PROJECT REPORT ON INVESTMENT OPPORTUNITIES IN ENERGY SECTOR

Submitted to, UNIVERSITY OF MUMBAI

IN PARTIAL FULFILLMENT OF THE DEGREE COURSE OF MASTER OF MANAGEMENT STUDIES (MMS)

SUBMITED BY ROHIT SURESH SONI Roll No. MS0910056

INSTITUTE OF MANAGEMENT AND COMPUTER STUDIES (2009-2011) Near Mulund Check Naka,Thane (W)

CERTIFICATE

This is to certify that the project entitled INVESTMENT OPPORTUNITIES IN ENERGY SECTOR Submitted by Rohit Suresh Soni Enrolment No MS0910056 Of final year (MMS, Finance) has successfully completed the project work as a part of academic fulfilment of Master of Management Studies during academic year 2010-11. UNIVERSITY Of MUMBAI, MUMBAI

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Declaration
I, Rohit Suresh Soni Roll No. MS0910056 of MMS , studying in Institute of Management & Computer Studies (IMCOST) University of Mumbai, hereby declare that, I have completed this project on INVESTMENT OPPORTUNITIES
IN ENERGY SECTOR in 4 semester 2010-11
th

The information submitted is true authentic and original to the best of my knowledge.

Date:

Rohit Suresh Soni Roll No. MS0910056 IMCOST

Acknowledgements

I take this opportunity to express my deep gratitude to the University of Mumbai and INSTITUTE OF MANAGAEMENT AND COMPUTER STUDIES for giving me an opportunity to undertake the project entitled, A Project report On INVESTMENT OPPORTUNITIES IN ENERGY SECTOR I am grateful for the continuing support of IMCOST and its faculty. I take the privilege of conveying my heartiest gratitude to all those, who directly or indirectly enable me to complete my Project.

Preparing a project of this nature is an arduous task and I am fortunate enough to get support from a large number of people to whom I shall always remain grateful. I would also like to thank Prof. Vrushali for providing timely assistance to our queries.

Executive Summary:
In recent years, Indias energy consumption has been increasing at one of the fastest rates in the world due to population growth and economic development. During the 5-year period ended March 31, 2007, the CAGR of consumption of petroleum products was approximately 3.6%, compared to a CAGR for GDP of 7.6% for the same period. Despite the overall increase in energy demand, per capita energy consumption in India is still very low compared to other developing countries. Today, India has one of the highest potentials for the effective use of renewable energy. India is the worlds fifth largest producer of wind power after Denmark, Germany, Spain, and the USA. There is a significant potential in India for generation of power from renewable energy sources-, small hydro, biomass, and solar energy. The country has an estimated SHP (small-hydro power) potential of about 15000 MW. Energy Conservation Act 2001, was passed by the Indian Parliament in September 2001, 35.5% of the population still live without access to electricity. This Act requires large energy consumers to adhere to energy consumption norms; new buildings to follow the Energy Conservation Building Code; and appliances to meet energy performance standards and to display energy consumption labels. The Act also created the Bureau of Energy Efficiency to implement the provisions of the Act. The key development objectives of the Energy sector is supply of electricity to all areas including rural areas as mandated in section 6 of the Electricity Act. Both the central government and state governments would jointly endeavour to achieve this objective at the earliest. The Report adopts a top-down approach while dealing with the Energy sector. It starts off with the international Energy consumption patterns, then narrows it down to the domestic Energy scenario and finally focuses on individual companies. The report also tries to envisage the future of the Energy sector and specifies the reasons why the sector as such would look attractive for investments through a closer inspection of the financial performance of leading energy companies in the country.

Index
SR.NO. PARTICULARS 1. 2. 3. 4. 5. 6. 7. Introduction International Energy Scenario Energy Scenario in India Performance of Different Energy Industry Future Of Energy Market Impacts Of different Energy Policies and Climate Change Bibliography PAGE.NO. 7 12 20 21 32 38 40

Introduction:
The energy industry is a generic term for all of the industries involved the production and sale of energy, including fuel extraction, manufacturing, refining and distribution. Modern society consumes large amounts of fuel, and the energy industry is a crucial part of the infrastructure and maintenance of society in almost all countries. In particular, the energy industry comprises: The petroleum industry, including oil companies, petroleum refiners, fuel transport and enduser sales at gas stations The gas industry, including natural gas extraction, and coal gas manufacture, as well as distribution and sales The electrical power industry, including electricity generation, electric power distribution and sales The coal industry The nuclear power industry The renewable energy industry, comprising alternative energy and sustainable energy companies, including those involved in hydroelectric power, wind power, and solar power generation, and the manufacture, distribution and sale of alternative fuels Traditional energy industry based on the collection and distribution of firewood, the use of which, for cooking and heating, is particularly common in poorer countries.

(Graph created from the data in the BP 2006 statistical review. Rate of world energy usage in terawatts (TW), 1965-2005)
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Objective: 1) 2) 3) 4) To study the growth of Energy based Companies in India. To suggest the various ways to invest money in energy sector. To study the future of energy sector and effects of policies on it. To study the scenario of the supply and availability of energy in India.

Research Methodology: 1) Selection of Topic: The topic Investment opportunities in Energy Sector is selected to understand the rising opportunities in energy producing companies and ways to trade in futures contracts of various energy types. 2) Data analysis: The study of the performance of various companies is done with the help of their Annual Reports by gathering knowledge about growth or decline in sales, Profits and returns in investments. 3) Data Collection method: The data used is secondary and acquired from various research companies, international agencies and annual reports of major companies.

Limitations: 1) The research is based on secondary data collected from various sources and reports. 2) The statistics of various studies may vary differ from source to source. 3) Some of the energy companies India are completely owned by government and hence investment in them is only possible through bonds so the performance of these companies has not been highlighted.

The twentieth century saw a rapid twentyfold increase in the use of fossil fuels. Between 1980 and 2006, the worldwide annual growth rate was 2%. According to the US Energy Information Administration's 2006 estimate, the estimated 471.8 EJ total consumption in 2004 was divided as follows, with fossil fuels supplying 86% of the world's energy. Coal fuelled the industrial revolution in the 18th and 19th century. With the advent of the automobile, airplanes and the spreading use of electricity, oil became the dominant fuel during the twentieth century. The growth of oil as the largest fossil fuel was further enabled by steadily dropping prices from 1920 until 1973. After the oil shocks of 1973 and 1979, during which the price of oil increased from 5 to 45 US dollars per barrel, there was a shift away from oil. Coal, natural gas, and nuclear became the fuels of choice for electricity generation and conservation measures increased energy efficiency. In the U.S. the average car more than doubled the number of miles per gallon. Japan, which bore the brunt of the oil shocks, made spectacular improvements and now has the highest energy efficiency in the world. From 1965 to 2008, the use of fossil fuels has continued to grow and their share of the energy supply has increased. From 2003 to 2008, coal, which is one of the dirtiest sources of energy, was the fastest growing fossil fuel. This is a list of countries by Total Primary Energy consumption and production. Total Production (Trillions of BTU) 71,503.62 70,796.18 53,971.33 3,827.94 13,048.46 5,123.52 19,421.73 5,069.21 8,315.47 1,461.06 7,357.52 1,140.25 12,993.74 9,919.91 23,806.95 Total Consumption (Trillions of BTU) 101,553.86 77,807.73 30,354.82 22,473.19 19,093.68 14,166.17 13,752.63 11,206.47 10,130.44 9,647.06 9,460.27 7,968.83 7,916.02 7,587.90 7,362.72

Country United States China Russia Japan India Germany Canada France Brazil Korea, South United Kingdom Italy Iran Mexico Saudi Arabia

In 2008, total worldwide energy consumption was 474 exajoules (4741018 J) with 80 to 90 percent derived from the combustion of fossil fuels. This is equivalent to an average power consumption rate of 15 terawatts (1.5041013 W). Not all of the world's economies track their energy consumption with the same rigor, and the exact energy content of a barrel of oil or a ton of coal will vary with quality. Despite advances in efficiency and sustainability, of all the energy created since the industrial revolution, more than half has been consumed in the last two decades. In 2009, world energy consumption decreased for the first time in 30 years (-1.1%) or 130Mtoe, as a result of the financial and economic crisis (GDP drop by 0.6% in 2009). This evolution is the result of two contrasting trends. Energy consumption growth remained vigorous in several developing countries, specifically in Asia (+4%). Conversely, in OECD, consumption was severely cut by 4.7% in 2009 and was thus almost down to its 2000 levels. In North America, Europe and CIS, consumptions shrank by 4.5%, 5% and 8.5% respectively due to the slowdown in economic activity. China became the world's largest energy consumer (18% of the total) since its consumption surged by 8% during 2009 (from 4% in 2008). Oil remained the largest energy source (33%) despite the fact that its share has been decreasing over time. Coal posted a growing role in the world's energy consumption: in 2009, it accounted for 27% of the total.

(Energy intensity of different economies The graph shows the ratio between energy usage and GDP for selected countries. GDP is based on 2004 purchasing power parity and 2000 dollars adjusted for inflation. This means that India is the most energy efficient country of those shown in the chart, or that India uses the most human labour in the creation of product.)
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Most of the world's energy resources are from the sun's rays hitting earth. Some of that energy has been preserved as fossil energy, some is directly or indirectly usable; for example, via wind, hydro- or wave power. The term solar constant is the amount of incoming solar electromagnetic radiation per unit area, measured on the outer surface of Earth's atmosphere, in a plane perpendicular to the rays. The solar constant includes all types of solar radiation, not just visible light. It is measured by satellite to be roughly 1366 watts per square meter, though it fluctuates by about 6.9% during a yearfrom 1412 W m2 in early January to 1321 W m2 in early July, due to the Earth's varying distance from the sun, and by a few parts per thousand from day to day. For the whole Earth, with a cross section of 127,400,000 km2, the total energy rate is 174 petawatts (1.7401017 W), plus or minus 3.5%. This value is the total rate of solar energy received by the planet; about half, 89 PW, reaches the Earth's surface. The estimates of remaining non-renewable worldwide energy resources vary, with the remaining fossil fuels totalling an estimated 0.4 YJ (1 YJ = 1024J) and the available nuclear fuel such as uranium exceeding 2.5 YJ. Fossil fuels range from 0.6-3 YJ if estimates of reserves of methane clathrates are accurate and become technically extractable. Mostly thanks to the Sun, the world also has a renewable usable energy flux that exceeds 120 PW (8,000 times 2004 total usage), or 3.8 YJ/yr, dwarfing all non-renewable resources.

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(Worldwide Renewable energy, existing capacities, at end of 2008. Total energy is from BP Statistical Review.)

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THE INTERNATIONAL ENERGY SCENARIO

Average power in TW Fuel type 1980 Oil Gas Coal Hydroelectric Nuclear power Geothermal, wind, solar energy, wood Total 4.38 1.80 2.34 0.60 0.25 0.02 9.48 2004 5.58 3.45 3.87 0.93 0.91 0.13 15.0 2006 5.74 3.61 4.27 1.00 0.93 0.16 15.8

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 OIL: The petroleum industry is involved in the global processes of exploration, extraction, refining, transporting (often with oil tankers and pipelines), and marketing petroleum products. The largest volume products of the industry are fuel oil and petrol . Petroleum is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The industry is usually divided into three major components: upstream, midstream and downstream. Midstream operations are usually included in the downstream category. Petroleum is vital to many industries, and is of importance to the maintenance of industrialized civilization itself, and thus is critical concern to many nations. Oil accounts for a large percentage of the world's energy consumption, ranging from a low of 32% for Europe and Asia, up to a high of 53% for the Middle East. Other geographic regions' consumption patterns are as follows: South and Central America (44%), Africa (41%), and North America (40%). The world at large consumes 30 billion barrels (4.8 km) of oil per year, and the top oil consumers largely consist of developed nations. In fact, 24% of the oil consumed in 2004 went to the United States alone, though by 2007 this had dropped to 21% of world oil consumed. Consuming Nation 2008 United States China Japan India Russia Germany Brazil Saudi Arabia (OPEC) Canada South Korea (1000 bbl/day) 19,497.95 7,831.00 4,784.85 2,962.00 2,916.00 2,569.28 2,485.00 2,376.00 2,261.36 2,174.91 (1000 m3/day) 3,099.9 1,245.0 760.7 470.9 463.6 408.5 395.1 377.8 359.5 345.8 population in millions 314 1345 127 1198 140 82 193 25 33 48 bbl/year per capita 22.6 2.1 13.7 0.9 7.6 11.4 4.7 33.7 24.6 16.4

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GAS:
Quantities of natural gas are measured in normal cubic meters (corresponding to 0 C at 101.325 kPa) or in standard cubic feet (corresponding to 60 F (16 C) and 14.73 psia). The gross heat of combustion of one cubic meter of commercial quality natural gas is around 39 megajoules (10.8 kWh), but this can vary by several percent. This comes to about 49 megajoules (13.5 kWh) for one kg of natural gas (assuming 0.8 kg/m^3, an approximate value). The price of natural gas varies greatly depending on location and type of consumer. In 2007, a price of $7 per 1,000 cubic feet (28 m3) was typical in the United States. The typical caloric value of natural gas is roughly 1,000 British thermal units (BTU) per cubic foot, depending on gas composition. The residential price varies from 50% to 300% more than the wholesale price. At the end of 2007, this was $12$16 per 1,000 cu ft (28 m3). Natural gas in the United States is traded as a futures contract on the New York Mercantile Exchange. Each contract is for 10,000 MMBTU (~10,550 gigajoules), or 10 billion BTU. Thus, if the price of gas is $10 per million BTUs on the NYMEX, the contract is worth $100,000. LNG (liquefied natural gas) and LPG (liquified petroleum gas) is traded in metric tons or mmBTU as spot deliveries. Long term contracts are signed in metric tons.

(Above gas Nominal Prices $/M^2. Below Gas Production( Grey Means No Data).

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 COAL:
Coal is primarily used as a solid fuel to produce electricity and heat through combustion. World coal consumption was about 6,743,786,000 short tons in 2006 and is expected to increase 48% to 9.98 billion short tons by 2030. China produced 2.38 billion tons in 2006. India produced about 447.3 million tons in 2006. 68.7% of China's electricity comes from coal. The USA consumes about 14% of the world total, using 90% of it for generation of electricity. More than 40% of the world electricity production uses coal. The total known deposits recoverable by current technologies, including highly polluting, low energy content types of coal (i.e., lignite, bituminous), is sufficient for many years. However, consumption is increasing and maximal production could be reached within decades. In North America, Central Appalachian coal futures contracts are currently traded on the New York Mercantile Exchange (trading symbol QL). The trading unit is 1,550 short tons (1,410 t) per contract, and is quoted in U.S. dollars and cents per ton. Since coal is the principal fuel for generating electricity in the United States, coal futures contracts provide coal producers and the electric power industry an important tool for hedging and risk management. In addition to the NYMEX contract, the Intercontinental Exchange (ICE) has European (Rotterdam) and South African (Richards Bay) coal futures available for trading. The trading unit for these contracts is 5,000 tonnes (5,500 short tons), and are also quoted in U.S. dollars and cents per ton. The price of coal increased to around $150.00 per short ton as of September 2008. As of October 2008, the price per short ton had declined to $111.50. Prices further declined to $71.25 as of October 2010. Country 2003 2004 2005 2006 2007 2008 2009 Share Reserv e Life (years) 38 245 105 55 186 500+ 17 122 37 56 308 119

China USA India EU Australia Russia Indonesia South Africa Germany Poland Kazakhsta n Total World

1722.0 972.3 375.4 638.0 351.5 276.7 114.3 237.9 204.9 163.8 84.9 5,187. 6

1992.3 1008.9 407.7 628.4 366.1 281.7 132.4 243.4 207.8 162.4 86.9 5,585. 3

2204.7 1026.5 428.4 608.0 378.8 298.5 146.9 244.4 202.8 159.5 86.6 5,886. 7

2380.0 2526.0 1053.6 1040.2 447.3 595.5 385.3 309.2 195.0 244.8 197.2 156.1 96.2 6,195. 1 478.4 593.4 399.0 314.2 217.4 247.7 201.9 145.9 97.8 6,421. 2

2782. 0 1062. 8 521.7 587.7 401.5 326.5 229.5 250.4 192.4 143.9 111.1 6,781. 2

3050.0 973.2 557.6 536.8 409.2 298.1 252.5 250.0 183.7 135.1 101.5 6,940.6

45.6 % 15.8 % 6.2 % 4.6 % 6.7 % 4.3 % 3.6 % 3.6 % 2.6 % 1.7 % 1.5 % 100 %

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 Hydroelectricity:
The ranking of hydro-electric capacity is either by actual annual energy production or by installed capacity power rating. A hydro-electric plant rarely operates at its full power rating over a full year; the ratio between annual average power and installed capacity rating is the capacity factor. The installed capacity is the sum of all generator nameplate power ratings. Brazil, Canada, New Zealand, Norway, Paraguay, Switzerland, and Venezuela are the only countries in the world where the majority of the internal electric energy production is from hydroelectric power. Paraguay produces 100% of its electricity from hydroelectric dams, and exports 90% of its production to Brazil and to Argentina. Norway produces 9899% of its electricity from hydroelectric sources. Ten of the largest hydroelectric producers as at 2009. Country China Canada Brazil United States Russia Norway India Venezuela Japan Sweden Annual hydroelectric Installed production (TWh) capacity (GW) 652.05 369.5 363.8 250.6 167.0 140.5 115.6 85.96 69.2 65.5 196.79 88.974 69.080 79.511 45.000 27.528 33.600 14.622 27.229 16.209 Capacity factor 0.37 0.59 0.56 0.42 0.42 0.49 0.43 0.67 0.37 0.46 % of total capacity 22.25 61.12 85.56 5.74 17.64 98.25 15.80 69.20 7.21 44.34

(The Three Gorges Dam, is the largest operating hydroelectric power stations at an installed capacity of 22,500 MW.)
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 Nuclear Power:
As of 2005, nuclear power provided 6.3% of the world's energy and 15% of the world's electricity, with the U.S., France, and Japan together accounting for 56.5% of nuclear generated electricity. In 2007, the IAEA reported there were 439 nuclear power reactors in operation in the world, operating in 31 countries. As of December 2009, the world had 436 reactors. Since commercial nuclear energy began in the mid 1950s, 2008 was the first year that no new nuclear power plant was connected to the grid, although two were connected in 2009. Annual generation of nuclear power has been on a slight downward trend since 2007, decreasing 1.8% in 2009 to 2558 TWh with nuclear power meeting 1314% of the world's electricity demand. One factor in the nuclear power percentage decrease since 2007 has been the prolonged shutdown of large reactors at the Kashiwazaki-Kariwa Nuclear Power Plant in Japan following the Niigata-Chuetsu-Oki earthquake.

(The top panel shows the installed global nuclear capacity (in gigawatts), and since 1991, the fraction of that power which was actually available after accounting for planned and unplanned outages. The bottom panel shows the number of active nuclear reactors by year (in blue) and dashed extensions indicating the number of additional reactors that were under construction during each year. The average construction time was slightly more than 7 years.) Data presented is from the
International Atomic Energy Agency. 18

 Renewable energy:
Global revenues for solar photovoltaics, wind power, and bio fuels expanded from $76 billion in 2007 to $115 billion in 2008. New global investments in clean energy technologies expanded by 4.7 percent from $148 billion in 2007 to $155 billion in 2008. U.S. President Barack Obama's American Recovery and Reinvestment Act of 2009 includes more than $70 billion in direct spending and tax credits for clean energy and associated transportation programs. Clean Edge suggests that the commercialization of clean energy will help countries around the world pull out of the current economic malaise. Leading renewable energy companies include First Solar, Gamesa, GE Energy, Q-Cells, Sharp Solar, Siemens, SunOpta, Suntech, and Vestas. The International Renewable Energy Agency (IRENA) is an intergovernmental organization for promoting the adoption of renewable energy worldwide. It aims to provide concrete policy advice and facilitate capacity building and technology transfer. IRENA was formed on January 26, 2009, by 75 countries signing the charter of IRENA. As of March 2010, IRENA has 143 member states who all are considered as founding members, of which 14 have also ratified the statute. Renewable energy policy targets exist in some 73 countries around the world, and public policies to promote renewable energy use have become more common in recent years. At least 64 countries have some type of policy to promote renewable power generation. Mandates for solar hot water in new construction are becoming more common at both national and local levels. Mandates for blending biofuels into vehicle fuels have been enacted in 17 countries.

Selected renewable energy indicators[28][29][30] Selected global indicators Investment in new renewable capacity (annual) Existing renewable power capacity, including large-scale hydro Existing renewable power capacity, excluding large hydro Wind power capacity (existing) Solar PV capacity (grid-connected) Solar hot water capacity Ethanol production (annual) Biodiesel production (annual) Countries with policy targets for renewable energy use 2007 104 1,070 240 94 7.6 126 50 10 68 130 1,140 280 121 13.5 149 69 15 75 2008 2009 150 billion USD 1,230 GWe 305 GWe 159 GWe 21 GWe 180 GWth 76 billion liters 17 billion liters 85

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(Past clean energy growth 1995-2007. Based on information contained in REN21 (2007) Global Status Report.)

World top 10 renewable electricity producers (TWh/year) Rank Country Year Total Hydroele Wind Biom ctricity Power ass 1 2 3 4 5 6 7 8 9 10 China European Union United States Brazil Canada Russia India Norway Japan Germany Venezuela 2010 2007 2009 2008 2008 2008 2008 2008 2008 2009 2008 696.09 525.3 413.2 385.8 369.7 179.1 137.1 120.5 95.0 93.0 83.9 652.05 310.0 272.1 371.5 368.2 174.6 122.4 119.4 86.3 19.0 83.9 40.2 104.3 70.8 0.6 2.5 0.007 14.7 0.673 1.754 37.5 3.0 101.8 54.3 14.3

Solar

Geoth ermal

Other sources
*

0.140 3.8 0.808

5.8 15.2

0.017 0.48 0.2 30.5 0.002 6.0 3.027 0.001 0.41

* Other sources include wave energy and waste-to-energy.

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Energy Scenario in India:

In recent years, Indias energy consumption has been increasing at one of the fastest rates in the world due to population growth and economic development. During the 5-year period ended March 31, 2007, the CAGR of consumption of petroleum products was approximately 3.6%, compared to a CAGR for GDP of 7.6% for the same period. Despite the overall increase in energy demand, per capita energy consumption in India is still very low compared to other developing countries. Today, India has one of the highest potentials for the effective use of renewable energy. India is the worlds fifth largest producer of wind power after Denmark, Germany, Spain, and the USA. There is a significant potential in India for generation of power from renewable energy sources-, small hydro, biomass, and solar energy. The country has an estimated SHP (small-hydro power) potential of about 15000 MW. The energy policy of India is characterized by tradeoffs between four major drivers: Rapidly growing economy, with a need for dependable and reliable supply of electricity, gas, and petroleum products; Increasing household incomes, with a need for affordable and adequate supply of electricity, and clean cooking fuels; Limited domestic reserves of fossil fuels, and the need to import a vast fraction of the gas, crude oil, and petroleum product requirements, and recently the need to import coal as well; and Indoor, urban and regional environmental impacts, necessitating the need for the adoption of cleaner fuels and cleaner technologies. These trade-offs are often difficult to achieve. For example, the supply of adequate, yet affordable electricity generated and used cleanly is a continuing challenge because expansion of supply and adoption of cleaner technologies, especially renewable energy, often means that this electricity is too expensive for many Indians, particularly in rural areas. As on 31st March 2010, the total installed capacity of power in India was 1,59,398 MW. Of this, thermal power accounted for 1,02,454 MW (64.3 %), hydro 36,863 MW (23.1%), nuclear 4,560 MW (2.9%), and renewable energy sources 15,521 MW (9.7%) . The Public sector has taken a lead in power generation in India with the State and Union Governments generating about 49.9% and 31.9% of total installed capacity respectively. The participation of the private sector, which generates about 18% of power, has been increasing since the liberalisation of the economy in 1991.

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 Oil And Natural Gas: Indias proven oil reserves as of January 2007 are the second-largest in the Asia-Pacific region behind China. Most of India's crude oil reserves are located in the western coast (Mumbai High) and in the north-eastern parts of the country, although considerable undeveloped reserves are also located in the offshore Bay of Bengal and in the state of Rajasthan. Indias oil sector is dominated by state-owned enterprises, although the government has taken steps in past recent years to deregulate the hydrocarbons industry and support greater foreign involvement. Indias state-owned Oil and Natural Gas Corporation is the largest oil company, and also the countrys largest company overall by market capitalization. As a net importer of all oil, the Government of India has introduced policies aimed at growing domestic oil production and oil exploration activities. As part of the effort, the Ministry of Petroleum and Natural Gas crafted the New Exploration License Policy (NELP) in 2000, which permits foreign companies to hold 100% equity possession in oil and natural gas projects.

(ONGC Oil Platform in Mumbai High) As per the Oil and Gas Journal, India had 38 trillion cubic feet (Tcf) of confirmed natural gas reserves as of January 2007.A huge mass of Indias natural gas production comes from the western offshore regions, particularly the Mumbai High complex. The onshore fields in Assam, Andhra Pradesh, and Gujarat states are also major producers of natural gas. As in the oil sector, Indias state-owned companies account for the bulk of natural gas production. ONGC and Oil India Ltd. (OIL) are the leading companies with respect to production
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volume, while some foreign companies take part in upstream developments in joint-ventures and production sharing contracts. Reliance Industries, a privately-owned Indian company, will also have a bigger role in the natural gas sector as a result of a large natural gas find in 2002 in the Krishna Godavari basin. The Gas Authority of India Ltd. (GAIL) holds an effective control on natural gas transmission and allocation activities. In December 2006, the Minister of Petroleum and Natural Gas issued a new policy that allows foreign investors, private domestic companies, and national oil companies to hold up to 100% equity stakes in pipeline projects. Investment in Oil and gas Companies In India the Oil and Gas Sector is generally merged together as most of the major Energy companies work in exploration of both Crude oil extraction or refining & Natural Gas extraction and supply. This Includes Oil and Natural Gas Corporation (ONGC) Indian Oil Corporation (IOC)

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Performance Oil and Natural Gas Corporation (ONGC)

Sales
700000 600000 Rs in million 500000 400000 300000 200000 100000 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10 Sales 494397 590575 615426 650494 619832

Profit
400000 350000 300000 250000 200000 150000 100000 50000 0 375588 283731 306465 314790 319684

Rs in million

144308

156429

167016

161263

167676

EBITDA PAT

2005-06

2006-07

2007-08 Year

2008-09

2009-10

Returns
120 In percentage (EPS Rs) 100 80 60 40 20 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10 26.9 25.5 23.9 57.5 98.22 71.66 56.7 78.09 52 75.19 49.9 20.7 78.39 EPS 50.9 19.4 ROCE ROE

(Bonus shares issued in 2006-07)

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Indian Oil Corporation (IOC)

Sales
300000 250000 Rs in Crore 200000 150000 100000 50000 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10 Sales 220779 183172 247457 285398 271074

Profit
20000 15000 10000 5000 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10 9931 7499 4915 2950 6963 14622 14334 11319 10221 EBITDA PAT 18872 Rs in Crore 45 40 35 30 25 20 15 10 5 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10 21.04 16.18 12.6 20.59 15.97 19.54 14.06 20.72 14.64 12.15 21.2 15.83 31.45 29.2 EPS ROCE ROE 42.1

(Bonus Shares issued in 2008-09)

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Coal The Indian coal industry witnessed sporadic phases of growth. Since the private sector followed unscientific methods, productivity was low. The Indian government took steps to correct this and improve the working conditions in the nations coal industry. National Coal Development Corporation (NCDC), comprising of railway owned collieries, was established. In the early 1970s, all privately owned coal producing companies were nationalized under the Coal Mines (Nationalisation) Act.

(India has the world's 3rd largest coal reserves. Shown here is a coal mine in Jharkhand.) Despite having one of the largest reserves, the Indian coal industry does not hold a position in the league of global energy suppliers. This can be attributed to the soaring domestic demand. A study conducted by the Indian Planning Commission and the Coal Ministry revealed that Indias total coal consumption was expected to increase from 510 mts in 2007-08 to 550 mts by 2008-09. To meet this requirement, substantial public investment is needed. Even the private players would need to deploy advanced mechanisms to increase production levels. Coal washeries are also under pressure. The onus of producing quality coal lies with this segment. It is required to sustain high quality levels within stringent environment regulations. Excessive government regulation continues to be a major concern for the Indian coal industry. The existing legislative framework restricts the private sector in the establishment of coal washeries and regulated mining for specific industries, such as power and fertilizer units.

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Performance Coal India Limited

Sales
60000 50000 Rs in Crore 40000 30000 20000 10000 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10 33997.19 35129.17 38865.7 Sales 52187.79 46131.24

Profit
50000 40000 Axis Title 30000 20000 10000 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10 7798.46 11572.94 13026.01 12484.7 27815.67 29493.99 32493.68 19478.85 EBITDA PAT 44305.44 43200.85

80 70 60 50 40 30 20 10 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10 18.32 20.62 19.76 33.86 30.93 53.02 51.08 EPS ROCE 68.98 59.55

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Hydropower During the last few years the share of hydro in the total installed capacity has gradually declined resulting in an adverse hydrothermal mix leading to many technical and operational abnormalities, as mentioned above. While India is endowed with huge hydropower potential - to the tune 1,48,700 MW only a minuscule portion of this potential has been harnessed till now. NHPC, a premier player in the countrys power sector, is focused on the development of Hydropower. It is a Mini Ratna Schedule-A Enterprise with an Authorized share capital of Rs 15,000 crore and an investment base of over ` 38,700 crore. India is endowed with rich hydropower potential; it ranks fifth in the world in terms of usable potential. However, less than 25% has been developed or taken up for development. Thus hydropower is one of the potential sources for meeting the growing energy needs of the country. A judicial mix of hydropower in the energy portfolio can also contribute to energy security, reduction of greenhouse gas emissions, meeting the peak demand and also increased flexibility in grid operation. Besides, projects may also be conceived as multi-purpose ones contributing not only to power but also to irrigation, flood control, navigation, etc. The Government of India is, therefore, giving special emphasis to accelerated hydropower development in its power development plans.

(Narmada Power Project- Jobat Project)

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Performance NHPC (National Hydro Power Corporation)

Sales
4500 4000 3500 3000 2500 2000 1500 1000 500 0 4218.9

Rs in Crore

2671.85 2243.73 1614.11 1754.12 Sales

2005-06

2006-07

2007-08 Year

2008-09

2009-10

Profit
5000 4000 Rs in Crore 3000 2000 1000 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10 1454.71 742.75 2201.93 1610.04 924.8 1004.09 2201.76 1075.22 2090.5 EBITDA PAT 3892.41

Ratios
8 7 6 5 4 3 2 1 0 7.38 6.16 5.05 5.21 5.34 EPS ROCE 0.49 2005-06 0.61 2006-07 0.66 2007-08 Year 0.71 2008-09 1.39 2009-10

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Nuclear power Nuclear power is the fourth-largest source of electricity in India after thermal, hydro and renewable sources of electricity. As of 2010, India has 20 nuclear power plants in operation generating 4,560 MW while 4 other are under construction and are expected to generate an additional 2,720 MW. India's nuclear power industry is undergoing rapid expansion with plans to increase nuclear power output to 64,000 MW by 2032. The country is involved in the development of nuclear fusion reactors through its participation in the ITER project and is a global leader in the development of thorium-based fast breeder reactors. India's domestic uranium reserves are small and the country is dependent on uranium imports to fuel its nuclear power industry. Since early 1990s, Russia has been a major supplier of nuclear fuel to India. Due to dwindling domestic uranium reserves, electricity generation from nuclear power in India declined by 12.83% from 2006 to 2008. Following a waiver from the Nuclear Suppliers Group in September 2008 which allowed it to commence international nuclear trade, India has signed bilateral deals on civilian nuclear energy technology cooperation with several other countries, including France, the United States, the United Kingdom, and Canada. India has also uranium supply agreements with Russia, Mongolia, Kazakhstan, Argentina and Namibia. An Indian private company won a uranium exploration contract in Niger. India now envisages to increase the contribution of nuclear power to overall electricity generation capacity from 4.2% to 9% within 25 years. In 2010, India's installed nuclear power generation capacity will increase to 6,000 MW. As of 2009, India stands 9th in the world in terms of number of operational nuclear power reactors and is constructing 9 more, including two EPRs being constructed by France's Areva. Indigenous atomic reactors include TAPS-3, and -4, both of which are 540 MW reactors. India's US$717 million fast breeder reactor project is expected to be operational by 2010. NPCIL is the major public sector undertaking that functions in the nuclear energy sector it is controlled by the government and only bonds of the company are available for trading in the market. The Companys Bonds have been accredited with a AAA rating indicating highest safety from both CRISIL and CARE since FY 2001-02 onwards.

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Renewable energy Renewable energy in India is a sector that is still undeveloped. India was the first country in the world to set up a ministry of non-conventional energy resources, in early 1980s. However its success has been very spotty. In recent years India has been lagging behind other nations in the use of renewable energy (RE). The share of RE in the energy sector is less than 1% of India's total energy needs. Renewable energy in India comes under the purview of the Ministry of New and Renewable Energy. Solar power: India is densely populated and has high solar insolation, an ideal combination for using solar power in India. Much of the country does not have an electrical grid, so one of the first applications of solar power has been for water pumping, to begin replacing India's four to five million diesel powered water pumps, each consuming about 3.5 kilowatts, and off-grid lighting. Some large projects have been proposed, and a 35,000 km area of the Thar Desert has been set aside for solar power projects, sufficient to generate 700 to 2,100 gigawatts. The Indian Solar Loan Programme, supported by the United Nations Environment Programme has won the prestigious Energy Globe World award for Sustainability for helping to establish a consumer financing program for solar home power systems. Over the span of three years more than 16,000 solar home systems have been financed through 2,000 bank branches, particularly in rural areas of South India where the electricity grid does not yet extend. Launched in 2003, the Indian Solar Loan Programme was a four-year partnership between UNEP, the UNEP Risoe Centre, and two of India's largest banks, the Canara Bank and Syndicate Bank. Announced in November 2009, the Government of India proposed to launch its Jawaharlal Nehru National Solar Mission under the National Action Plan on Climate Change with plans to generate 1,000 MW of power by 2013 and up to 20,000 MW gridbased solar power, 2,000 MW of off-grid solar power and cover 20 million sq metres with collectors by the end of the final phase of the mission in 2020. Wind Power: The development of wind power in India began in the 1990s, and has significantly increased in the last few years. Although a relative newcomer to the wind industry compared with Denmark or the US, domestic policy support for wind power has led India to become the country with the fifth largest installed wind power capacity in the world. As of December 2010 the installed capacity of wind power in India was 13,065.37 MW, mainly spread across Tamil Nadu (4132.72 MW), Maharashtra (1837.85 MW), Karnataka (1184.45 MW), Rajasthan (670.97 MW), Gujarat (1432.71 MW), Andhra Pradesh (122.45 MW), Madhya Pradesh (187.69 MW), Kerala (23.00 MW), West Bengal (1.10 MW), other states (3.20 MW) It is estimated that 6,000 MW of additional wind power capacity will be installed in India by 2012. Wind power accounts for 6% of India's total installed power capacity, and it generates 1.6% of the country's power.

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Performance Suzlon

Sales
30000 25000 Rs in crore 20000 15000 10000 5000 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10 3841 7986 13679 Sales 26082 20620

Profit
4000 3000 Rs in Crore 2000 1000 0 -1000 -2000 2005-06 2006-07 2007-08 889 760 1393 864 2051 1030 236 2008-09 2009-10 -983 943 EBITDA PAT 2816

Year

Ratios
40 30 20 EPS 10 0 2005-06 -10 2006-07 2007-08 Year 2008-09 2009-10 ROCE

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Future of Energy Market (These facts are taken from the World Energy Outlook 2010 Factsheet, By International Agency.)
The pace of the global economic recovery holds the key to energy prospects for the next several years, but it will be governments responses to the twin challenges of climate change and energy security that will shape the future of energy in the longer term. The level and pattern of energy use worldwide varies according to assumptions about energy and environmental policies. World primary energy demand is expected to increase by 36% between 2008 and 2035, or 1.2% per year on average. This compares with 2% per year over the previous 27-year period. The scenario assumes cautious implementation of the policy commitments and plans announced by countries around the world, including the national pledges to reduce greenhouse-gas emissions and plans to phase out fossil-fuel subsidies. Projected demand growth is slower than in the Current Policies Scenario, in which no change in policies beyond those already adopted is assumed; demand grows by 1.4% per year over 2008-2035. In the 450 Scenario, which sets out an energy pathway to limit the concentration of greenhouse gases in the atmosphere to around 450 parts per million of CO2 equivalent consistent with an increase in global temperature of 2C, demand still increases, but by only 0.7% per year.

Non-OECD countries account for 93% of the projected increase in global energy demand, reflecting mainly faster rates of growth of economic activity. Aggregate energy demand in OECD countries rises very slowly. Nonetheless, by 2035, the United States remains the worlds second largest energy consumer behind China. Global demand for each fuel source increases, with fossil
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fuels coal, oil and gas accounting for over 50% of the increase in total primary energy demand. Rising fossil-fuel prices for end uses, resulting from upward price pressures in international markets and increasingly onerous carbon penalties in many countries, together with policies to encourage energy savings and switching to low carbon energy sources, help to restrain demand growth for all three fuels. Oil remains the dominant fuel in the primary energy mix to 2035. Nonetheless, its share of the primary fuel mix diminishes as higher oil prices and government measures to promote fuel efficiency lead to further switching away from oil in all sectors. Demand for coal rises through to around 2020 and starts to decline towards the end of the Outlook period. The share of nuclear power increases from 6% in 2008 to 8% in 2035. The use of modern renewable energy including hydro, wind, solar, geothermal, modern biomass and marine energy triples between 2008 and 2035, its share in total energy demand increasing from 7% to 14%. Natural gas is set to play a central role in meeting the worlds energy needs for at least the next two-and-a-half decades. Global natural gas demand, which fell in 2009 with the economic downturn, is set to resume its long-term upward trajectory from 2010. Demand increases by 44% between 2008 and 2035 an average rate of increase of 1.4% per year. Growth in demand for gas far surpasses that for the other fossil fuels due to its more favourable environmental and practical attributes, and constraints on how quickly low-carbon energy technologies can be deployed. Chinas gas demand grows fastest, accounting for more than one-fifth of the increase in global demand to 2035. The Middle East leads the expansion of gas production, its output doubling by 2035. Over a third of the global increase in gas output comes from unconventional sources shale gas, coal bed methane and tight gas in the United States and, increasingly, from other regions. A glut in global gas-supply capacity, which could peak in 2011, will keep the pressure on gas exporters to move away from oil price indexation, notably in Europe.

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How big are the potential gains from getting rid of fossil-fuel subsidies? Fossil-fuel subsidies, which remain commonplace in many countries, result in an economically inefficient allocation of resources and market distortions, while often failing to meet their stated objectives. Subsidies that artificially lower energy prices encourage wasteful consumption, exacerbate energy-price volatility by blurring market signals, incentivise fuel adulteration and smuggling, and undermine the competitiveness of renewable and other lowemission energy technologies. For importing countries, subsidies often impose a significant fiscal burden on state budgets, while for producers they quicken the depletion of resources and can thereby reduce export earnings over the long term. Fossil-fuel consumption subsidies, comprising subsidies to fossil fuels used in final consumption and to fossil-fuel inputs to power generation, worldwide amounted to $312 billion in 2009. The annual level fluctuates widely with changes in international energy prices, domestic pricing policy, exchange rates and demand. In 2008, when international energy prices spiked, subsidies amounted to $558 billion. In 2009, oil products and natural gas were the most heavily subsidised fuels, attracting subsidies totalling $126 billion and $85 billion, respectively. Subsidies to electricity consumption were also significant, reaching $95 billion in 2009. At only $6 billion, coal subsidies were comparatively small. The vast majority of these subsidies are in non-OECD countries, which are projected to contribute 93% of incremental global energy demand to 2035 in the New Policies Scenario.

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Considerable momentum is building globally to cut fossil-fuel subsidies. In September 2009, G20 leaders committed to phase out and rationalise inefficient fossil-fuel subsidies, a move that was closely mirrored in November 2009 by APEC leaders. Many countries are now pursuing reforms, but steep economic, political and social hurdles will need to be overcome to realise lasting gains. Eradicating subsidies to fossil fuels would have a dramatic effect on global energy balances, enhancing energy security, reducing emissions of greenhouse gases and air pollution, and bringing economic benefits. WEO-2010 estimates that a universal phase-out of all fossil fuel consumption subsidies by 2020 ambitious though it may be as an objective would cut global primary energy demand by 5%, compared with a baseline in which subsidies remain unchanged. This amounts to the current consumption of Japan, Korea and New Zealand combined. Oil demand would be cut by 4.7 mb/d by 2020, or around one-quarter of current US demand. Phasing out fossilfuel consumption subsidies could represent an integral building block for tackling climate change. A complete phase-out would reduce carbon-dioxide emissions by 5.8%, or 2 Gigatonne (Gt), by 2020, equivalent to the current combined emissions of Germany, France, the United Kingdom and Italy. This amounts to over 40% of the abatement needed to be on track by 2020 to limit global warming to a 2C rise. Although the stated intent of many energy-consumption subsidies is to make energy services more affordable and accessible for the poor, the reality is that only a small proportion of fossil-fuel subsidies go to poor households. In countries with low levels of modern-energy access, subsidies in the residential sector for kerosene, electricity and LPG fuels that often support the basic needs of the poor represented just 15% of fossil-fuel consumption subsidies in 2009. Nonetheless, subsidy reform programmes need to be carefully designed as low-income households are likely to be disproportionately affected by their removal.

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How green will the energy future be? Renewable energy sources will have to play a central role in moving the world onto a more secure, reliable and sustainable energy path. The potential is unquestionably large, but how quickly their contribution to meeting the worlds energy needs grows hinges critically on the strength of government support to stimulate technological advances and make renewable cost competitive with other energy sources. Government support for renewable can, in principle, be justified by the longterm economic, energy security and environmental benefits they can bring, though it is essential that support mechanisms are cost-effective. The greatest scope for increasing the use of renewable in absolute terms lies in the power sector. In the New Policies Scenario, renewable-based generation triples between 2008 and 2035 and the share of renewable in global electricity generation increases from 19% in 2008 to almost one-third (catching up with coal). The increase comes primarily from wind and hydropower, though hydropower remains dominant over the Outlook period. Electricity produced from solar photovoltaics increases very rapidly, though its share of global generation reaches only around 2% in 2035. The share of modern renewable in heat production in industry and buildings increases from 10% to 16%. The use of bio fuels grows more than four-fold over the Outlook period, meeting 8% of road transport fuel demand by the end (up from 3% now).

Renewable are generally more capital intensive than fossil fuels, so the investment needed to provide the extra renewable capacity is very large. Investment in renewable to produce electricity is
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estimated at $5.7 trillion (in year-2009 dollars) over the period 2010-2035. Investment needs are greatest in China, which has now emerged as a leader in wind power and photovoltaic production, as well as a major supplier of the equipment. The Middle East and North Africa region holds enormous potential for large-scale development of solar power, but there are many markets, technical and political challenges that need to be overcome. Although renewable are expected to become increasingly competitive as fossil fuel prices rise and renewable technologies mature, the total value of government support is set to rise as their contribution to the global energy mix increases. We estimate that government support worldwide in 2009 amounted to $37 billion for electricity from renewable and $20 billion for bio fuels. In the New Policies Scenario, total support grows to $205 billion (in year-2009 dollars), or 0.17% of global GDP, by 2035. Over the Outlook period, 63% of the support goes to renewable-based electricity. Support per unit of generation on average worldwide drops over time, from $55 per megawatt-hour (MWh) in 2009 to $23/MWh by 2035, as wholesale electricity prices increase and their production costs fall due to technological learning. This does not take account of the additional costs of integrating them into the network, which can be significant in some cases, for example, because of the variability of some types of renewable, such as wind and solar energy.

(UMEAC quantifies the number of people who need access to modern energy services and scale of investments required) The use of bio fuels transport fuels derived from biomass feedstock is expected to continue to increase rapidly over the projection period, thanks to rising oil prices and government support. In the New Policies Scenario, global bio fuels use increases from about 1 mb/d today to 4.4 mb/d in 2035. The United States, Brazil and the European Union are expected to remain the worlds largest producers and consumers of bio fuels. Advanced bio fuels, including those from lignocellulosic feedstock, are assumed to enter the market by around 2020. The cost of producing bio
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fuels today is often higher than the current cost of imported oil, so strong government incentives are usually needed to make them competitive with oil-based fuels. Globally, government support to bio fuels is projected to rise to about $45 billion per year between 2010 and 2020, and $65 billion per year between 2021 and 2035. Government support typically raises costs to the economy as a whole. But the benefits can be significant too, including reduced imports of oil and reduced CO2 emissions if sustainable biomass is used and the fossil energy used in processing the biomass is not excessive.

What will tackling climate change mean for the energy sector? The outcome of the landmark UN conference on climate change held in December 2009 in Copenhagen was a step forward, but still fell a very long way short of what is required to set the world on the path to a sustainable energy system. The Copenhagen Accord established a non binding objective of limiting the increase in average global temperature to two degrees Celsius (2C) above pre industrial levels. It also set a goal of mobilising funds for climate mitigation and adaptation in developing countries and requires the industrialised countries to set emissions targets for 2020. Were those commitments to be implemented in a cautious manner, as assumed in the New Policies Scenario, rising demand for fossil fuels would continue to drive up energy related CO2 emissions, making it all but impossible to achieve the 2C goal. This is because the reductions in emissions needed after 2020 would become prohibitively expensive or even impossible with todays technologies. In that scenario, global emissions continue to rise through the projection period, though the rate of growth falls progressively. Emissions jump to over 35 Gigatonne (Gt) in 2035 21% up on the 2008 level of 29 Gt. Non OECD countries account for all of the increase; OECD emissions peak before 2015 and then begin to fall. These trends are in line with stabilising the concentration of greenhouse gases (GHG) at over 650 parts per million (ppm) of CO2 equivalent, resulting in a likely temperature rise of more than 3.5C in the long term.

The 2C goal can only be achieved with vigorous implementation of current commitments in the period to 2020 and much stronger action thereafter. According to climate experts, in order to
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have a reasonable chance of achieving the goal, the concentration of GHGs would need to be stabilised at a level no higher than 450 ppm CO2 equivalent. Accordingly, the 450 Scenario describes how the energy sector could evolve in order to achieve this objective. It assumes implementation of the measures to realise the more ambitious end of target ranges announced under the Accord as well as more rapid implementation of the removal of fossil fuel subsidies agreed by the G 20 than assumed in the New Policies Scenario. Emissions reach a peak of 32 Gt just before 2020 and then slide to 22 Gt by 2035 in the 450 Scenario. Cutting emissions sufficiently to meet the 2C goal would require a far reaching transformation of the global energy system. In the 450 Scenario, oil demand peaks just before 2020 at 88 mb/d, only 4 mb/d above current levels, and declines to 81 mb/d in 2035. Coal demand peaks before 2020, returning to 2003 levels by 2035. Among the fossil fuels, demand for natural gas is least affected, though it too reaches a peak before the end of the 2020s. Renewables and nuclear double their current combined share to 38% in 2035. Global energy security is enhanced by the greater diversity of the energy mix. The cost of getting on track to meet the climate goal for 2030 has risen by about $1 trillion compared with the estimated cost in last years Outlook. This is because much stronger efforts, costing considerably more, will be needed after 2020. In the 450 Scenario in this years Outlook, the additional spending on low carbon energy technologies (business investment and consumer spending) amounts to nearly $18 trillion (in year- 2009 dollars) more than in the Current Policies Scenario, in which no new policies are assumed, in the period 2010 2035. It is around $13.5 trillion more than in the New Policies Scenario. The timidity of current commitments has undoubtedly made it less likely that the 2C goal will be achieved. Reaching that goal would require a phenomenal policy push by governments worldwide: carbon intensity the amount of CO2 emitted per dollar of GDP would have to fall at twice the rate of 1990 2008 in 2008-2020 and four times faster in 2020-2035. The technology exists today to enable such a change, but such a rate of technological transformation would be unprecedented. These commitments must be interpreted in the strongest way possible with much stronger commitments adopted and acted upon after 2020, if not before.

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Bibliography:

1) 2) 3) 4)

British Petroleum (BP) Energy Outlook Report 2010. Energy outlook Magazine. India Energy portal. International Energy Agency Publications.

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