NEW DELHI: India is likely to withdraw from an oil block in the South China Sea after hydrocarbons did not show up in an exploratory well, said government sources here on Thursday. Officials have conveyed to Vietnam plans to terminate operations on commercial considerations, said the sources who knew about the talks.
The block has been at the centre of much diplomatic bad blood among China, Vietnam and India that included demarches, summons and affirmations of sovereignty over the same patch of sea.
The sources said the move to shut operations, that should relieve Beijing which was locked in another maritime dispute in the same sea with the Philippines, had been conveyed to South Block and the Union Petroleum Ministry but a decision would be considered final only when the State-owned Oil and Natural Gas Commission Videsh Limited (OVL) approached PetroVietnam for permission to stop operations. That stage had not been reached, they said, while Indian officials said they were not sure whether OVL had written to the Indian mission in Hanoi and asked it to formally convey the request to Vietnam.
Vietnamese diplomats expressed disappointment considering that Hanoi had stood up to Beijing for the past six years whenever it disputed the contract given to India for oil exploration in the Phu Khanh Basin. They wondered whether this was due to pressure from China which was “always against any foreign company” conducting oil operations in the South China Sea.
Indian officials insisted block 128 had low prospects of producing hydrocarbons, as was the case with the adjacent block 127, which OVL returned to Vietnam three years ago. But the two blocks have been part of a wider conflict in the maritime domain on which India released a statement.
Commenting on the stand-off between China and the Philippines in another part of the South China Sea, a Foreign Office statement urged both countries to exercise restraint and resolve the issue diplomatically in keeping with the principles of international law. While the dispute over India conducting drilling operations in the South China Sea did not come to a stand-off between vessels, India and China recently exchanged sharp words on the issue. A Holland-based company surveying this area on behalf of OVL was even summoned by the Chinese Embassy in The Hague and told to stop operations. But backed by Vietnam, OVL persuaded it to complete the survey work. Officials here said India would continue to remain engaged with Hanoi, viz. continuing operations and expansion of activity in the Nam Con Son basin that OVL was awarded as a goodwill gesture to India, which was allowed to sell part of the stake to other oil producers when it did not have enough foreign exchange to pay for all the three blocks.
Today, India and Russia are poised to join Vietnam in becoming this basin’s mid and down stream segments such as oil pipelines and power plants.
While India appears to have made up its mind to withdraw on “commercial considerations” from a multi-nation dispute over sovereignty issues in the South China Sea, the emerging regional hotspot is likely to be at the centre of diplomatic exchanges at next month’s Shangri-La dialogue.
FUEL SELLERS CREAK UNDER R10K-CRORE INTEREST BURDEN
MUMBAI: Selling fuel below cost is driving state-owned oil marketing companies (OMCs) to the brink as it shrinks profits, boosts interest payments and constrains borrowing room to expand or explore new business.
Indian Oil Corporation (IOC), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) will pay 80% more in interest of roughly R10,000 crore this financial year, denting profits. The companies had to borrow more this fiscal as their under-recoveries or losses incurred on selling fuel below cost ballooned to a record R1.4 lakh crore, and the Centre, battling a high fiscal deficit, delayed compensation in cash.
HPCL borrowed R30,000 crore this fiscal to meet working capital requirements and paid an interest of R2,000 crore amid rising rates. “During the fiscal, interest rates have been high, with the RBI raising key rates to counter inflation,” said HPCL director (finance) B Mukherjee. HPCL is waiting for compensation. “We are confident the government will work out a formula to compensate for the under-recoveries we incurred.”
Part of the under-recoveries is compensated through discounts on purchasing crude from state-run companies like ONGC while the government pays the rest in cash.
However, there is a lag of three to six months every quarter to receive compensation and the interest costs aren’t counted, eroding these companies’ profits.
“The rising cost of borrowings is an outcome of populist government measures that subsidise fuel,” said a consultant with a foreign consultancy. “There is a yawning gap in the recovery of cost.”
“Oil marketers’ balance sheets are getting weaker and their ability to borrow will go down,” he added. He or his firm do not comment on specific companies. These companies, which take both rupee- and dollar-denominated loans, are prime borrowers and enjoy some of the finest rates. However, the Reserve Bank ofIndiaraised interest rates 13 times since March 2010 to contain spiralling inflation, making loans costlier, before slashing key rates by 50 basis points last month.
Almost three-quarters of borrowals are short-term working capital loans to meet operational expenses. “An increase in borrowings is bound to affect profitability since interest costs are high,” said PK Goel, director-finance at IOC,India’s largest state-run refiner. He declined to give numbers as the company’s accounts for the fiscal are being finalised. Oil companies are yet to announce their financial results for the fiscal 2011-12. However, in the December quarter, IOC’s interest cost rose a whopping 116% year-on-year to Rs 1,560 crore, even as its under-recoveries stood at Rs 17,750 crore since it sold ‘price-sensitive’ products below their cost.
“While high crude oil prices and a depreciating rupee contributed to increased under-recoveries, lack of policy reforms still remains the key reason for the burgeoning under-recoveries,” Fitch Ratings said in a January report. “There is also a lack of policy reform to improve timeliness of subsidy transfer to public sector oil marketers.”
BPCL, the country’s second largest refiner with a capacity of 30.5 million tonnes a year, saw its interest cost rising 88% to Rs 510 crore for the third quarter of fiscal 2011-12. “If under-recoveries rise much higher and fuel prices are not revised, the government might ask us to absorb some of the losses,” RK Singh, CMD, BPCL told FE in an earlier interaction. “That situation can hit us badly, and impact our investment plans.”
The 2011-12 fiscal year was exceptional, with crude prices above $110 a barrel most of the time. However, the fuel retailers have been unable to pass on higher input prices to consumers as the government dithered on raising product prices. Although petrol prices were taken out of government control in 2010, a tacit understanding with the government meant that fuel retailers held on to petrol prices for most part of the year.
Investors’ concerns on the profitability of OMCs have had an impact on their stock prices, with both IOC and HPCL seeing an erosion of close to 23% in their market capitalisation in the last one year, to Rs 64,486 crore and Rs 10,163 crore, respectively. The fall is twice that of the decline in the benchmark 30-share Sensex. BPCL, however, saw an 8% rise in market value to Rs 25,463 crore as on May 10, compared to a year ago.
Shares of IOC closed at Rs 265.60 on the BSE on Thursday, while that of HPCL closed at Rs 300.15, both marginally below Wednesday’s close. BPCL shares, meanwhile, closed at Rs 704.30, gaining 2.84%.
“Year on year, there’s a Rs 10,000 crore hole due to under-recoveries,” said the consultant quoted above. “The government will have to rejig subsidies or allow OMCs to pass on the price hikes to customers.”
GAIL INDIA STARTS TALKS FOR RELIANCE GAS TRANSPORTATION INFRASTRUCTURE LTD STAKE
State-run Gail India, the country’s largest gas transmission and marketing company, is keen to pick up a stake in Mukesh Ambani-controlled Reliance Gas Transportation Infrastructure. RGTIL currently operates the $3.75-billion East-West gas pipeline that can take gas fromKakinada, the land-fall point of Reliance Industries’ D6 block in the Krishna Godavri basin.
In an interview with ET, Gail Chairman BC Tripathi shares the company’s perspective on RGTIL and other issues such as Gail’s plans to source natural gas from international companies. Excerpts:
Why are you keen to pick up a stake in RGTIL at a time when gas production at KG D6 has hit an all time low of 34 mmscmd, RIL itself has downgraded overall reserve estimates there and has also relinquished an entire block?
Discussions are at a preliminary stage right now. We are taking a long-term view of the situation. We believeIndiahas a huge appetite for gas.
Even if domestic gas production is down that does not mean there is no current or future demand for gas. If not domestic gas, we will be bringing big quantities of imported gas into the country which will require adequate pipeline infrastructure.
Is acquiring RGTIL a part of the government’s strategy to build a central gas grid?
In the long term it could be, but the entire proposition of the central gas grid depends on the actual demand created by core consumers in the power and fertiliser sector.
Exactly how much stake is RGTIL looking at divesting and what is your view of the close to 10,000-crore valuation that it is demanding?
I will not like to comment on specific details right now.
Does the Petroleum and Natural Gas Regulatory Board’s (PNGRB) recent refusal to decide on the marketing margins charged by gas marketers like RIL, GAIL, Gujarat Gas a breather for the industry?
I don’t think so. The ball is in the ministry’s court. Also, the petroleum ministry had specifically asked the PNGRB to look into the marketing margins. So sooner or later a decision will be taken.
Do you think by regulating marketing margins, the government is restricting the necessary risk cover that gas marketers enjoy? Is the government over-regulating the gas sector under the garb of protecting customers from monopolistic pricing?
I don’t think so. We are OK in principle if the government does come out with a transparent system for charging marketing margins for domestic gas as it is the owner of the domestic resource. But we would have a problem if the same is applied to imported gas as there we feel companies need to have more freedom in determining their marketing strategies as they are importing from global markets and are subject to volatile global prices.
Given that you are one of the promoters of Indraprastha Gas, what is your opinion about the PNGRB’s recent move to slash its network tariffs and compression charges by more than half?
I would not like to comment as the case is currently subjudice.
Any other global source of gas that you are exploring currently where you might be closing a sourcing deal soon? What about your plans to source gas fromMozambique?
Yes, we are negotiating with various global companies to source gas. But I cannot comment right now for obvious reasons. I will not like to comment on our negotiations with the nation ofMozambiqueright now.
IOC 1ST STATE-REFINER TO BUY MEXICAN MAYA CRUDE: SOURCE
NEW DELHI: Indian Oil Corp., the country’s biggest refiner, has made its first purchase of Mexican Maya oil, a trade source said on Thursday, as the state-run firm looks to diversify its crude slate due to improved capacity and reduced imports from sanctions-hit Iran.
IOC is the first state-run firm to buy the Mexican Maya crude, already processed by Indian private refiners Reliance Industries, owner of the world’s biggest refining complex, and Essar Oil.
The IOC deal for a Suezmax cargo was struck at the official selling price fromMexico’s national oil company PEMEX and it will arrive this month, said the source, who has knowledge of the deal.
IOC will process the cargo at its 300,000 barrels per day (bpd) Panipat plant in northernPunjabstate, the source added.
India’s refiners are looking at new sources of supply as they cut imports from Iran, targeted by U.S. and European sanctions aimed at disrupting its nuclear program, which the West suspects is being used for weapons.Tehrandenies this.
IOC has also recently improved its processing units, which enables it to refine tough and heavy crudes.
IOC, along with its subsidiary Chennai Petroleum Corp , owns 1.314 million bpd or 30 percent ofIndia’s refining capacity. It began buying 20,000 bpd of Azeri light crude fromAzerbaijanfrom January under an annual deal, industry sources have told Reuters.
“If Maya suits IOC’s system and gives a better yield the refiner may look at buying oil fromMexicoon a regular basis,” the source said.
Reliance buys Maya and other heavy grades fromLatin Americaon a regular basis.
Essar Oil, received a cargo of Maya oil in March, after a gap of over a year and a half.
The share of heavy South American grades will rise in Essar’s oil processing as it has recently upgraded the complexity and capacity of its Vadinar refinery.
Indiaaims to raise its refining capacity from the current 4.3 million bpd to about 6.22 million bpd by 2016/17.
IOCL`S PARADIP REFINERY GETS NEW EXECUTIVE DIRECTOR
KOLKATA: Ujjal Kumar Roy has joined the Paradip refinery of Indian Oil Corporation Ltd (IOCL) as executive director (core group). Roy, a graduate in chemical engineering from Jadhavpur university joinedGujaratrefinery of the state run oil company in 1980. He has served IOCL in various capacities and different locations since 1980.Royhas rich and varied experience of more than 30 years in production, human resource, technical services and project disciplines.
NUMALIGARH REFINERY’S ASSAM UNIT TO RESUME WORK SOON
KOLKATA: The three-million-tonne Numaligarh Refinery Ltd may resume operation on May 19 or 20, according to sources.
The hydro-cracker unit of the Assam-based refinery was damaged in a fire on April 7 bringing operations to a standstill.
While assessment of the damage is yet to be over, sources suggest that the loss on equipment may be to the tune of Rs 20 crore.
In addition, the company is losing nearly Rs 60 lakh a day on production totalling a little over Rs 25 crore for 42 days.
Company sources say that bulk of the losses may be covered through insurance claims.
Also part of the production losses, will also be covered under the pre-scheduled maintenance shut down which coincided with the fire-related operational loss.
Though the final report on the cause of the fire is yet to be placed, preliminary reports by investigating agencies blamed manufacturing defects as a major reason.
Set up as part of the resolutions of Assam Accord in 1985, the Numaligarh-based refinery is a 61 per cent subsidiary of oil marketing major Bharat Petroleum Corporation Ltd (BPCL).
RELIANCE SELECTS UK BASED FLUOR FOR PROJECT MANAGEMENT AT ITS JAMNAGAR REFINERY
MUMBAI: Reliance Industries Limited (RIL) has selected Irving, Texas based Fluor Corporation to perform project management services for its projects being executed at its Jamnagar refining and petrochemical complex in Gujarat.
In addition to assisting RIL in project management, Fluor will also perform engineering and procurement services for the pet coke gasification project. The investment in the expansion of Energy and Petrochemicals Projects represents one of the largest such investments globally.
The proposed coke gasification facility is also among the largest such projects ever built. The scope of the project management services to be provided by Fluor includes several world-scale units including petroleum coke gasification units, refinery off-gas cracker and downstream petrochemical plants, a captive power plant, associated utilities and offsites.
The completed gasification project will gasify petroleum coke to produce fuel and hydrogen for the expanded refinery and petrochemical complexes and captive power plant as well as feedstock for future chemicals production.
ADANI PETRONET JV FACES BHARUCH VILLAGERS’ IRE
MUMBAI/AHMEDABAD: A project of Adani Petronet (Dahej) Port Pvt Ltd (APPPL), a joint venture between Adani Group and Petronet LNG Limited, in Bharuch to transport coal from its jetty to railway yard, has come under opposition from the local villagers who have filed a public interest litigation in the Gujarat High Court.
The villagers of Lakhi village in Vagda block of Bharuch have sought shifting of the over-head conveyer belt to transport the coal.
They have alleged that the construction of the conveyer belt was too close to residential area of the village and violative of the norms framed by the Gujarat Pollution Control Board (GPCB) in this regard.
According to GPCB guidelines such construction should be minimum 500 meters away from residential area.
They have said in the PIL that the conveyer belt, pillars on which it is erected and other infrastructure was being built within 10-15 meters of 40 houses of the village which was dangerous considering the nature of coal which is highly inflammable. Also, the dust which come with the coals could affect the health of the people living there.
The petitioners have demanded that the project be shifted away from the residential area. APPPL lawyer opposed the allegation by the petitioner and said that the conveyer belt was enclosed one so there is no possibility of dust coming out or coal falling on house below it.
Based on the representation on behalf of the petitioners division bench of acting chief justice Bhaskar Bhattacharya and Justice J B Pardiwala issued notices to the state government and Bharuch district officials and scheduled next hearing for June 15.
OPEC RAISES WORLD OIL DEMAND FORECAST FOR 2012
VIENNA: The Organisation of Petroleum Exporting Countries (Opec) revised its world oil demand outlook for 2012 slightly upwards today, citing a stable US economy and the shutdown of nuclear plants inJapan, which boosted demand.
In its latest monthly report, Opec predicted 2012 demand at 88.67 million barrels per day (bpd), up 0.90 million bpd from 2011. This represented a minor rise from its previous estimate in April which stood at 88.64 million bpd. “Given the stabilisation of theUSeconomy and the shutdown of Japanese nuclear power plants, world oil demand growth has, at least for the short term, stopped its declining trend and is showing some growth,” OPEC said.
Demand outside the OECD developed countries was higher while those such asIndiaandSaudi Arabiawere consuming more than expected, it added.
However, Europe’s economic worries continued to hurt demand, OPEC said, warning that high oil prices in theUScould also have a dampening effect on the approaching summer driving season.
“The most important sector (in the US), transportation, continues to consume less oil than it did last year, due mainly to the country’s economic activity and high retail prices,” the report said. With economic developments and fuel prices uncertain, “the outlook forUSoil consumption for the entire year remains rather pessimistic,” it added. World oil demand could also be impacted by events inJapan, which switched off its last working reactor on Saturday amid a debate over whether the country should retain nuclear power in the wake of theFukushimadisaster last year.
“Should Japan restart its nuclear plants, the country’s high oil-usage would slow down dramatically,” OPEC said. The 12-member cartel, which accounts for about a third of global oil supply, pumped some 31.62 million bpd in April, up 0.32 million bpd from March, with membersIraq,Libya,Saudi Arabia,Nigeria, andAngolahiking production.Iranon the other hand saw output drop, OPEC said, citing secondary sources.
SHARE OF ENERGY SECTOR IN INDIA’S GREENHOUSE GAS EMISSIONS ON THE RISE
NEW DELHI:Indiais burning more coal to fuel its growth. The result: Greenhouse gas (GHG) emissions by the country’s energy sector continued to rise, accounting for 71 per cent of the country’s total emissions in 2007.
It was 67 per cent in the year 2000 and 62 per cent in 1994.
Combustion by fossil fuels formed over 90 per cent of the sector’s emissions, with coal the dominating fuel, according to the Second National Communication report submitted to the UNFCCC Secretariat on GHG inventory and released here Wednesday. The first report was submitted on June 22, 2004, to fulfilIndia’s obligation to furnish information on implementation of the Convention.
The report estimates the country’s total GHG inventory at 1.7 billion tonnes of carbon dioxide equivalent in 2007.
It saysIndia’s total GHG rose to 1.3 billion tonnes of carbon dioxide equivalent compared with the 1994 levels.
While the industry’s contribution to emission remained nearly constant at 7 per cent from 1994 to 2007, there was a marked decline in emissions from the agriculture sector from 29 per cent in 1994 to 23 per cent in 2000 and 19 per cent 2007.
Carbon dioxide (CO2) remained the dominant gas emitted, with its share rising from 64 per cent in 1994 to 67 per cent in 2000 and 71 per cent in 2007.
The share of methane or CH4, however, declined from 31 per cent in 1994 to 26 per cent in 2000 and 22 per cent in 2007.
The report includes results of wide ranging national-level studies and provides details of climate change scenarios and its impact on key sectors, such as water, agriculture, forestry, natural ecosystems, coastal regions, human health, energy, industry and human settlements.
Releasing the report, the Union Minister for Environment and Forests, Ms Jayanthi Natarajan, saidIndiawas fully committed to its responsibilities towards the global community, adding it had so far had voluntarily reduced carbon emission.
The Greenhouse Gas Inventory has been reported according to the stipulated guidelines using prescribed methodologies by the InterGovernmental Panel on Climate Change (IPCC).