early remedial action and zero tolerance for unexplained repeat failures of rotating machinery are the most valuable safeguards against a potentially devastating sequence of events.

In the June article “The Bhopal disaster,” two experienced co-authors apply objective investigation principles, using only information in the public domain. They place before us the exceedingly well-documented sequence of events that preceded this disaster and/or followed in the wake of several process-related decisions.

The point Engineers should have a questioning attitude, and they should demand from themselves the same conduct expected from the medical profession. All must offer authoritative advice, concern for everyone and complete candor. Meeting this mutual expectation is especially important when there are edicts to purchase from the lowest bidder. Engineers should stand firm in demanding to buy from the lowest bidder that also fully meets responsibly written specification requirements. Needless to say, one of the engineers’ primary roles

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must be to write such specifications. That further implies that the engineers avail themselves of all reasonable post-graduation training opportunities. It also implies that they should never become a party to withholding information from the ultimate equipment users.

So, we believe that engineering schools and their industry-training conference adjuncts should make it their business to teach about the sequence of events that resulted in one of the worst industrial disasters in history. The next generations of engineers must be trained in the importance of good engineering judgment.

A graphic reminder of the most tragic loss of life in the history of process plants. Source: Bhopal Medical Appeal, www.bhopal.org, used with permission.

English critic, essayist and reformer John Ruskin (1819–1900) knew what would happen if one blindly purchases from the lowest bidder. He stated basic principles and phrased them in common-sense language long before the business schools of the late 20th and early 21st centuries began dispensing their often misguided and also widely misinterpreted and rarely contested wisdoms. Paraphrasing Ruskin: “It is unwise to pay too much, but is worse to pay too little. When you pay too much, you lose a little money—that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do ... The common law of business balance prohibits paying a little and getting a lot—it cannot be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that, you will have enough to pay for something better.”

There is no way that John Ruskin could have foreseen the events in Bhopal on Dec. 3, 1984. Bhopal was an unmitigated disaster that involved disregarding warning signs, disabling critical safeguards and permitting normalization of deviances. The record shows deviations of huge consequences, including choices in materials technology and pump component selection. As modern industry benefits from examining the many historical facts relating to process safety failures, it should be noted that process safety trumps all manner of process optimization.

About the Bhopal article, it simply and convincingly makes use of material that is now freely available in the public domain. The topic will be fully appreciated by those professionals who, by virtue of seeing it as their responsibility to avoid similar incidents, draw the right conclusions and take advantage of the information presented. HP

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The author Heinz P. Bloch is Hydrocarbon Processing’s Reliability/Equipment Editor. He greatly elaborates on avoiding repeat failures in his 18th and most recent book, Pump Wisdom: Problem Solving for Operators and Specialists, John Wiley & Sons, Hoboken, New Jersey, 2011.

With thanks, sourced from HCP June’12 ExxonMobil named top Responsible Care company for safety, environment efforts ExxonMobil Chemical was named the Responsible Care company of the year at the 2012 American Chemistry Council (ACC) annual meeting in Colorado Springs, Colo.

Responsible Care is the global chemical industry’s premier program for achieving and sustaining operational excellence.

ExxonMobil Chemical was named the Responsible Care company of the year at the 2012 American Chemistry Council (ACC) annual meeting in Colorado Springs, Colo. The prize is ACC’s top award for exemplary achievement in safety, health, environmental performance and communication with stakeholders.

An independent panel selects the recipient based on performance, programs and projects sustained over time.

Responsible Care is the global chemical industry’s premier program for achieving and sustaining operational excellence.

ExxonMobil Chemical said it implements Responsible Care through its operations integrity management system (OIMS), which establishes company-wide expectations for addressing operational risks.

Through OIMS, ExxonMobil monitors and improves its performance, it says.

“OIMS gives our people around the world a common approach to managing operational risks and progressing towards an incident-free workplace,” said ExxonMobil Chemical president Steve Pryor.T “The goal is to eliminate injuries and reduce environmental impact. We appreciate ACC’s recognition of our performance through this award.”

Over the past 10 years, ExxonMobil Chemical has reduced the injury rate in its worldwide operations by 60%, while at the same time improving the sustainability of its operations and products, the ACC said.

For example, ExxonMobil Chemical advances in polyethylene used to make heavy-duty shipping bags have reduced the thickness of the bags by 50% over the last 20 years, decreasing packaging weight, shipping costs, energy consumption, emissions and waste.

The ACC also recently recognized ExxonMobil Chemical with Responsible Care energy efficiency awards for 16 projects that are saving in excess of 3.3 trillion BTUs per year.

These projects are yielding energy savings equal to the needs of about 40,000 US households and reductions in carbon dioxide emissions of more than 200,000 tpy.

Wind turbines planned for northwest Illinois generate controversy Potential effects on 3 threatened species among the concerns The first phase of Mainstream Renewable Power's Green River Wind Farm project in Illinois' Whiteside, Lee and Bureau counties would have a negative impact on the habitats of three threatened species, according to a report from the state Department of Natural

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Resources. Mainstream has "taken the recommendations of the IDNR and are already implementing studies and protocol, specifically to protect the ornate box turtle, plains hognose snake and regal fritillary butterfly, among others," said John Martin, a senior development project manager for the company.

By Ted Gregory, Chicago Tribune reporter

June 19, 2012 DEER GROVE— The plains hognose snake is a tan, brown and gray blotchy creature that measures nearly 30 inches and dines on frogs, toads and salamanders.

Now it's something else: a problem for a wind turbine project that proposes nearly 90 of the towers in three counties in northwest Illinois.

The hognose, ornate box turtle and regal fritillary butterfly that slither, burrow and flit in Whiteside, Lee and Bureau counties do so with a certain privilege. It's their habitat, and all three species are considered threatened in Illinois.

The predicament is that the first phase of the Green River Wind Farm project probably will harm that habitat, the Illinois Department of Natural Resources contends.

The promise of wind turbine energy is starting to give way to the realities of energy production. As more wind farm proposals sweep into Illinois — the nation's leader in new wind turbines last year — questions surface about how "green" an energy source they are.

"Everything has an environmental cost; it's a question of which environmental cost do you want to pay," said Keith Shank, a natural resources manager for the Department of Natural Resources and author of a 21-page report assessing the Whiteside County portion of the project.

Shank said it is challenging to build a wind farm that spreads across "dozens and dozens of square miles" and doesn't have an environmental impact.

"In a general sense, I believe that wind is beneficial compared to other forms of energy generation," he said. "But it's a new thing, and it's a different thing."

This latest concern, potential damage to rare habitat, comes at a somewhat tumultuous time for windmills in Illinois.

Boosted by one of the most aggressive renewable energy policies in the nation, the state last year built 404 turbines, the American Wind Energy Association reports. Every year, the association notes, wind turbines in Illinois generate $27 million in taxes and lease payments and enable the state to avoid releasing 4.7 million metric tons of carbon dioxide.

But a federal tax credit for wind turbine developers expires at the end of the year, creating a rush to complete projects. At the same time, uncertain funding has hampered a state program aimed at helping to pay for renewable energy development through electric bills.

And pockets of citizen discontent are percolating around the white towers that stand 400 to 500 feet tall from base to rotor tip. About 90 miles west of Chicago in DeKalb County, where a group filed a lawsuit over zoning issues in 2010, residents contended "shadow flicker" from the blades in sunlight causes headaches and nausea.

Others said rotor noise disrupts sleep. One DeKalb County resident suggested that wind turbines contributed to the deaths of his goats.

That lawsuit was settled for undisclosed terms in 2011, but litigation is in the air in Whiteside County, about 60 miles west of DeKalb. The issues, like the DeKalb litigation, center on Green River's purported violation of Whiteside County's zoning ordinance.

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Critics contend that plans for Green River Wind Farm's first phase, which calls for building nine wind turbines and a substation in Whiteside County, conflict with county ordinance by failing to specify the size of the wind turbines and failing to include a decommissioning plan, among other issues.

The Department of Natural Resources report notes that construction and excavation for the turbines and substation "run a high risk of injuring or killing unobserved animals," including hognose snakes and box turtles.

In addition, roads would be built to serve each turbine. Those strips of pavement "pose a significant threat" to turtles, which use the roads as basking areas and paths. Shank also stated that shadow flicker "may mimic the movement of both aerial and terrestrial predators," which could stress the snakes and turtles and inhibit feeding and breeding.

The report is a little more general in offering potential threats to the regal fritillary butterfly.

Shank states that "fairly extensive areas of potentially suitable habitat" exist in and near the footprint of the Green River project and urges wind turbine developers to restore habitat nearby.

The DNR report is advisory to the County Board, which will make the final decision. The next step in Whiteside County is a zoning commission hearing Wednesday. Lee County is set to start public hearings July 5.

John Martin, senior development project manager for the wind farm company, said the applications have "gone above and beyond the ordinance requirements in providing information." The company — Mainstream Renewable Power Ltd. — has offices in Chicago.

Research Identifies Specific Bacteria Linked to Indoor Water-Damage and Mold CINCINNATI—Bacterial contamination in water-damaged buildings has been identified as a potential cause of health problems, including infection and respiratory conditions like asthma. Which specific bacteria contribute to these problems, however, has been unknown—making it difficult for public health officials to develop tools to effectively address the underlying source of the problem.

In a new study, a University of Cincinnati (UC) environmental health research team found evidence linking two specific strains of bacteria— Stenotrophomonas and Mycobacterium— to indoor mold from water damage. The research is part of the U.S. Department of Housing and Urban Development’s investment in research to protect the health of children from hazards in the home.

"If we are going to understand the role of indoor bacteria in human health, we must be able to identify and quantify the relevant bacterial species contributing to the health problems,” says Atin Adhikari, PhD, assistant professor of environmental health at the UC College of Medicine and principal investigator of the study.

"The association between bacterial contamination and respiratory health has lagged behind mold studies because it is difficult to determine which species of bacteria are growing in homes and most of the bacterial species are non-culturable and not identified yet,” adds Adhikari. "These new data will help us more accurately target and combat the bacteria and

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to explore synergistic health effects of bacteria and molds growing in water damaged homes.”

The UC-based team will report its findings June 18, 2012, at the American Society for Microbiology meeting in San Francisco.

For this study, Adhikari and UC postdoctoral fellow Eric Kettleson, PhD, analyzed samples collected from 42 homes from the Cincinnati Childhood Allergy and Air Pollution Study, a National Institute of Environmental Health Sciences-funded project examining the long-term effects of environmental exposures on respiratory health and allergy development in children.

Included homes fell into one of two categories—"high mold” or "low mold”—based on previously reported environmental relative moldiness index (ERMI), a DNA-based mold level analysis tool developed by the U.S. Environmental Protection Agency (EPA) that combines results of the analysis of 36 different types of mold into one index to describe a home’s cumulative mold burden.

The team then compared the ERMI values and types of bacteria found in both high- and low-mold homes in an effort to better understand the environmental sources and home characteristics that influence indoor bacterial contamination.

They found strong correlations between Mycobacterium and visible mold and also between Stenotrophomonas and environmental relative moldiness index.

"Stenotrophomonas maltophilia—an emerging multidrug-resistant global opportunistic pathogen—was isolated from numerous environmental sources. Surprisingly, it was never assessed quantitatively in indoor home environments— especially in water damaged homes where this can be a real concern and may cause inhalation exposure risks to occupants. Stenotrophomonas maltophilia is the first bacterial species associated with higher ERMI values in homes,” adds Kettleson.

Co-authors of this study include Stephen Vesper, PhD, of the U.S. Environmental Protection Agency (EPA); and Tiina Reponen, PhD, Sergey Grinshpun, PhD, and Sudhir Kumar, PhD of the Department of Environmental Health.

This study was partially funded by the U.S. Department of Housing and Urban Development, National Institute of Environmental Health Sciences and U.S. Environmental Protection.

Climate Change

Green expectations ….editorial in the INDIAN EXPRESS…by…R.K. Pachauri : Tue Jun 19 2012, 03:49 hrs No breakthroughs are likely in Rio. Can it still persuade nations, make a dent?

This week the United Nations is holding the Conference on Sustainable Development, hosted by the government of Brazil. It was 40 years ago that the UN Conference on the

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Human Environment was held in Stockholm, in which only two prime ministers, Indira Gandhi from India and Olof Palme from Sweden, participated. In 1992, 20 years later, the UN Conference on Environment and Development was held with much fanfare and amidst high expectations. That summit reached a significant agreement, giving birth to the UN Framework Convention on Climate Change (UNFCCC), and the Convention on Biological Diversity was opened for signatures to signal a major redefinition of measures that would not encourage destruction of natural eco-regions and so-called uneconomic growth. Rio 1992 attracted 172 governments. Civil society also had a major presence on the occasion with an estimated 2,400 representatives of NGOs. For the first time, perhaps, a major international event also focused on local bodies, with several cities being recognised for their achievements in integrating environmental concerns with development.

Rio 2012 certainly has more modest goals and perhaps a lower level of expectations than Rio 1992. Among the subjects likely to get focused attention in Rio 2012 is the concept and practice of creating green economies across the globe. The secretary-general of the UN, Ban Ki-moon, has also emphasised the attainment of sustainable energy for all. This consists of three elements — universal access to modern energy services, doubling the global rate of improvement in energy efficiency and doubling the share of renewable energy in the global energy mix by 2030. These actions are expected to provide significant benefits to society at large, including healthier economic growth, expanded social equity and a cleaner environment.

It would be unrealistic to expect that Rio 2012 will result in any revolutionary breakthroughs, but overall, the event could be a major turning point towards greener economic development and growth globally. This would have the potential for a significant departure from the process by which natural resources and ecosystems have been degraded or damaged in several parts of the world. Protecting the global commons is an essential prerequisite for attaining sustainable development. In simple terms, the definition of sustainable development provided by the Brundtland Commission explains this concept clearly as that form of development which meets the needs of the present generation without compromising the ability of future generations to meet their needs. The interpretation of the word “needs” can, of course, vary. For instance, the essential needs of the world’s poorest, which deserve overriding priority, would be seen as very different from the needs of the middle class and the rich across the world.

The Rio Summit of 1992 established the Commission for Sustainable Development under the UN, but its effectiveness remains questionable. Also, as a follow up to Rio 1992, the UN organised the World Summit on Sustainable Development in Johannesburg, but in retrospect its achievements too remain questionable, even though it made a bold attempt to bring the private sector and civil society together. As a result, a very large number of socalled type-2 partnerships involving business and civil society were signed, but most of them faded into insignificance almost as soon as the ink on those agreements dried up.

Rio 2012 is being held largely with modest expectations, and several questions do arise with respect to the themes that would be developed there. At the beginning of this millennium, the Millennium Development Goals (MDGs) were agreed on by the UN’s member countries, with the clear intent of reducing poverty significantly by 2015. Rio 2012 may possibly come up with Sustainable Development Goals, which would be articulated and possibly accepted by the same countries. But it is not clear how these goals will mesh with the existing MDGs, which had precise, time-bound targets for specific actions at the

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global level. The concept of a green economy is also likely to be discussed and debated, but some countries are likely to hesitate in accepting this new pathway of growth and development, largely because of its underlying complexity, and also because some nations may feel that its universal imposition may impinge on their sovereignty and inhibit their capacity to develop in a manner chosen by their own citizens.

One major area that is sadly missing from the themes to be discussed in Rio is the subject of climate change. The impact of climate change is likely to exacerbate stresses that exist in the poorest regions of the world, and a recent report from the Intergovernmental Panel on Climate Change (IPCC) has revealed that the length, frequency, and/or intensity of warm spells or heat waves will increase over most land areas. It is also likely that the frequency of heavy precipitation or the proportion of heavy falls to total rainfall will increase in the 21st century over many areas of the globe. The losses from these, however, will vary from region to region. For instance, fatality rates and economic losses expressed as a proportion of gross domestic product are higher in developing countries. In the period from 1970 to 2008, over 95 per cent of deaths from natural disasters occurred in developing countries. Hence, to lose sight of actions required to deal with the challenge of climate change would run counter to the objectives of Rio 2012.

Actions that range from incremental steps to transformational changes are essential for reducing risk from climate extremes. Correspondingly, social, economic and environmental sustainability can be enhanced by disaster risk management and adaptation approaches.

And the world needs to focus on options for mitigation of greenhouse gas emissions, because many impacts can be reduced, delayed or avoided by mitigation. Delayed emission reductions significantly increase the risk of more severe climate change impacts.

It would, therefore, be important for all the world leaders and delegates meeting in Rio to ensure that the scientific facts related to climate change are kept clearly in focus while defining the agenda for sustainable development, green growth and sustainable energy for all. Human society is entitled to expect some change in thinking and direction in these areas of crucial importance to its future. The writer is director-general, TERI, and chairman, Inter governmental Panel on Climate Change, express@expressindia.com Beyond Rio+20 Sunita Narain It was June of 1992. The location was Rio de Janeiro. The occasion was the world conference on environment and development. A large number of people had come out on the streets. They were protesting the arrival of George Bush senior, the then president of the US. Just before coming to the conference, Bush had visited a local shopping centre, urging people to buy more so that the increased consumption could rescue his country from financial crisis. Protesters were angered by his statement that “the American lifestyle is not negotiable�. People wanted change in the way the world did business with the environment.

They demanded that Bush should sign the climate convention and agree to tough emission reductions. The mood was expectant, upbeat and pushy.

For the first time environmental issues were put on the world table. Till Rio 1992, environment was considered a local or national issue. But science and fears of a changing climate altered all that. Emission limits were needed for all industrialised countries. For this,

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global rules were essential and global cooperation imperative. The Rio conference saw the birth of global conventions on climate change, biodiversity and desertification.

Inevitably, Rio 1992 witnessed the first showdown between the North and the South on global rules for environmental management. Developing countries were firm they needed ecological space to grow. But they were also willing to say they should grow differently so that they do not add to pollution. They wanted money and technology to secure the new growth strategy. The big take home was that the environment was about socially equitable development.

Now 20 years later, world leaders will meet again in the same city of Rio de Janeiro. But this time there is no apparent excitement in the run up to the conference. It seems world leaders, lost in managing financial crisis, have no time for environmental issues. It seems the world has run out of ideas to safeguard a common future.

So, the conference is ridden with the usual polemics. The old rich, mostly European countries, are preaching the virtues of environment to the new rich, comprising India, China, Brazil and the rest. The new rich are resisting efforts to remove the differentiation in the contribution of different countries to the creation of the problem. They want their right to development secured. But now the old rich want to wriggle out of this differentiation. They want action from all. They are missionaries for the environment. The rest, they project, are renegades.

The question is what more can be done at the global level? The fact is that all global environmental problems—from climate change to hazardous waste—have separate agreements. International rules of engagement and cooperation are being discussed in parallel processes and institutions. So what can a conference like Rio achieve?

A new bogey was created: Rio+20 would be about green economy and not about the 1992’s concept of sustainable development. But this was said without clarifying what is true green economy? Does it mean the world will invest in technologies to green the current economy? Or will it seriously reinvent growth so that it is not driven by cheap consumption that is costing us the earth?

The question is too inconvenient, so, instead, negotiators drew up a list of actions to meet green targets called sustainable development goals. Thus the fight has shifted to a new goal. The European Union proposed a set of environmental targets—from renewable energy to forest and biodiversity. The G-77 proposed a counter set of development goals— from consumption patterns to poverty eradication. At Rio 2012, the fight will be about whose goal makes it to the priority list. Rio 2012 will most probably set up a process to negotiate the specifics of the sustainable development goals. The fight will be postponed for another day.

In all this nobody is asking why the world remains so deeply divided over the definition of environment. The fact is the world has changed since 1992. The fact also is that the developing world has by now seen the pain of environmental mismanagement. There is proactive national action. It is not as if countries like India must be converted to environmentalism. They understand the need for action. They are working to fix environmental problems. But they find that like much of the already rich world they remain behind the problem; they fix something, but much more gets out of control.

The bottom line is that environmental concern and action at the national and the local level has blossomed since 1992. But when countries meet at the global level distrust prevails.

Environmental issues are divisive because the already rich have reneged on their

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commitments to secure growth for all. Now they want to start afresh to build a new world.

But this is not the commitment that will give us back the earth.

The hard truth is that unless the world sorts out its deep divisions, global action will be weak and meaningless. So instead of focusing on things we cannot do, Rio 2012 should celebrate, loudly and boldly, that people (and nations) are not waiting for global consensus to emerge. They have taken matters in their hands. They are committed to change— change we can believe in.

ILTA honors safety award winners at conference A total of 14 terminal companies were recognized. Two companies demonstrating exemplary safety cultures were awarded the 2012 Platinum Safety Award. CITGO Petroleum received the large terminal company award, and Motiva's New Jersey complex received the small terminal company award.

Keywords: The International Liquid Terminals Association (ILTA) held its 32nd Annual International Operating Conference and Trade Show from May 21–23, in Houston, Texas.

Close to 3,500 people attended the event, which included more than 30 conference presentations, two evening networking receptions, four training workshops, a day-and-ahalf trade show, and a golf tournament. The number of exhibiting companies was 310, the most in the history of the annual event.

“We know that companies have to carefully select which trade shows they will attend,” said ILTA President David Doane. “The record number of exhibitors this year demonstrates that ILTA remains the terminal industry''s premier event and is the place to be.” More than 650 people attended the conference, which focused on a variety of operational and business topics, along with environmental, health, safety and security issues.

The opening session featured Robert Bryce, an energy expert and journalist. He spoke about the US oil and gas boom and the outlook for terminals. Eleven presentations were included in the Spanish track.

The conference concluded with the keynote luncheon. Technology Futurist Dan Burrus gave a thought-provoking presentation on how technology is continually changing the rules of competition, rendering many traditional business strategies and processes obsolete. A total of 14 terminal companies were recognized during the safety awards breakfast. Two companies demonstrating exemplary safety cultures were awarded the 2012 Platinum Safety Award. Citgo Petroleum received the large terminal company award, and Motiva Enterprises’ New Jersey complex received the small terminal company award.

The 2012 Safety Excellence Award was presented to 11 terminal companies that achieved a safety record of less than one injury per 100 workers in 2011. The companies were: Asphalt Operating Services LLC, Buckeye Terminals LLC, Enterprise Products Partners LP, Flint Hills Resources, Hess Corp., Marathon Petroleum Co., Murphy Oil Corp., NuStar Energy LP, Petro-Diamond Terminal Co. Inc., Sunoco Logistics Partners LP and US Venture Inc.

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In addition, TransMontaigne Product Services Inc. received a Safety Improvement Award for demonstrating significant improvement in its safety record over the past four years.

During the awards ceremony, seven terminal companies received special recognition for participating in ILTA’s annual safety survey each year since inception of the program in 2003. The companies were: Colonial Terminals Inc., Hess Corp., Houston Fuel Oil Terminal Co., Intercontinental Terminals Co., International-Matex Tank Terminals, LBC Houston LP and Odfjell Terminals (Houston) Inc. The 33rd Annual ILTA International Operating Conference and Trade Show is scheduled for June 3–5, 2013, at the Hilton Americas–Houston and the George R. Brown Convention Center in Houston.

Sustainability

Rio+20 and the search for a sustainable energy future In affluent areas, modern energy services are more accessible, but they are often not sustainable. Too much goes to waste in inefficient factories, buildings and transport systems. The use of carbon-based fuels is contributing to a changing climate Charles Holliday Think about your life without electricity and other modern energy services: no light to read this by, no appliances, no refrigeration. No computers to link you to the outside world or transport to get you there.

For nearly one of every five people in the world, that is everyday reality.

On Wednesday, world leaders and thousands of business leaders, activists and citizens will gather in Rio de Janeiro to build a sustainable future—one that balances economic growth with social equity and protection of the planet’s resources. There is no shortage of urgent issues on the agenda at the United Nations (UN) conference on sustainable development, or Rio+20: food security, protecting our forests, empowering women, improving healthcare or greening our cities. All are important in their own right and consistent with the conference slogan: “The Future We Want”.

But progress in each of these areas depends on a single factor: our ability to provide sustainable energy—energy that is accessible, cleaner, more efficient and affordable.

Sustainable energy powers progress; it is the golden thread that weaves together all our Millennium Development Goals.

Schools, health clinics and businesses cannot operate without electricity. Women cannot improve their status if their days are spent gathering wood, collecting water and cooking over fire whose smoke is destroying their health and that of their children.

In affluent areas, modern energy services are more accessible, but they are often not sustainable. Too much goes to waste in inefficient factories, buildings and transport systems. The use of carbon-based fuels is contributing to a changing climate.

The secretary general of the UN, Ban Ki-moon, has called us to a different future—one in which the world commits, over the next two decades, to ensure universal access to modern energy services, double the global rate of improvement in energy efficiency and double the use of renewable energy globally. These are ambitious objectives, but they are also achievable.

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In response, leaders in government, business and civil society have come together in recent months to develop a global action agenda and create new public-private partnerships on sustainable energy. Already we see the first fruits. Dozens of countries from Ghana to Nepal to Norway are now engaged. Grass roots training and advocacy efforts are expanding. New partnerships have been formed on transport, energy efficiency, solar cooking and finance. Many more will be announced in Rio. All stakeholders have a role to play. We are asking governments to put in place the policy frameworks that will enable private investment to flourish. We are encouraging businesses to invest in new markets that expand energy access to those who need it most and offer innovative clean energy products and services. And we are calling on civil society to contribute their ideas, experience and assistance.

This is the partnership model of the future, one in which the UN convenes all relevant actors to come to the table and work in common cause for the common good. The scale of global challenges—energy, food, water—demands nothing less.

Our Brazilian hosts at Rio+20 have shown what is possible with renewable energy, which supplied nearly 86% of the country’s electricity in 2010. Brazil’s example shows that transformative change can take place if there is the political will to act.

The profit motive also helps. Supplying energy to the billions who lack electricity and clean fuels is not just a moral imperative; it’s also a strategic business opportunity with trilliondollar potential. Local entrepreneurs, investors and large companies can all help build a market that serves the huge pent-up demand for accessible, affordable modern energy that does not damage the environment.

Since the 1992 Rio Earth Summit, we have seen a communications revolution spread across the planet. Today, the world is connected by mobile phones and the Internet. Who could have predicted this 20 years ago? This revolution was not achieved through development aid, but by governments adopting regulatory frameworks that enabled businesses to create markets.

This is also the model for sustainable energy: supportive policies from governments; resources for technical assistance and capacity building from donor agencies and financial institutions; private investment to enable good ideas to become commercial products; and community-based support to ensure that energy reaches the last mile. These steps will catalyse action from many sectors, including entrepreneurs large and small, to deliver the innovative energy products and services of tomorrow, today.

Energy is the critical underpinning of the global development agenda—connecting economic growth, greater social equity and a healthier environment. At Rio, we encourage all stakeholders to make commitments that will provide a “down payment” towards transforming the world’s energy systems over the next 20 years. From this foundation, we will speed up and scale up our efforts to achieve a sustainable energy future that can provide greater prosperity for all and protect our planet for generations to come.

Charles Holliday is chairman of the board of directors of Bank of America and Kandeh Yumkella is director general of the UN Industrial Development Organization and chair of UN Energy. They are the co-chairs of the UN secretary general’s high-level group on sustainable energy for all.

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Measure natural capital, so we don’t go beyond safe operating space’ Professor Jonathan Baillie is director, conservation programmes, Zoological Society of London, and an expert on species conservation. With the Rio+20 conference underway, Baillie spoke with Narayani Ganesh on the importance of conserving even the smallest species, quantifying ecological resources – and how the oceans are similar to a huge capital endowment: Many estimates of species extinction are alarmist – aren’t there millions of undiscovered species still?

Our understanding of actual extinction rates is not perfect. We know that 20% of mammals are threatened. We’re probably looking at one-fifth of all species as being threatened.

Ecosystem evaluations do tend to focus on large, charismatic species, not on small creatures that run the world. If we want sustainable agriculture, waste decomposition and oxygen in the atmosphere, it is these small creatures we need to conserve. Even fungi are essential for things like wine and chocolate. But no one considers them because they’re less visible. Smaller species, especially invertebrates, seem to have 20% extinction – but we don’t know this for sure.

You state the rate of decline in major natural systems is linkedtoourown survival.

Hence, quantification of value versus decline is essential. But can one assign quantifiable value to natural systems undergoing diverse and complex changes?

We’ve come up with ballpark figures to give a fair idea of what this is about. Take the seafood industry – it’s worth $200 billion per annum. However, trying to value something like coral reefs is more complicated. It would include marine, cultural and genetic aspects as well as value in shoreline protection and ecotourism. We could try to figure out the relationship between that stock and value…many things cannot be quantified – but many can. The cost of deforestation worldwide could be as high as $4.5 trillion. The value of wetlands has been computed as $70 billion and the value of the seafood industry is $200 billion. This gives us an idea to work out cost-benefit analysis.

We need to measure natural capital, so we don’t go beyond safe operating space. There are communities around the world that depend on fish for their primary source of protein. If they manage fisheries sustainably, the fish will continue for hundreds of years. But they’re left with nothing because of over-exploitation. These are not just ecosystems therefore but survival ecosystems, especially for the poorest.

Would you argue then that all commercial activity must cease?

No. It’s about sustainable use. East Africa has very important mangroves. We’re also finding oil there. So there’s interest in building large harbours to export oil. But mangroves are getting endangered. If we build infrastructure destroying mangroves, fish zones will collapse. Those dependent on fish will suffer. If we go ahead with these initiatives – we did a cost-benefit analysis – then we have to make sure these do not affect natural capital or have minimal effect.

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Finally, your research makes a special plea for oceans – why?

When oceans become more acidic, there’s calcium loss. This affects many species.

Oceans also provide food and oxygen and absorb carbon dioxide. If the regulatory mechanism is thrown off-balance with uncontrolled warming, we could face major crisis. If you’ve been given a million dollars, you can either live off the interest you get on investment or blow up the principal. The ocean is huge capital – are we investing it or are we simply blowing it up?

We need to switch to more sustainable systems where growth may not be very high but will be sustainable.

INNOVATION

The Missing Link in Innovative Research

When the pipeline of technological breakthroughs has stalled, especially in industries like pharmaceuticals, midlevel managers may hold the key to R&D productivity. by Anna Pettersson and August Vlak

Despite continuous growth in R&D spending, many senior leaders remain deeply concerned about their organization’s ability to innovate. For example, the pharmaceutical industry has more than doubled its spending on research and development during the last 10 years, but its success rate in finding new drugs has been disappointing. Yet new research by Booz & Company points to an unexpected and unheralded source of potential productivity: midlevel managers in the R&D function. Companies can significantly raise their R&D productivity by recognizing and activating the unique impact of leaders in the middle of the organization’s hierarchy.

Our research with pharmaceutical companies reveals that leaders in the middle of the hierarchy have a singular ability to identify the company’s most creative bench scientists — and to help them cultivate new scientific insights and connect with the most promising external sources of innovation. These midlevel managers are an underused asset. They can nurture and navigate promising ideas through complex organizational decision making, reinforce an environment of top-quality science, and keep the brightest minds engaged day in and day out. Better use of the midlevel cohort can be a critical factor leading to breakthroughs in innovation effectiveness — not just in the pharma industry, but in sectors such as chemicals, energy, and aerospace and defense.

Bigger Companies, Less Success By nearly all measures, new drug discovery and development has been declining for more than a decade — even as R&D spending by the largest companies has more than doubled.

Why? A wave of consolidation in the pharmaceutical industry over the past two decades has created larger companies with bigger product portfolios. But almost across the board, that wave has saddled R&D units with diseconomies of scale and too much bureaucracy to be effective. As a result, the capacity to generate new insights and make shrewd investment decisions has not grown proportionally, and has even declined. The rate of new drug discovery over the past 10 years has been so poor that the head of one big pharmaceutical company has dubbed it the “lost decade.”

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In an attempt to reverse this trend and increase productivity, innovative R&D organizations have deployed a range of different management, technology, process, and structural solutions: • Earlier commercial involvement in project decision making, in an effort to enhance focus on commercially relevant compounds • More rigorous procedures for portfolio management and more stringent criteria for the adoption of new projects • Clearer guidelines for the handover from discovery to development, and for the integration of basic laboratory research with clinical trials and other applied research • More sophisticated and comprehensive incentive and reward structures • New structures that enable more external partnerships for discovery and the outsourcing of “non-core” activities Some large R&D organizations have begun to create smaller, more accountable units, but that alone has proven insufficient. In 2008, GlaxoSmithKline PLC, as reported by the Wall Street Journal on July 1, 2010, divided its research and development function into small groups of up to 80 scientists in an attempt to create the innovative atmosphere and close working relationships of a biotech startup. Although these approaches have contributed to more efficient research and thus deserve attention, they have not been able to promote and nurture the new insights that can lead to more effective drug discovery. In most R&D efforts, breakthrough insights come from the work of individual scientists who connect their own deep expertise in one domain with ideas from another discipline. Most notably, in a speech delivered in 1922, “How I Created the Theory of Relativity,” Albert Einstein credited his insight to his discussions with Swiss/Italian engineer Michele Besso, with whom he did “battle against that problem.” The most creative scientists will propose new ideas based on their expertise and input from other disciplines, recombining facts and ideas into new insights. (See “How Aha! Really Happens,” by William Duggan, s+b, Winter 2010.)

The role of scientific leaders, therefore, is not only to encourage scientists to strengthen their core areas of expertise, but also to identify the scientists who have the greatest potential for breakthrough insights and help them interact with one another and explore adjacent fields. In pharmaceuticals, this can help create opportunities for major advances in the treatment of human disease. But the leadership challenge is stark. Industry-wide consolidation has led to larger research organizations, where senior leaders are now managing many more projects. This limits the leaders’ ability to generate deep insight, explore multiple avenues, or make informed decisions. Senior leaders cannot know all the scientists, encourage them, or easily identify exceptional scientific insights. As a result, middle managers have become a linchpin in research productivity.

Meeting the Productivity Challenge Our team at Booz & Company recently interviewed 20 senior executives at 15 leading research-based pharmaceutical companies and academic institutions. We asked them, “How can better management of R&D solve the productivity challenge?” and then we convened a roundtable with four recent leaders of global R&D organizations. We concluded that because of a gap in scientific leadership, few structural or process solutions have delivered their promised results. We drew on these conversations to identify specific ways to expand scientific leadership capacity.

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Our research reaffirms the widely perceived decline in pharmaceutical R&D productivity, but it reveals that although no one company has a sustained record of success, distinct pockets of excellence do exist. This research also confirms the value of improving leadership across the middle of the organization. Middle managers in the research division of pharmaceutical companies are frequently responsible for multiple programs; they report to a therapeutic area head or lead functions. Most importantly, they make thousands of day-to-day decisions about what to support and what not to support, and this collectively gives them a great deal of leverage. Not just pharmaceutical companies, but technologyoriented companies in all industries, could raise their productivity significantly by selecting, developing, and enabling strong scientific leaders at that level.

Regardless of other management approaches — such as an open innovation sourcing strategy, a particular organizational structure and alignment, or other systems and tools — internal discovery output per dollar can be vastly improved and downstream attrition reduced by addressing the scientific leadership across the middle of the organization.

Indeed, one reason that all the investments in organization, tools, technology, and techniques have not delivered additional insight is that the investment in the leaders using them has lagged. Furthermore, the recent wave of outsourcing, restructuring, and merging has caused companies to take capacity away from the middle of the organization. And even where middle managers do exist at some concentrated level in an organization, their roles are often not well defined.

We suggest that companies seeking more successful breakthrough innovation focus on the following three elements.

1. Clearly differentiated roles for senior, middle, and project managers. In many companies, the roles of scientific leaders at different levels overlap, blurring responsibilities and activities. Some leaders in middle management begin to mimic senior leaders, managing resource allocation through formal reviews and relying primarily on checklists and common criteria. Other midlevel leaders duplicate the role of the project managers, continuing to manage too many projects directly — either because their strategic responsibilities are squeezed by their own senior leaders or because they rely on their familiarity with prior roles and responsibilities. By formally defining the responsibilities of each level, companies can take full advantage of the different contributions that people at each of these three levels (senior, middle, and project managers) can offer.

2. A focus on the pivotal roles across the middle. Take advantage of the fact that managers in midlevel roles typically oversee 100 to 200 employees. This allows them to develop and foster good working relationships with most of the people in their organization, if consistently encouraged to do so. Groups of this size have sufficient scale to develop expertise, create connections and opportunities for serendipity, and marshal resources to support good ideas. Individual researchers or teams may generate new insights, and senior leaders may devise effective strategy, but groups of 100 to 200 researchers have the depth, critical mass, and diversity (via internal and external connections) to deliver results.

Midlevel managers are well equipped to select and increase opportunities for these scientists. They can also guide promising ideas through the organization to make sure that they aren’t knocked out too easily in a process based on abstract criteria.

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3. The development of critical skills within the middle-management group.To lead scientists, managers must have personal scientific credibility. However, this is not enough.

Those who rise to the challenge of being strong scientific leaders differentiate themselves in several key ways. For example, they define a compelling destination. When Thomas Hughes, now president and CEO of Zafgen Inc., launched early work on an ultimately successful Type 2 diabetes drug at Novartis AG, he knew it was a challenging project that would require resilience, creativity, and support from scientists throughout the organization.

To maintain commitment and tap into the scientists’ commitment, he and his team created a manifesto for the proposed drug that set forth its target research profile and described its potential clinical benefits for patients. The vision captured in this manifesto enabled bench scientists to link their daily work directly to the desired outcome and helped them keep the goal in mind as they considered how to work around the obstacles that inevitably appeared.

Launched in 2007, Galvus has been approved in 68 countries.

Strong scientific leaders connect beyond boundaries. They recognize that functional silos, highly specialized scientific knowledge, and uneven communication skills create barriers to the critical networking interactions that are at the heart of innovation. “Creativity is simply the art of putting two well-understood ideas together in a new way,” says Phillip Sharp, cofounder of Biogen Idec Inc. and co-winner of the Nobel Prize in Physiology or Medicine, “and making connections through networks is central to innovation.” For that reason, the best scientific leaders facilitate connections for their teams and serve as role models for strong formal and informal networks across functional disciplines, franchises, and organizations.

They also apply multiple lenses to problem solving. Any research organization must use a single framework to organize people and activities and to align resource deployment, decision making, and information sharing. For example, most pharmaceutical R&D organizations divide themselves into therapeutic or disease area teams and functional departments. But any organizational structure creates blind spots and biases, and decision making by therapeutic area groups will frequently miss opportunities to apply insights from other therapeutic areas. The tendency of many companies to set research targets within each therapeutic area may also stifle creativity and insight by constraining the researchers’ “field of vision” and establishing incentives to advocate for a specific therapeutic area rather than for breakthrough science.

The best scientific leaders not only systematically apply multiple lenses to problem solving and prioritizing, but also make sure their teams appreciate the different perspectives. “As a leader, you have to understand what is happening in politics, technology, and science, in order to make good decisions,” says Sharp. These leaders see beyond the inherent limitations of their structure to ensure that biologically relevant findings are not discounted due to poor fit with the organizational structure of the department.

As organizational size and complexity grow, leaders can lose visibility into both key research activities and their people. As a result, they not only fail to gather multiple perspectives on projects but also miss the opportunity to get to know their staff. In contrast,

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successful scientific leaders use informal channels to engage people, understand their different strengths, and learn what motivates them. These leaders identify the “creative geniuses” — scientists who need more time to pursue nonlinear research — and help them interact with other scientists to fertilize work across the organization.

When Michael Varney arrived at Genentech Inc. as its new senior vice president of small molecule drug discovery in June 2005, he recognized the challenge of sustaining the company’s enviable reputation in drug development. To succeed, Varney not only relied on his academic credentials and successful track record but also created personal connections with his teams by organizing informal gatherings, conducted both at work and at his home, to gain deeper insight into their efforts and to foster better collective judgment.

“As a leader, you can set the organizational and strategic framework,” he says, “but you need to keep the human connection with your people to get to know them and make sure they remember you are a real human being.”

Putting It All Together To put these ideas into practice, senior leaders will need to first assess the current state of their scientific leadership, and then create a systematic capability to generate great scientific leaders and enable them to have maximum impact. Specifically, senior leaders need to identify which opportunities, organizational groups, and projects could benefit the most from strong scientific leadership and build an explicit shared commitment to developing a group of scientific leaders. A successful scientific leadership development initiative, which, in the words of David U’Prichard, the former head of R&D at SmithKline Beecham, “is a novel exercise for most pharmaceutical research organizations,” will include the following: • A diagnosis of current managers across the middle, including functional and project management leaders, assessing their scientific leadership skills and track record of achievement • An assessment of the gap between the number of current and potential scientific leaders and the number required — a “talent gap” analysis • The creation of an organizational environment in which scientific leaders across the middle can develop and thrive • Structured “challenge sessions” aimed at addressing scientific problems or improving R&D processes, where project teams composed of people from different therapeutic areas (with common biological pathways) can talk openly with scientists in other disciplines • Defined roles for managers across the middle, distinct from the roles of project teams, sub-function managers, and senior executives, with spans of control that enable midlevel managers to stay close to the science while allowing them to meaningfully influence resource allocation decisions • Measures of performance that track and reward contributions to the success of other teams as well as the leader’s own team, to reinforce interaction and collaboration • Other structures that enable effective scientific leadership, including simple matrix management processes such as “contracting” for resources between functions and project teams These changes will require support from human resources, as well as a different role for senior managers in talent development. As Severin Schwan, CEO of the Roche Group, has

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said, “Innovation is ultimately a talent business.” And talent at the middle of the organization is key.

MANAGEMENT & LEADERSHIP Import of value-driven management

Financial Chronicle, Jun 11 2012 The purpose of any firm should be to create value for all stakeholders. If the firm fails to do so on a regular basis, the company would become a target of acquisition (due to lower market valuations) or Chapter 11 proceedings (for bankruptcy — for example General Motors). The managerial task is to continuously upgrade the value-adding capability of the enterprise (not just selling). This ought to be the connection between vision, goals, strategic planning, execution and employees’ motivation.

Recently, at a directors’ meet of a PSU, which we were guiding, we came across an interesting situation. The company had spent almost Rs 40,000 crore on modernisation and capacity expansion, and the projects were more than two years late. The company had reported excellent earnings (before interest and taxes) results. To the query about unproductive capital expenditure, the director of finance said that since this was considered as work-in-progress, it had not been taken into account! The question then was whose money was being invested, and if it have any current value, and whether this money would be required to be treated with more respect by the company managers since it also has opportunity costs? If the projects were delayed further, would not the investors expect to be paid returns on their investments? The truth was that the company would have had to report negative profits even in present year if this money was taken into account. The managers could not afford this situation because the market capitalisation value too had been sliding continuously, especially in comparison with competition.

In another two-day, top-management workshop for chalking out 2020 plans, not once was the issue of vision and core values discussed by the executives. The entire focus was on resolving operational issues — their belief was that 2020 targets would be automatically achieved, once the constraints were taken care of!

The questions to ask in both cases are: How does one control and measure success or failure of strategy and achievement compared with organisational goals? n How does the board of directors know that the strategy is aligned to the organisational vision and that it is sustainable in the long run? If value creation is the mantra for success, then, questions about relevant core competences ought to be raised, including broadbased expertise along the entire value-added chain.

What in-house research expertise, talent and external collaboration would strengthen innovation capacity, and allow the company to bring in newer products and services in time to the markets?

Welcome to the world of value-driven management (VDM) — the hard-nosed approach to strategic and operational management excellence. In a diversified company, VDM is the connection between corporate vision, goals, strategy, and individual units’ performance. It is a combination of several parameters that provide managers a handle to understand the real value created by the firm. It allows them to work responsibly for shaping and sustaining

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the enterprise for the future, based on a vision of continued sustainable, profitable growth and steadily rising shareholder value. The individual units’ targets are set taking into account the interests of shareholders, customers, suppliers, employees and future generations.

In VDM, the key management indicators are return on capital employed, credit ratings, free cash flow and market capitalisation. Capital employed comprises tangible fixed assets owned by the company, plus acquired goodwill and working capital. It thus, corresponds to the capital tied up in the business. The financial reporting and budgeting system should be consistent and uniform throughout the company. The cost of capital is the weighted average cost of equity and debt capital. Free cash flows are crucial so that the company in pursuit of growth does not go into a situation that it is unable to pay for even the day-to-day operational needs (for example Kingfisher Airlines).

A value-added approach forces company management to assess the different risks involved in its various activities. For this reason, each project has to be based on riskadjusted cost of capital. Customer-orientation and innovation are natural outcomes of VDM philosophy. In a competitive environment, premium on capital employed cannot be generated through run-of-the-mill offerings.

Value-driven management is only successful if it has firm cultural roots in the company. An important factor in ensuring its successful implementation is achieved by linking company goals to agreed targets of individual units and employees. Organisation-wide training programmes on VDM can provide employees with relevant information. Targets and focused training provide the platforms to make the employees more aware of business contexts, and thus, promote entrepreneurship at all levels.

Remember, VDM is different from value-based leadership (the softer side of value-creating mindsets) — however, the two should ideally emerge from a common vision and be in a symbiotic relationship. If Indian companies are to really become globally competitive, they need to come out of their comfort zones of looking at and reporting only basic numbers such as yearly operating profits, year-to-year growth in sales and marketshare, to name a few and embrace somewhat more complex performance metrics reflecting long-term, value-creating capabilities. (arunkumar@mydigitalfc.com) (The writer is a professor of strategy and corporate governance, IIM-Lucknow) Expecting independent directors and institutional investors to do more about mergers like Escorts may be unrealistic Debashis Basu Business leaders talk piously about it. Regulators have codified it into a list of dos and don’ts. Various government departments and state-funded organisations have wanted to set up departments of excellence and institutions around it. As a choice of seminar topic, it usually goes very well. It has extended the agenda of professional institutes and has even

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been a global movement of sorts. “It” is corporate governance. And, like all other dogooding ideas, it is often in and out of fashion.

The high season for corporate governance is when scams break out of bear markets. Think of Enron and Worldcom after the 2001 bear market, or Satyam after the 2008 bear market.

We are then suddenly swamped by a tidal wave of corporate morality. But it also makes an appearance when there is an isolated event of “misgovernance”, as it is doing now with the Escorts issue. The Nanda family-promoted Escorts has just increased its voting control to 41.1 per cent from 31.7 per cent through a complicated cross-ownership amalgamation and merger proposal. The scheme was passed on May 29.

If this is detrimental to the shareholders, as it seems to be, it is worth asking what the institutional investors and eminent independent directors were doing about this supposedly self-serving move of the Escorts management. Escorts has been a lousy investment for two decades and more — but, for whatever it is worth, Life Insurance Corporation has a 2.95 per cent stake, Reliance Capital 8.02 per cent and Sundaram Mutual Fund 3.38 per cent.

Other investors include Barclays Capital Mauritius, Fid Funds Mauritius, Credit Suisse, Macquarie Bank and Dimensional Emerging Markets. Independent directors in the company are some of India’s finest names: Dr M G K Menon, Dr S A Dave and S C Bhargava. Independent directors are supposed to bat for minority shareholders — or, at least, to not act against their interests and side with promoters. Institutional investors are supposed to act in favour of their own investors — who are, indirectly, also minority shareholders. If there is a conflict of interest with promoters, they are not supposed to take the promoters’ side. Indeed, it would be logical if they ganged up with independent directors. Apparently, neither the independent directors nor the institutional investors have acted on these principles. The promoters won, though we don’t know yet who voted for or against the resolution.

Is this new, alarming or egregious? Do independent directors act independently and are institutional investors active in cases of misgovernance? Here are some hard facts about governance. Most companies in India (or elsewhere) are controlled by either families or the state or, in rare cases, charismatic professionals.

The best companies have excellent independent directors. But they really have no role to play on governance issues. After all, these are the best companies we are talking about.

Most other boards (regardless of whether they are controlled by family, state or individuals) select their “independent” directors and present the names to shareholders who usually do not vote on the proposals. The promoters have their way. The selection is a subtle process: the promoters choose well-known names who would not upset the promoters’ interests. If they protest, a new set of independents can be found. The directors selected know their role and who calls the shots.

Good independent minds are rare. But why is it that this small number of truly independent people – honest retired bureaucrats, top professionals – are rarely asked to be on boards?

The answer is obvious.

Institutional investors have only one job to do: invest in companies that can make their investments grow. If the company does anything to jeopardise the possible future value of

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their investment, they can protest — but, really, the only thing they can do is sell and get out.

This sums up the reality in not just India but all over the world. If you think I am being cynical, here is one example. In 1998, Walt Disney’s profit grew by 45 per cent under the charismatic Michael Eisner. Who was gracing the Disney board? Eisner’s personal attorney, personal architect, the principal of the elementary school where Eisner’s children studied, and a couple of former Disney chairmen. Large pension funds were unhappy with the board — never mind the results and the stock price. They wanted independent directors, defined as someone with “no present or former employment by the company, or any significant financial or personal ties to the company or its management”. Disney believed that the definition was too restrictive. So much for governance.

I have deliberately chosen this example. This wasn’t a third-world state-owned value destroyer (like Shipping Corporation) or a family-owned business from Asia. This was a great value creator, outstanding innovator, owned widely and run professionally. And Escorts? One of the worst examples of large Indian companies of the nineties. Some 22 years ago, the stock price was Rs 100. At eight per cent compounded, Rs 100 investment in fixed income becomes Rs 544. Instead of a five-fold rise, at the time of writing the stock price was Rs 65, a 35 per cent decline in 22 years! Hero Honda is up 900 times during this period; Mahindra & Mahindra, 600 times. Escorts, the bikes and tractor major of the early nineties, has been left biting the dust. What are the illustrious independent directors doing in this kind of company? The answer is obvious. And if Sundaram, LIC and Reliance find Escorts a great investment, surely a bit of a self-serving move by the promoter doesn’t change the earnings prospects of Escorts, which alone drives stock prices over the long run. I cannot see if there is anything more to this. Just watch whether the directors walk out or the big investors sell over this issue. If they do, that would be new, not their silence.

If that’s all there is to this, what about the dozens of reports mandating good corporate behaviour, scores of seminars each year, speeches, white papers and dissertations on corporate governance? A lot of hot air.

RAPID READING Falling Oil Prices Are No Mystery

By Mathew Phillips, Bloomberg, June 4, 2012 Oil prices have fallen sharply in the past two months, with Brent crude sinking to $97 a barrel and West Texas Intermediate hitting $83. The explanation is simple: Since March, the world has been producing more oil than it’s consuming, according to data gathered by the Energy Intelligence Group. Global oil consumption has been declining since the end of 2011, falling to 88.5 million barrels per day at the end of April, from 90.4 million barrels per day in late December 2011. At the same time, world oil production has risen steadily for more than a year, driven by new finds and drilling techniques in North America and a 10 percent increase in production from OPEC during the past 12 months. The last time supply outstripped demand was in 2006.

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The U.S. is now sitting on more oil supplies than it has since 1990. And yet our demand for it is at close to a 15-year low—a result of economic weakness and increased energy efficiency. “The amount of oil it takes to move the economy is declining,” says Fadel Gheit, an energy analyst at Oppenheimer. The price declines have coincided with a steep selloff in oil futures contracts over the last two months. Speculators cut their net-long positions— bets that the price will rise—to the equivalent of 136 million barrels of oil, the lowest level since September 2010, according to the Commodity Futures Trading Commission. This follows a huge speculative buying binge. Oil prices spiked from October through March—a six-month bull run fueled by speculative worry over an Iranian supply disruption.

With speculative money pouring out of the oil market, the price is closer to reflecting supply-demand fundamentals. And that means the world’s two most traded oil contracts should continue to fall in price through the summer, analysts say. Religare Capital Markets forecasts that Brent crude, the benchmark for more than half the world’s oil, will fall to $90 a barrel by September, and that West Texas Intermediate should fall to $80. Since two-thirds of the price of gasoline is determined by the price of oil, that should continue to lower prices at the pump. At the end of May, the average price of a gallon of gasoline in the U.S. was $3.66, 12¢ lower than it was a year ago. That will provide some relief at the pump in time for the summer driving season. Whether that amounts to enough of an economic stimulus for consumers to help lift the economy is much less clear.

The petrol hike is high — but not high enough Hindustan Times I welcome the government's decision to hike prices of petrol. While most car owners consider the hike of Rs. 7.50 per litre too high, I am of the opinion that it is not high enough. It should be further raised to become prohibitive. My argument is simple. Delhi has already more cars than its roads can hold – more than Mumbai, Chennai and Kolkata put together. Petrol fumes poison the atmosphere. While the three other metropolitan cities are along the coast and have sea breezes to waft pollutants away, Delhi is earth-bound. Unless a dust storm clears the atmosphere, there will always be a pall of polluted air hovering over it. It has the dubious distinction of being the most polluted capital city of the world.

Can we do anything about it? Yes, we can if we have the will to do so. Take as many cars as we can off our roads. A car with only its driver should be ordered to park on the side till it can pick up more passengers. People should be encouraged to form car-pools if they are bound for the same destination. Government and other public sector companies should be made to change their working hours so that their staff are not on the same road at the same time.

The most civilized way of tackling car congestion on roads is to persuade people to use bicycles. They are pollution-free, good for a person's health, and often the aster way to get to one's destination. Many countries which face similar problems have done so with good results. I recall my one week stay in Tubingen (Germany). There were not many cars to be seen on the roads, but lots of bicycles. We can imitate them to our benefit. On either side of our major roads, we should build one-way bicycle tracks. It will be the most civilized way of solving our traffic problem.

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Oil below $100: good news for consumers?

HT Correspondent, Hindustan Times8:52 PM, JUNE 01, 2012 After subsequent hikes in domestic fuel prices, consumers seems to be in for some good news.

Thanks to the fall in Brent crude oil prices, which on Friday for the first time since October 2011 fell below the crucial $100 a barrel mark, consumers can expect petrol prices to fall in the coming days. This is over and above the present cut of Rs. 2 per litre that is likely to flow to consumers anytime soon.

“If crude continues to fall and rupee stabilises then surely the consumers can expect a further cut in petrol prices,” said a senior oil company official. “A immediate cut of up to Rs 2 is underway and may be announced shortly,” the official told Hindustan Times.

Oil companies had recently increased petrol prices by Rs 6.28 a litre, which after adding taxes amounted to a hike of Rs 7.54 a litre (in Delhi) — the steepest ever hike in the country so far.

The sharp fall in Brent crude prices comes in the backdrop of less demand and rising supplies in the global oil market.

Cutting the Gordian knot If oil remains below $100 and the rupee stabilizes at current levels, it allows for some proactive RBI action on the rate front.

Too much is probably being made of the perceived differences between the Government and the Reserve Bank of India (RBI) on the timing and extent of interest rate cuts needed to bolster sagging economic growth. The Chief Economic Advisor, Prof Kaushik Basu, has called for “out-of-the-box thinking” with the focus entirely on growth and reviving investor confidence. That would require a slashing of policy rates by the RBI in its immediate midquarter policy review. The RBI, going by its Deputy Governor, Dr Subir Gokarn's recent statements, hasn't been totally averse to the idea. Dr Gokarn has specifically alluded to two enabling factors. The first is low GDP growth itself that may have eased ‘core' inflationary pressures. The second is oil prices. In the last three months, the Indian crude basket has fallen from over $125 to about $98 to a barrel. Both these give more room for RBI to act.

What's the fuss, then?

Well, the confusion has been largely on account of Dr Gokarn's colleague, Dr K.C. Chakrabarty, claiming that the current interest rates in India were not so high to significantly affect growth. Also, the impact of the central bank's past policy rate hikes was being “overplayed”, he held, clearly referring to RBI-bashers within the Government, even if not in so many words. The fact that Dr Chakrabarty said all this on the same day that Prof Basu made a case for aggressive rate cuts did not help matters. It seemed to suggest a complete lack of coordination, short of hostility, between the Finance Ministry and the RBI, when concerted action by policymakers is precisely what is required now to drag the Indian economy out of its present morass. And unlike even three months back, there is actually increased scope for a convergence of positions, as reflected in the much-less hawkish tone of Dr Gokarn's — or even the Governor, Dr D. Subbarao's — recent utterances.

A major difference between now and 2008 is the absence of any fiscal headroom with the Government to pursue Keynesian expansionary policies. The one weapon that

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policymakers do have, though, is interest rates. Dr Chakrabarty is right in pointing out that a one per cent repo rate reduction may not help businesses, when they are as it is borrowing at 13-14 per cent. But what about a 2-3 per cent cut, if not more? That could certainly make a difference to sentiment, especially if accompanied by credible Government measures on reforms (say, goods and services tax or foreign direct investment in multi-brand retail) and getting a few large projects (Delhi Mumbai Industrial Corridor) really going. If oil remains below $100 and the rupee stabilises at current levels — the possibilities of which have brightened over the past fortnight — it allows for some proactive RBI action to signal that the worst is over.

What you need to look out for in a balance sheet Aziz Dodhiya Valueoperations.com To study any business and its performance, you have to study financial statements including profit and loss statement, balance sheet and cash flow statement.

It is very important to understand balance sheets and how to interpret them. The few variables to be studied in any balance sheet are equity, borrowings and the notes explaining them Equity: The textbook definition of equity is assets minus liabilities.

When you start a business, you will have to purchase assets like equipment, machinery etc and will have to take on debt (liabilities) to fund them and working capital for day-to-day operations.

There is more to equity than it just being the difference between assets and liabilities. For accountants, the tangible equity represents what you would receive in the event of a business winding up.

In reality, if a business is liquidated, it is unlikely that you will get the value mentioned in the books of the company. That is because a poor performing business will have to sell its assets at a loss.

The above scenario changes the whole definition of equity. The other way to look at equity is that it actually tells you how much money you have put in than you can get out during liquidation. So if the networth of a company is increasing at certain percentage from previous year then make sure their profits are just not matching but creating additional rupee too on their investments.

Debt: Finance professors tell you that a mix of debt and equity for any company is good and an economical way to maintain the cost of servicing the debt.

A decade since leaving college, I am of the view that debt is simply bad. Like Warren Buffett, I too believe it is unnecessary. Many of you who are reading this and my friends and other analysts might disagree with me. There is a risk that a debt-laden company’s finances could be wrecked if high interest cost or if revenues drop suddenly, making it difficult to pay interest.

Borrowing money can increase company’s profits but borrowed money is not the owner’s money; it is not equity and has to be paid off.

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It is important to understand that I am not talking about debt at any single time, but generally the manner in which it changes in number of years. Same way declining levels of debt suggest performance is desirable and cash flow is strong.

Goodwill: It all comes to which sector you are doing research on. If you are researching the oil refinery business, then you will notice that companies in this line of work invest heavily on plant and machinery. Businesses like telecom invest lot of money on their equipments but also hold intangible assets like patents, copyrights, brand names and government fees for acquiring rights. There are also few businesses that keep acquiring assets. Sometimes they pay more than what the physical assets are valued because with physical assets they also acquire their intangible assets.

I am talking about goodwill here. There is no perfect formula for the mix of tangible and intangible assets. But if you are researching a refinery business and on the asset side you notice a substantial amount of money in goodwill, then it is worth investigating the history of an acquisition. Maybe the management has bought expensive assets in past. You don’t want to own companies shares whose management is in the habit of acquiring expensive assets to grow their business.

Current Liabilities: Current liabilities are short term debts and obligations that company have to pay within 12 months. Where does this money come from? This money comes from converting current assets into cash, plus money generated from operations.

Current assets include cash and other assets which can be easily converted into cash within 12 months. It again depends on what kind of business you are doing research on.

But if the company’s current liabilities are bigger than its current assets and the company relies on cash flow generated through business activities to finance its day to day activities, then any surprise drop in revenues or profit margins can end up with business needing to pile more debt, less money to pay dividends and low cash flow surplus to capitalise on any opportunity available.

Notes: Lastly studying financial statements without reading footprints (Notes) is like building a castle without base. You don’t want to see your investment castle shatter every time when market crashes. Financial statements without notes are not complete.

Aziz Dodhiya is co-founder and Fund Manager for Valueoperations.com IIT just won't work Somnath Bharti10:08 PM, JUNE 07, 2012 The seeds of technological and business excellence, for which the alumni of the Indian Institutes of Technology (IITs) are known worldwide, were sown by Prime Minister Jawaharlal Nehru in 1950. In 1946, the 22-member Satkar Committee of the education ministry was formed to consider the setting up of top-notch technical institutes for post-war industrial development in India. Based on its recommendations, the first IIT was founded in Kharagpur, West Bengal, in May 1950.

As Nehru summed it up at the first convocation of IIT Kharagpur in 1956, “IITs represented India’s future in the making.” A nation is known by its academic institutions and an institute is known by its alumni. In league with Takshashila of ancient India and other, present-day,

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top British and American universities, the IITs have helped India acquire intellectual and technological prowess. The achievements of IIT alumni have brought unparalleled glory to not only the IIT system but also to the nation. More than 2 lakh students have cleared the Joint Entrance Examination (JEE) and graduated in the past 60 years from the seven older IITs. It’s unlikely that even one of them won’t swear by the institutions’ success.

The JEE is the examination that all of them took to enter into the IIT system. Unlike almost every other competitive examination in the country, JEE has no history of any allegation of corruption. However, for reasons best known to his ministry, human resource minister (HRD) Kapil Sibal recently announced that from 2013, the JEE will be replaced by a Common Engineering Test (CET). This examination will be held for entry into the National Institutes of Technology (NIT), Indian Institutes of Information Technology (IIIT) and other centrally-funded technical institutions.

Sibal attributes the decision to the IIT Council, which, though a statutory body, is given only an advisory role regarding the admission process to the IITs. But he fails to give a satisfactory reply on how the Council can give a unanimous decision when the IITs, whose interests the IIT directors are expected to represent, have dissented on the decision on the CET and that too in writing. Six out of the seven older IITs have refused to allow any change in the entrance examination before 2014 because of the lack of deliberation; five out of seven disagree with the move completely. However, the HRD ministry claims that there is unanimity in the Council and it has gone ahead with the proposed plan, which is a body blow for the statutorily granted autonomy to the IITs and is, therefore, illegal. This is the second major decision by the ministry to dilute the IIT brand as it is known worldwide.

The first major — and successful — decision resulted in the creation of eight new IITs, perhaps guided by the ridiculous belief that just naming an institute IIT makes it one.

The older IITs are struggling to keep pace with demands for facilities of their counterparts in the US and other south Asian countries due to lack of funds. As a result, they are slipping in global rankings. But instead of coming to their rescue, the government is diluting the IIT brand and its standards by dropping the JEE, which helps in ensuring that only the best candidates make it to the institution. That IITians are revered worldwide can be gauged from the fact that the US House of Representatives passed a resolution on April 26, 2005, to formally acknowledge and appreciate the contribution of IITians to their country in every profession and discipline.

Any change in the admission process of students to the IITs can only be done by the process as laid down in the Institutes of Technology (IT) Act, which compulsorily warrants an ordinance by the senates of the IITs to state the details of the admission mode, which they wish to opt for to admit students to their undergraduate courses. Any deviation amounts to a violation of the legislative mandate. However, the introduction of the CET is one such deviation which has shocked the IIT fraternity and the nation. Various stakeholders believe that this decision has been construed as an attack on the IITs’ autonomy, which is pivotal to the institutions’ excellence.

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Sibal claims that all senates were consulted before arriving at the decision. He further states that it is the IIT Council that has arrived at the decision and not the ministry.

However, this does not qualify as a decision arrived at by following due process in view of the laws governing IITs. This means that the decision is likely to get shot down if scrutinised judicially. It is worth noting that the ‘fraud’ of giving the senates’ views a go-by has been going on for years. The IIT Council meeting on September 14, 2011 has minuted that the Joint Admission Board (JAB) is authorised to frame the policies, rules and regulations of JEE under the guidance of the Council, which is against the legislative will.

The majority of the Council members, which is chaired by the HRD minister, are not IIT directors. Surely, the autonomy which has been given to IITs by an Act passed in Parliament can’t be secured by a council where IIT directors are in a minority. Infosys founder NR Narayan Murthy, objecting to the ways in which the Council is being used to meddle with the IIT system, said, “Nobody is bothered about an institution more than its alumni. We must somehow persuade the Government of India to let go of its control and make sure a majority of the Council members are the IIT alumni.” But Sibal seems to be in no mood to heed Murthy’s suggestion.

Also, the changes proposed in the admission process have serious flaws and will surely compromise the quality of the students entering the IITs. As a result, the IIT brand, as it is known worldwide today, will get severely and irreversibly damaged and will no longer be held in high esteem. Clipping the IITs’ autonomy won’t make students interested in studying or reduce their dependence on coaching institutes. IIT alumni, if invited, are willing to extend help to find solutions to the problems that the government believes will be fixed with the CET. The HRD minister’s dream ‘one nation, one exam’ through the CET is a myth, as the CET will club only two exams —JEE and All India Engineering Entrance Exam (AIEEE).

Students will still have to take a plethora of exams to enter regional and private engineering colleges. Institutions of the stature of the IITs need to be given more autonomy in their affairs to help them compete with other world-class institutions.

(Somnath Bharti is advocate, Supreme Court of India and president, IIT Delhi Alumni Association) Experimental diabetes drugs offer patients hope (AP) / 11 June 2012 Some experimental diabetes treatments in late testing offer patients hope of better controlling their blood sugar and weight and preventing dangerously low blood sugar, all big challenges for millions of diabetics. Results from studies of several new diabetes medicines and insulin products, just announced at the premiere US conference for diabetes specialists, likewise hold the promise of billions in annual revenue for drugmakers that have dominated the diabetes market and for others breaking into it. They have been presenting their data at the American Diabetes Association conference, held in Philadelphia from last Friday through Monday.

Until the last decade, relatively few companies made treatments for diabetes, a chronic condition in which the body either does not make enough insulin to break down the sugar in

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foods or uses insulin inefficiently. Now many more drugmakers have jumped in, as the number of American diabetes patients is about 26 million and growing fast, and there are tens of millions more in Western Europe, China and India. That’s because the global obesity epidemic has caused a similar explosion of diabetes cases. About 95 percent are Type 2 diabetes, usually related to being overweight and sedentary. Type 2, once called adult-onset diabetes, now is also being diagnosed in adolescents, just like insulindependent Type 1 diabetes, which used to be called juvenile diabetes.

Both types can cause early death or devastating complications — blindness, amputations, stroke, kidney disease, heart disease and more — when too-high blood sugar steadily damages organs and blood vessels. Roughly $200 billion a year is spent on treating diabetes and indirect costs such as missed work and premature death, according to the diabetes association. Last year, US spending on diabetes medicines among insured patients for the first time exceeded spending on cholesterol drugs, according to Express Scripts, a top prescription benefit manager. “We expect the key diabetes brands and markets to exhibit sustainable high-single-digit growth,” reaching about $54 billion a year by 2020, Jefferies & Company analyst Jeffrey Holford recently wrote to investors. He cited an aging Western population, more health care use and adoption of Western diets in emerging countries, and increased use of new treatments and combination therapies.

Holford expects Denmark’s Novo Nordisk AS to remain the top diabetes company by revenue but Eli Lilly and Co. of Indianapolis to overtake France’s Sanofi SA as the No. 2 player by 2017. Among other research, the conference highlighted promising new treatments likely to be approved in the next few years: • Novo Nordisk on Friday reported on results of degludec, its ultra-long-acting insulin for patients with Type 2 diabetes. Its yearlong, 1,030-patient study compared degludec with Sanofi’s Lantus, the world’s top-selling insulin. Degludec reduced low blood sugar during the night, when it’s most dangerous, by 36 percent and also reduced severe hypoglycemia significantly, compared to Lantus. Those problems occurred less than once in a year in both groups of patients, though.

Novo also reported on other studies finding that because degludec is active in the body for more than the standard 24 hours for long-acting insulins, patients can maintain good blood sugar control even if they don’t take it at the same time every day. The Food and Drug Administration was to decide whether to approve U.S. sales by June 29, but just pushed that back until Oct. 29 to allow more time to review data.

• Johnson & Johnson’s Janssen Research unit presented five late-stage studies on its daily Type 2 diabetes pill, canagliflozin, part of a newer class of diabetes drugs called SGLT2 inhibitors. They work primarily by increasing how much glucose is excreted in urine. One yearlong study found it reduced long-term blood sugar levels, called A1C levels, and also helped patients lose much more weight than Merck & Co.’s blockbuster pill Januvia. Januvia is in a class called DPP-4 inhibitors, which increase the body’s release of insulin after a meal.

Another study similarly showed canagliflozin decreased A1C levels and body weight significantly more than Sanofi’s diabetes pill Amaryl. J&J applied for US approval of its drug on May 29.

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•

On Sunday afternoon, Eli Lilly and partner Boehringer Ingelheim of Germany released results from two mid-stage studies of their new short-acting insulin, known as LY2605541. In separate studies comparing it to Lantus, it was slightly better at reducing blood sugar levels in Type 1 diabetics and about the same in Type 2 diabetics. In the eight-week Type 1 study, patients getting LY2605541 lost about 2.5 pounds (1.13 kilograms) on average while those on Lantus gained 1.5 pounds (0.68 kilograms). Weight changes were similar, but smaller, in the Type 2 study.

LY2605541 still must go through late-stage testing before approval can be sought.

• Other companies were presenting data on an experimental patch to deliver insulin pain-free and two devices in early development that would work like an artificial pancreas, monitoring blood sugar continuously to help control when an insulin pump releases the hormone into the patient’s blood.

Beijing's headache: Many cars, fewer homes Subodh Varma, TNN | May 26, 2012, 06.18AM IST BEIJING: It is 6:30 am on a Monday , and traffic on Panjiyuan South Road is already beginning to slow down as the morning rush hour hits its stride. In another hour cars are backed up for kilometers on most arterial roads leading into the central business district of Beijing. Spanning the flower-shouldered roads are huge electronic boards which indicate the state of traffic on a 2x2 grid - red lines mean traffic is at halt, orange is slow moving and the rare green is moving traffic.

Beijing has 5 million cars, with 2000 more being added every day till recently. And in central Beijing, most of these are limousines with Mercs, BMWs, and Skodas dominating .

Towards the suburbs, or in inner communities off the main roads, the mix of vehicles suddenly changes. All types of powered vehicles from electric three wheelers (bubble-top or matchbox) to smaller Suzukis, mopeds and even bicycles. Till a decade ago this was a city that was dominated by bicycles as hundreds of thousands pedaled to and fro their offices. The economic boom has created this car frenzy.

Talk to any local and two issues are always mentioned - traffic and housing prices. In this, Beijing seems very similar to Delhi, Mumbai, Bangalore or any other metropolis. Beijing is officially categorized as a "province level municipality" which helps in slowly eating up the surrounding rural areas that stretch upto the Great Wall, 60 km away. The area covered by Beijing municipal administration is huge - about 17,000sq km. Delhi is about 1400 and Mumbai just 600sq km. The population of this vast administrative area is over 20 million, although the core districts contain about 17 million people.

A decade ago, Beijing's population was 14 million. This 44% increase is due to influx of migrants from both rural areas and other cities. Attracted by a nearly 13% average annual growth rate of the municipality's gross regional product (GRP), young educated people from other towns and cities flock to the capital for work. The GRP of Beijing is estimated at 1.37 trillion Renminbi (RMB) in 2010, or about $217 billion. Nearly three quarters of this is from the services sector.

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This population explosion of mainly better income immigrants has led to a huge imbalance in demand and supply of housing, and consequent massive hike in property prices , says professor Xu Jie of Chinese Academy of Governance . "Return on real estate increased 300% between 2003 and 2011, while average growth in consumer prices was just 3.8% per year," she explained.

Yuan Ping, a Beijing University student has to pay about $400 per month for a tiny single room apartment to in order to live close to the campus in northern Beijing. The government has slowly woken up to this twin crises, announcing a slew of measures. On the traffic front, a new regulation announced in April this year prohibits cars with specified last digits of their registration numbers from coming on the streets on certain days of the week.

For example numbers ending with 3 and 8 are prohibited on Mondays and so on.

What happens if you violate ? Beijing roads are strangely devoid of traffic police persons compared to Indian cities. But there are cameras everywhere , hanging from cross beams over roads. Every time a prohibited car number is caught on camera , an automatic notice for a 200-yuan penalty is issued. To control the insanely rising car numbers , the Beijing municipality has introduced a lottery system to choose 20,000 new registrations every month.

The number of applicants are usually 800,000 every month. For housing, the government is pulling down ancient hutongs or densely populated communities to be replaced by 'security home' that is, multi-storeyed flatted complexes like gated communities . Thirty-six million new homes are proposed by 2015, and so the skyline is punctured by tower cranes.

Mortgages are permitted only to those who have worked for 5 years at least.

Common people are resigned to high rents and long commutes. The saving grace is it takes only 2 yuan to travel anywhere on the Beijing metro (called subway) and just 1 yuan for a bus ride anywhere.

Interview

Demand is never a problem in India, it’s supply

Livemint.com, Vivek Law Jonathan Garner, chief Asian and emerging markets equity strategist, and Gerard Minack, head of global developed markets strategy at Morgan Stanley, comment about economic challenges faced by India and Europe. Edited excerpts: Gerard, picking up from your report last month, you say, “My single-biggest mistake over the past three years has been to assume that the lacklustre macro recovery would produce a lacklustre earnings recovery.� This is, of course, with a global perspective, with a developed market perspective, do you think that mistake is still relevant or do you think things have changed dramatically?

Minack: I think it is relevant because in hindsight I think what contributed to this mismatch between a lacklustre GDP (gross development recovery in the developed world and its V

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shaped profit recovery was product) the huge stimulus from the public sector and to a very unusual extent, corporates in the developed economies did not have to pay for the recovery, they didn’t harm any people but the topline grew courtesy the fiscal stimulus.

Now the forward looking point is that as fiscal stimulus gets withdrawn, that starts to cut the other way and we are seeing that already in Europe clearly, to a lesser extent in the UK, but the big issue for us next year is the US. We are expecting some fiscal tightening and as a consequence our US equity strategist is expecting a very material miss on earnings forecast. He is looking for $98 EPS (earnings per share) for the S&P 500, currently it is $120. So what we may see is, yes, we had this stellar profit recovery over the last three years, it could be payback time when the government starts to get their house in order and it’s obviously going to be a headwind for the developed world equities.

In your subsequent report, just a few days ago, you’ve said Europe’s different and you don’t sound as bearish as the rest of the analytical community. You actually articulate some strong points on Europe.

Minack: That is from an investors’ point of view. In terms of the economics, it looks bleak and we all know there are risks, but if you think that investing is all about calculating the balance between risk and reward, at least in Europe the equity markets look exceptionally cheap and the view is that in the US we have above average risk but markets are offering you a below average reward and that’s not a very compelling investment story.

I think in Europe clearly the risks are above average, no one can deny that, but some of their markets, some of their sectors are offering tantalizing prospects of very decent returns over the medium run. There is no way I am saying necessarily buy Europe today but they are looking exceptionally cheap on my numbers, some of the peripheral European markets are as cheap as I have ever seen in a market, the standout one—of course the one that’s quite trivial is Greece, 1.5 times cyclically adjusted earnings. I have never seen a market that cheap.

Could all of that change if Greece were to move away on the 17th, what’s your sense in terms of the impact if it were to move out?

Minack: It’s a huge risk and, of course, Greece in an economic sense is quite trivial, we all worry about the contagion risk and my colleagues in Europe believe it’s a big deal and we would see in a sense the retail equivalent of what was the wholesale flight to quality after the initial Greek default, just a massive flow of deposit money away from peripheral banks into the core and that would be a massive tide of liquidity that we are not convinced policymakers can stop.

So, that’s the big contagion risk. I would like to point out that with regards to the equity markets valuations, at least some of that is in the price. Looking beyond that, I think the biggest risk is not Greece leaving per se, but that Greece leaving in a couple of years doing well. That’s the last thing Europe wants because it wants to maintain discipline, it would in a sense like to see Greece leave and blow up, set a bad example and say you have got to

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stay with the ship. If Greece leaves and does what Iceland has done, now growing about at 5-6% GDP, then you may see further fracturing of the euro down the track as austerity becomes politically unpalatable. That’s the real bad case for the euro where we see a succession of currencies leave. Not our base case, but it’s a risk to focus on.

From an emerging markets point of view, from an impact point of view, how critical is this 17 June vote?

Garner: I don’t think it is as important as what goes on within the emerging markets and in particular what happens to data here in India and also data in China where we’ve got some numbers over the weekend because the emerging world itself is also being slowing as a result of the policy tightening last year and then more recently the slowdown in Europe. But the emerging world has the capability for self help, it has got far more policy flexibility, interest rates obviously are still in positive territory, not locked at zero and the fiscal position in most countries allows for easing.

Are you saying the issues or the manner in which our economies or our markets are going to move is more domestic rather than going to be influenced or affected or impacted by what’s really going on with Greece on 17 June? Is that the view you hold?

Garner: Yes certainly, economically. Since 2006, emerging markets growth has been domestic demand driven and the principle reason that growth has slowed is because domestic demand has slowed in the emerging world and trade, intra-emerging markets trade has boomed and that’s feeding internal domestic demand to such a great extent that actually the emerging world now trades more with itself than it does with the US, Europe and Japan.

What’s your sense on India? Your economist colleagues and some of the other economists are extremely pessimistic; they have come out with strong downgrades. One of your colleagues, who tracks India closely, is of the view that just like Europe, we are at a situation where probably there are good upsides from here on as far as the market is concerned, valuations are concerned. What’s your own sense about India right now, are you pessimistic about India?

Garner: We are still underweight, we have been underweight for 18 months but actually because the overall market in emerging markets is cheap right now that just means that we think it is going to go up less than other markets like, for example, China, Russia and Korea which are at exceptionally low valuations.

India is still about a 30% PE (price-to-earnings) premium to the rest of the EM (emerging markets) world, that does mean it’s cheap versus its own history, but it is not cheap versus EM peers and it has got a worse than average macro situation. The growth slowdown has been more extreme here in India for various reasons and it has slightly less policy flexibility than the other big EM countries.

What could be the turning point? What could be the trigger?

Garner: There are some external triggers that would be helpful, oil going lower is one obvious one but what we really need to see is delivery on the supply side of the economy here which is certainly not what we would have wanted to see in terms of infrastructure delivery which is clearly a domestic issue but also in terms of reforms too, for example, reform the way the retail or insurance sectors works. If you contrast the attitude to FDI

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(foreign direct investment) here in India with not just the countries like China but also Indonesia where they have a completely different attitude to that, it actually keeps the supply side moving ahead. The problem in India is never demand, which is why the current account deficit or the inflation rate is quite high in India; the problem is the supply side.

I was going through one of your recent reports where India figures among the more prominent overbought stocks by country.

Garner: It is over owned, yes, that’s right. There are high quality companies here in India and a number of them presenting at our conference and we don’t have any trouble in terms of stock picking issue and so our clients actually often have overweight positions in India.

The issue is the macro and the relative valuations, these high quality companies in India are very expensive by emerging market standards.

What was the mood among the corporates?

Garner: I think it is more upbeat actually than at our China event but that’s in relation to the quality companies that are actually able to deliver growth even in a tough macro environment. But in here, it is consumer, some of the healthcare names and also when we look at some of the more private financials, but in the industrial sector and in the capital goods sector where we are not getting the supply side delivery that’s where there’s more caution.

Gerard, one of the things that you’ve also made a comment in one of your recent reports is on the whole commodity market and that’s something that at least as far as India is concerned is a very significant play for us. What’s your view on commodities at this point of time?

Minack: We may be close to or pass a very important top in the industrial commodity cycle.

Of course, really the whole boom in the 2003 -2008 period is all domain driven affecting .. the supply side was very inflexible. What we have seen in a number of places like Latin America, Canada, South Africa and, of course, Australia is this massive supply side expansion. We are not seeing outright decline in demand but certainly slowdown from the pace that we saw in 2003-08. For many commodities and broad-based commodity price indices, we are probably seeing the peak for what was the super cycle. Now, these things never move in a straight line, even in the boom phase we had the occasional setback. But it was a story realistically of the decade of higher-highs and higher-lows. We now may be coming to see a period of lower-lows and lower-highs. I am not saying there will be a precipitous decline in the industrial commodity prices in oil, but in the trend sense, we have seen the best.

What’s your view on oil?

Minack: Just like the supply-demand fundamentals, it should already have been lower and as with the political tensions back in the Middle East, etc., they have kept oil propped above these standard fundamentals that were initially. When these fundamentals dominate the political concerns, it cannot levitate oil prices above its fundamentals indefinitely. So we are seeing correction which reflects the global growth slowdown and as we have seen the sense to slowdown broad and globally, to some extent it’s relieving tension in the Middle East as oil is correcting in that range where we have been expecting. It’s a self regulating step to the global growth because obviously oil coming off provides some income support in number of places, of course the US as well. So it will be a cushion in this period of slower growth you are going through.

How important is that from India’s point of view?

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Garner: It’s one of the big oil importers in the markets along with Korea and China, and it is important in terms of actually helping the situation in particularly the fiscal situation. So, yes that is a positive.

How concerned are you about the manner in which the rupee has behaved? Is that one of the biggest concerns for you?

Garner: Well, it is one of the reasons we were underweight and indeed still are underweight at this point but if you look at the great currency vulnerability India is actually unique in Asia in running twin deficits, both the fiscal and current account side and the reserve coverage is quite good in the sense having reasonably high reserves, there is this private sector indebtedness, external indebtedness which makes it somewhat vulnerable.

And that said we are actually at a level of `56 or so to the dollar, we could go lower than that depending on what happens in Europe. But actually for India as well as several other EM currencies are now actually cheap than we thought we could get to.

What’s your view on the dollar?

Minack: I think for now the dollar looks OK in this period of Western world bank deleveraging. There are dollar pressures, one of the greatest ironies in global finance is that the European banks are much bigger source of dollars for emerging economies than US banks and, of course, the European bank de-leveraging story continues, Jonathan has actually talked about that, one of his research in Asia itself that shortfall of dollars is being made good by Japanese, to some extent by Australian banks, it’s been a big effect in other parts of the world where they are more dependent on dollars coming from the European banks. The big issue might be the prospective quantitative easing which my colleagues in the US are thinking that it is a 90% chance that the up coming FOMC (federal open market committee). And of course, we saw markets get a sniff of that overnight that might may lead to some temporary weakness in the greenback on a 12-month view given the stress in Europe, structural problems team believe they see much downside in there. My colleague in the FX (forex) euro and consequent upside in the dollar.

From a valuation point of view, what would be that comfort point at which you would begin to buy India and go overweight?

Garner: It’s really a relative valuation call versus the rest of the EM, and if you look at it, it’s about a 30% PE premium to the rest of the EM. EMs trading as a whole round about 9.5 times trailing that itself for EM is exceptionally low to history, we are getting down to the 90th percentile of cheapness but the issue is that, premium that India has enjoyed for 6-7 years and whether it still deserves that premium?

Is that something that a lot of the participants at the summit have echoed that why should India get that premium?

Garner: If you go back to the mid late 90s and up to 2004, India typically traded the same multiple as EM or cheaper and the macros as I said earlier has deteriorated here on the relative basis. So, as I was trying to say that the valuation level for EM overall can certainly go up from exceptionally low levels, not just versus its own history but versus the S&P. So, it’s going to be a far more 10% kind of a fall for valuations to be upside.

Garner: It is relative valuation adjustment and India may need another 15-20% relative valuation adjustment level which means that it will probably go up more slowly than other markets in the EM. Are you in the camp which is now raising the voice to say that we have a question mark on India’s structural story itself? There are many who feel that it is cyclical slowdown, some

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may even use the word it’s a deep cyclical slowdown, which camp are you in? Do you believe that the concerns with some of the global investors are raising that, you know what perhaps this is not cyclical any more—it is a structural problem? Jonathan are you in that camp?

Garner: I think it’s got the elements of both. Certainly, it is a situation that is rescueable and the Prime Minister last night was starting to make some moves in that regard.

However, Chetan Ahya, our regional economist, has downgraded GDP five times in 18 months and that’s not something that we have done for other EM countries. feedback@livemint.com

BOOK SCAN

The wheel comes full circle Reverse innovation is not just about improvisation or lowering the price. It is about shifting the price performance paradigm, says the co-author of a new book Komal Sharma Q&A| Vijay Govindarajan Innovation that emerges from a developing economy and spreads across the world is not a one-off case of ingenuity any more. It is becoming a trend. Vijay Govindarajan first wrote about the phenomenon in October 2009 in a Harvard Business Review (HBR) article, “How GE is disrupting itself”, co-authored by Jeffrey R. Immelt, CEO, General Electric Co. (GE).

Critical change: If multinational firms don’t innovate in poor countries, they will lose out, says Govindarajan.

Now, in a well-timed book, titled Reverse Innovation: Create Far From Home, Win Everywhere, authors Govindarajan and Chris Trimble get into the details of this reversal, which means companies and thought leaders have to be in tune with the needs of, and opportunities in, emerging economies. With examples such as Procter and Gamble Co.’s (P&G’s) strategy for the unfamiliar customer in new markets to GE’s approach to healthcare in India, Govindarajan and Trimble throw light on changing management models and mindsets.

Govindarajan teaches international business at the Tuck School of Business at Dartmouth College, US. He has also been on the faculties of the Harvard Business School, Insead, Fontainebleau, France, and the Indian Institute of Management, Ahmedabad. Trimble, also a professor at Tuck, is a consultant who specializes in the execution of an innovation initiative. He wrote Ten Rules for Strategic Innovators—From Idea to Execution, in 2005.

In an email interview, Govindarajan tells us why this is the appropriate time to understand, adopt and benefit from this changing dynamic. Edited excerpts: What is reverse innovation?

Historically, multinationals innovated in rich countries and sold those products in poor countries. Reverse innovation is doing exactly the opposite. It is about innovating in poor countries and selling those products in rich countries. For instance, Mahindra innovated a low horsepower tractor for India since farming land is highly fragmented. Mahindra used that tractor to create a vibrant hobby farming segment in the US. The hobby farmers use their tractors for enjoyment, not to earn a living. Mahindra also innovated beyond the product. The company enrolled close-knit families as dealers. Such dealers gave full attention to the needs of Mahindra. From 1999 onwards, Mahindra gained market share in the US. This is classic reverse innovation.

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What recent changes have allowed this phenomenon?

Reverse Innovation: By Vijay Govindarajan and Chris Trimble, Harvard Business Review Press, 229 pages, Rs750.

There are two important trends which have made reverse innovation critical. First, growth is slowing down in developed economies and it is increasing in developing economies. Post the financial crisis, companies in rich countries are looking for growth and they have to go where the growth is—poor countries. Second, there are very smart local companies, such as Mahindra, that will force multinationals to engage in reverse innovation. About 10 years ago, there were fewer local companies that had global aspirations. Now, companies such as Mahindra and Tata from India and Haier and Lenovo from China are emerging giants.

Thus if multinationals do not innovate in poor countries, local companies will do so and use those innovations to disrupt multinationals in their home markets. This happened in the 1970s and 1980s when the Japanese auto makers disrupted the the big three auto companies in Detroit.

What kind of a ‘change in mindset’ is needed by leaders who are working, learning and innovating in emerging markets?

The most critical requirement is to understand customer problems among non-consumers.

In a country such as India, a significant percentage of the population lacks basic needs such as housing, transportation, energy, and healthcare. Understanding customer problems is the starting point for innovation. Deere set out to understand local farming needs in India by setting up a local growth team. The team quickly understood that Indian farmers valued two things in their tractors—price and fuel efficiency. The result: Deere introduced a low horsepower tractor, Krish, in India with tremendous success.

‘Jugaad’ innovation or frugality seems to be a buzzword. How much of reverse innovation is to do with being low-cost?

Reverse innovation is not about jugaad (improvisation) and not about lowering the price. It is about shifting the price performance paradigm. For India to be a leader, we need to solve our problems with the latest technology. Take, for instance, the Narayana Hrudayalaya (NH) Hospital in Bangalore which performed open heart surgery for $2,000 (around Rs1.1 lakh; US prices for such a surgery will be $20,000). NH Hospital does not use jugaad. You cannot improvise heart surgery. Quite the contrary, NH Hospital uses the latest technology, the same ones we see in the US. That is the only way you can guarantee world-class quality. The hospital brings its costs down by mass-producing healthcare and not by jugaad.

Emerging markets want to have access to rich-world products, but with some local flavour. Do glocalization and reverse innovation go hand in hand?

Glocalization and reverse innovation go hand in hand. Multinationals will be able to sell global products in the top 20% of the economic pyramid in India. However, in order to create the market in the remaining 80%, they must practise reverse innovation. GE Healthcare, for instance, sells its premium imaging equipment such as X-rays, CT scanners, ultrasounds in the top 20% of the hospitals in India. However, it has created a new market by innovating portable and inexpensive EKG machines for rural India. For most multinationals, glocalization will work in the top 10% of the economic pyramid. Here, it is about market share. In the remaining 90%, it is market creation. Here, there is need for reverse innovation. komal.sharma@livemint.com

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THE ROAD TO RIO+20 Later this week, political heads as well as a galaxy of environment specialists from several countries will convene in Rio de Janerio, Brazil, to commemorate 20 years of a groundbreaking summit in 1992. A look at the landmarks achieved during those two decades shows the historical role of that summit in shaping subsequent global environment policy.

JUN 1992 - The Rio or Earth Summit was the progenitor of several far-reaching agreements and was organized under the overall ambit of the United Nations (UN). As many as 172 governments participated, with 108 sending their heads of state, along with participation from several non-governmental organizations.

DEC 1993 - The Convention on Biological Diversity was among the agreements that resulted from the Rio Summit. It came into effect this year and has paved the way for several countries adopting laws to conserve biodiversity as well as the sustainable use of natural resources.

MAR 1994 – The UN Framework Convention on Climate Change was unveiled. This laid out the first formal agreement on the steps to be taken by countries to combat climate change and recommended that developed nations make cuts in greenhouse gas emissions.

DEC 1997 - The Kyoto Protocol, which outlined the greenhouse gas emissions reduction obligation for developed countries, came into force. This brought emissions trading and the concept of carbon credits into public discourse. Most industrialized countries agreed to legally binding reductions in greenhouse gas emissions of an average 6-8% below 1990 levels between 2008 and 2012, defined as the first emissions budget period.

DEC 1998 - Through the year, major polluters such as Canada, Japan and the US signed the Kyoto Protocol. Signing doesn’t necessarily mean a country legally commits to cut emissions. For that, the country must ratify it.

MAR 2001- US President George Bush said his administration opposed the Kyoto Protocol.

Addressing climate change was important, he said, but not at the cost of hurting the American economy.

DEC 2002 - Canada formally ratified Kyoto on 17 December 2002 and committed to slash greenhouse gas emissions by 240 million tonnes a year by 2012.

NOV 2009 - Brazil, South Africa, India and China formed a united negotiating front, called the BASIC group, to thwart pressure by developed countries to force them into committing to binding emission reduction.

DEC 2009 - India’s environment minister Jairam Ramesh announced 20-25% carbon emission intensity cuts by 2020 on 2005 levels. This would be done through a series of

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measures, including mandatory fuel efficiency standards for all vehicles, a compulsory green building code and switching over to clean coal technology.

DEC 2011 - Canada pulled out of the Kyoto Protocol. Nations agreed on a new climate agreement by 2015 that will come into effect by 2020.

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