Mumbai: Cairn India Ltd, a unit of London-listed Vedanta Resources Plc, will spend less than half of what was originally planned in capital expenditure in the next financial year, as low crude oil prices make it unremunerative for energy firms to make large investments.
Despite the $700 million cut in capex plans, it will see a growth in volumes in the next financial year against a stagnant production in the current year, the company said in a statement issued to the stock exchanges on Wednesday.
“With close to $1.1 billion of capex invested in FY15, the company is revising the capex for FY16 from the projected $1.2 billion to $500 million, while deferring the rest. The company will remain agile to make investments to enhance volumes. Despite the partial deferment of capex, the volumes will yet see growth in the coming fiscal,” said the company in the statement.
The company was recently in the news for laying off 250 people as part of its cost-cutting measures but it said it was in a “resource optimization” mode due to the impact of falling crude oil prices.
Cairn India has seen its share price fall by 26.6% from the beginning of 2014-15 from `333.52 to `244.10 on Wednesday. This is against the benchmark Sensex, which gained 31.24% since 1 January and the BSE oil and gas index, which rose by 3.2%.
“We would like to give confidence to our shareholders that we are more focused than ever to drive operational efficiencies in the current crude price environment. Our cash-rich balance sheet and best-in-class cost profile provide a solid foundation to operate our high margin core fields,” said Mayank Ashar, managing director and chief executive officer of Cairn India. “This gives us the optionality to be selective about growth projects in these challenging times.”
Cairn India has operations spread across three main producing assets across India—Barmer in Rajasthan, Cambay in Gujarat and Ravva in Andhra Pradesh. It is the Barmer oilfields that produces over 90% of the company’s crude oil output and accounts for the biggest allocation of its capex reserves.
The company reported a 53% drop in net profit in the three months ended 31 December as the price of crude oil fell by 45.7% in the first nine months of the year to 31 March. For the fiscal third quarter, the company earned $68.70 per barrel on crude oil, down from $96.5 per barrel a year ago.
In its statement on Thursday, the company said, “In continuation of our communication at the end of Q3FY15 and in light of the current oil price environment, Cairn is taking a proactive approach to capital allocation and shareholder returns. The company will be undertaking projects that are economically viable at current oil prices. Additionally management focus is on re-engineering projects and re-negotiating contracts to improve project economics.”
It added that it has received approval from the management committee—the government’s crude oil block oversight body—for the Raageshwari Deep Gas Project in Rajsathan.
The company management had claimed that the gas reserves in the basin, largely in the Raageshwari field stands at 1-3 trillion cubic feet. This translates into a natural gas production potential of 11.64 million standard cubic metres per day.
(Source: Mint March 5, 2015)
INDIA’S FUEL DEMAND LIKELY TO RISE 3.3% IN 2015-16
New Delhi: The growth in the demand for diesel, which accounts for more than 40% of refined fuel consumption in India, is set to rise 4.1% to 71.3 mt while that of petrol is expected to grow 7.2% to about 19.7 mt
India’s annual oil products demand is forecast to grow 3.3 per cent in the next financial year as Prime Minister Narendra Modi’s focus on local manufacturing and economic expansion will raise consumption of industrial fuels.
The country is expected to consume 166.9 million tonnes (mt) of refined fuels in 2015-16 versus an estimated 161.6 mt this financial year, according to a forecast by India’s energy data body the Petroleum Planning and Analysis Cell (PPAC).
Modi’s ‘Make in India’ campaign to make the country a manufacturing powerhouse, plus a push on infrastructure projects and a likely average monsoon will boost demand for industrial fuels like diesel, bitumen and petroleum coke.
Indian economy is projected to grow close to 7.4 per cent this financial year to March 31. It grew at 7.5 per cent in December quarter from a year ago. In 2015-16, India’s gross domestic product is estimated to grow at 8-8.5 per cent.
The growth in the demand for diesel, which accounts for more than 40 per cent of refined fuel consumption in India, is set to rise 4.1 per cent to 71.3 mt while that of petrol is expected to grow 7.2 per cent to about 19.7 mt.
Availability of cheaper credit after a second rate cut by Reserve Bank of India in as many months is expected to drive up the sale of vehicles.
India is expected to become the world’s third-largest passenger vehicle market by 2019, from sixth place currently, consultant IHS Automotive estimates.
Demand for refined fuels mainly diesel will also get a boost if global oil prices remain stable at the current level of about $61 a barrel compared to about $115 in June last year.
In October last year, India ended subsidies on diesel sales and since then retail prices of the fuel have been reduced by about 15 per cent.
India’s kerosene demand is forecast to decline 3.7 per cent as the federal government is encouraging use of liquefied petroleum gas, consumption of which is expected to rise 3.5 per cent.
Use of naphtha and fuel oil is projected to fall by 5.3 per cent and 4.9 per cent in the next financial year, the data showed.
PPAC has released fuel consumption data up to January.
(Source: Business Standard March 5, 2015)
WHAT EDUCATION LOSES, ROADS GAIN IN FUEL CESS
New Delhi: Finance Minister Arun Jaitley sacrificed some of his excise duty collections on petroleum products by passing it to road cess, which has a specific statutory purpose, but he has also taken away money meant for primary and secondary education by exempting petrol and diesel from education cess.
For 2015-16, the total collection under the Central Road Fund is expected to increase 86 per cent to Rs 43,100 crore. This has been made possible because Rs 3.49 (48 per cent of the increase of Rs 7.25 in excise duty since November 2014) has been shifted to road cess in the case of unbranded petrol and Rs 3.36 for branded petrol. The government, however, has also moved about 50 paise a litre on petrol out of the education cess component and to road cess.
The case is similar for diesel, too. The finance minister has taken Rs 3.70 of the excise component in unbranded diesel and Rs 3.63 in branded diesel to supplement road cess. Simultaneously, 30 paise and 37 paise (for unbranded and branded diesel, respectively) on account of education cess have been annulled but the amounts have been adjusted in higher road cess. Though the restructuring hadn’t affected petrol and diesel prices, the government was making an enabling provision to increase road cess by an additional Rs 2, said Abhishek Jain, tax partner, EY. The road cess has been increased from Rs 2 to Rs 8 for both the fuels, but the effective rate is Rs 6 as of now.
The road cess levy goes to the Central Road Fund, used for the construction of roads and road-over-bridges. While there has been a 50 per cent rise in government support for the roads sector, budgetary support for education has dropped about three per cent to Rs 54,893. Clearly, the National Democratic Alliance (NDA) government is laying more stress on infrastructure.
The government has done away with the levy of education cess introduced by the United Progressive Alliance government in 2004 from excise duty on all products from March 1, 2015, and from service tax after the finance Bill is cleared by Parliament.
“As part of the movement towards GST (goods and services tax), I propose to subsume the education cess and the secondary and higher education cess in central excise duty. In effect, the general rate of central excise duty of 12.36 per cent, including the cesses, is being rounded off to 12.5 per cent,” Jaitley had said while presenting the Budget last week. Education cess at a rate of three per cent will, however, continue to be levied on direct tax and customs duty.
Jain said merging education cess with excise and service tax was required to ring in the GST regime from 2016-17.
A road cess of Rs 1.50 a litre was introduced by the NDA government under Atal Bihari Vajpayee in 2000. Since April 2005, Rs 2 a litre was collected on petrol and diesel as additional excise duty. This went to the Central Road Fund, of which 50 paise cess from diesel went towards national highways. From the remaining Rs 1.50, 50 per cent of the cess collected from diesel was routed to rural road development. Another 50 per cent and the entire cess collected on petrol were allocated to national highways (57.5 per cent), road-over-bridges and unmanned level crossings (12.5 per cent), and state roads (30 per cent). The National Highways Authority of India funds the National Highways Development Project by leveraging the cess flow to borrow additional funds from the debt market.
(Source: Business Standard March 5, 2015)
LPG-KEROSENE SUBSIDY EXTENDED BY 1 YEAR
New Delhi: The Union Cabinet on Wednesday gave its approval for one-year extension of the kerosene and domestic liquefied petroleum gas (LPG) subsidy scheme apart from the freight subsidy scheme for far-flung areas. The schemes will be valid till March 31, 2015.
“The approval will help in reducing the under-recovery of the oil marketing companies (OMCs),” an official statement said.
The government had been providing a subsidy of Rs 22.58 on every 14.2-kg LPG cylinder and Rs 0.82 on every litre of kerosene sold through the public distribution system (PDS) under the first scheme.
The subsidy under the scheme is provided on sales of kerosene made by participating companies under the public distribution system system and liquefied petroleum gas cylinders for domestic use. The quantity of PDS kerosene on which subsidy is allowed for each state are limited to the allocations made by the oil ministry.
Besides, freight subsidy was also being provided to PDS kerosene and domestic LPG consumers in far-flung areas under the second scheme. Both the schemes, initiated in 2002, ended on 31 March 2014.
The scheme covers Northeastern states, including Sikkim, Jammu & Kashmir, Andaman & Nicobar islands and Lakshadweep islands.
Currently, Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum Corporation and IBP Company Ltd are allowed to participate in the two schemes.
Oil ministry’s technical arm Petroleum Planning and Analysis Cell analyses the companies’ subsidy claims and forwards the claims to the ministry.
(Source: Business Standard March 5, 2015)
REVENUE GENERATED BY OIL PSUs
The Minister of State (I/C) for Petroleum & Natural Gas Shri Dharmendra Pradhan informed the Rajya Sabha in a written reply today that at present there is no proposal before the Government to merge the Public Sector Oil Marketing Companies (viz. IOCL, BPCL and HPCL).
The prices of petrol and diesel have been decontrolled with effect from 26.6.2010 and 19.10.2014 respectively to increase competition and ensure better service to customers. Public Sector Oil Marketing Companies (OMCs) take appropriate decision with respect to pricing of all deregulated products. The Government continues to modulate the prices of PDS kerosene and Subsidized Domestic LPG and their basic prices have not been increased since 25.6.2011 resulting in under recovery to OMCs.
(Source: Business Standard March 5, 2015)
GUJARAT TO SET UP TWO NEW LNG TERMINALS OF 10 MMTPA
Gandhinagar: Gujarat government said that it has planned to set up two new Liquefied Natural Gas (LNG) terminals of 10 Million Metric Tonnes Per Annum (MMTPA) capacity.
In her written response to a question raised by BJP MLA Harsh Sanghvi during question hour in the Gujarat Assembly yesterday about future plans regarding LNG terminals, Gujarat Chief Minister Anandiben Patel, who handles the ports portfolio, stated that two such LNG terminals are already operational in the state.
At present, Gujarat has two operational LNG terminals, one at Hazira in Surat and the another at Dahej in Bharuch district.
In her reply, she stated that both these terminals have a combined capacity to handle 17.5 MMT LNG per annum.
She stated that the Gujarat government plans to set up two more such LNG terminals to handle imported LNG.
The Gujarat government plans to set up two new LNG terminals, one near Jafrabad in Amreli district and another at Mundra port in Kutch district, she said.
Patel said that an LNG port terminal with Floating Storage and Re-gassification Unit (FSRU) with a capacity of 5 MMTPA would be built in Jafrabad.
Earlier, the state ports authority, Gujarat Maritime Board (GMB) had selected Swan Energy Ltd as the developer of this project on a Build, Own, Operate and Transfer (BOOT) basis.
After being selected by the GMB in December 2013 to set up this project, Swan Energy had informed the Bombay Stock Exchange (BSE) that it would develop a greenfield LNG port terminal with FSRU at Jafrabad in Gujarat.
In a related development, Adani Group and the state government-owned Gujarat State Petroleum Corporation (GSPC) have joined hands to set up an LNG import terminal at Mundra with an initial capacity of 5 MMTPA.
“In Mundra, the government plans to set up an LNG terminal to handle 5 MMTPA of LNG”, Patel replied in the Gujarat Assembly.
According to the GSPC website, GSPC LNG Ltd plans to set up the Mundra LNG terminal to import LNG in order to meet growing demand.
“The 5 MMTPA LNG terminal, which would be expandable to 10 MMTPA, is designed to have a berth to receive LNG tankers of sizes ranging from 75,000 M3 (cubic metres) to 2.6 lakh M3. It will also have two LNG storage tanks of 1.6 lakh M3 capacity each,” according to the statement on the GSPC website.
It also stated that construction is in full swing at the site and the terminal is expected to be commissioned in the first quarter of 2017.
(Source: Business Standard March 5, 2015)
81% LPG USERS JOIN DIRECT TRANSFER SCHEME
New Delhi: The Ministry for Petroleum & Natural Gas said that almost 81 per cent of the active domestic LPG consumers have joined the Direct Benefit Transfer of LPG scheme, known as PaHaL.
In a statement the Ministry said, as on March 2, 11.74 crore LPG consumers have joined the scheme, which was introduced in 54 districts on November 15, 2014 and in the rest of the country on January 1, 2015.
So far, Rs. 6,745.41 crore has been transferred since November 15, 2014 through 18.9 crore transactions.
From April 1, a period of three months, known as parking period, is being given to LPG consumers who have not yet joined DBTL.
“During parking period such consumers will get cylinders as per their entitlement at market price and subsidy will be kept parked with oil marketing companies. This parked subsidy would be released to the consumer as soon as he/she joins the scheme.
“However, if a consumer joins the scheme after the parking period, the parked subsidy would lapse and the consumer will get subsidy only from prospective date,” Petroleum and Natural Gas Dharmendra Pradhan said in the Rajya Sabha on Wednesday.
The fixed permanent advance of Rs. 568 given to every consumer in the Direct Benefit Transfer of LPG scheme will be made variable every month and it will be equal to the actual subsidy at the time of booking a cylinder. However, the subsidy will be capped at Rs. 568.
(Source: Business Line March 5, 2015)
CAIRN INDIA TO HALVE FY-16 CAPEX TO $500 M
New Delhi: Cairn India Ltd has cut its capital expenditure guidance for the fiscal 2015-16 by over half to $500 million as it seeks to protect themselves in a falling crude oil price environment.
“The company is revising the capex for fiscal year 2015-16 from the projected $1.2 billion to $500 million, while deferring the rest. Despite the partial deferment of capex, the volumes will yet see growth in the coming fiscal,” the company said in a statement.
The company added that it will have the ability to make investments to enhance volumes, if necessary.
In the fiscal 2014-15, the company had spent $1.1 billion of capital expenditure.
“We would like to give confidence to our shareholders that we are more focused than ever to drive operational efficiencies in the current crude price environment,” said Mayank Ashar, Managing Director and CEO.
“Our cash rich balance sheet and cost profile provide a solid foundation to operate our high margin core fields. This gives us the option to be selective about growth projects in these challenging times,” he added.
Cairn also said that it will focus on undertaking projects that are economically viable at the current oil prices and management focus remains on re-engineering projects and re-negotiating contracts.
On Wednesday, Cairn India’s shares closed 3.52 per cent lower on the BSE at Rs. 244.10.
(Source: Business Line March 5, 2015)
OIL ABOVE $60 AS SAUDI ARABIA SEES STEADY MARKET
London: Brent crude oil steadied above $60 a barrel on Wednesday after Saudi Arabia’s oil minister said he expected the oil market to balance itself.
Oil minister Ali al-Naimi said he hoped and expected the oil market to balance and prices, which hit a nearly six-year low around $45 in January, to stabilise, adding to signs Opec’s largest exporter is confident that demand is growing.
“I hope and expect supply and demand to balance and for prices to stabilise,” Naimi said in a speech in Berlin. “Global economic growth seems more robust.”
Opec decided not to cut output last year and let prices fall as it moved to defend its share of the market against fast-growing US shale output. Naimi said it was not Saudi Arabia’s responsibility to “subsidise” higher cost oil producers.
The speech followed news that Saudi Arabia had raised its official selling prices (OSPs) for oil deliveries to Asia and the United States on Tuesday.
“This is a sign that prices have bottomed out because it means Saudi is confident in raising prices without being afraid of losing market share,” said Tony Nunan, a risk manager at Mitsubishi Corp in Tokyo.
April Brent was down 42 cents at $60.60 by 1200 GMT, after rising 2.5% on Tuesday. US crude futures were up 23 cents to $50.75 a barrel, narrowing their discount to Brent to less than $10 a barrel.
Air strikes on oil terminals in Libya on Tuesday helped to underpin prices, further threatening supplies from the Opec member that have been slashed by ongoing fighting across the country.
Islamist militants, who have gained ground during the turmoil, on Tuesday took over Libya’s Bahi oil station and the Mabrouk oilfield, after forces guarding the installations, from which staff have already left, were forced to retreat.
However, uncertainty about talks between major powers and Iran over its nuclear programme capped oil’s gains.
Any sign of a lasting agreement between Tehran and six world powers, the so-called P5+1 group, could result in a flood of Iranian crude.
Traders were also looking to weekly US government inventories data due on Wednesday to provide direction. An industry report showed a smaller than expected build-up in US commercial crude stocks last week.
(Source: Mint March 5, 2015)
THE GAS WARS IN EUROPE
On Monday, Maros Sefcovic, the European Commission’s energy chief, hosted trilateral talks in Brussels with Russian energy minister Alexander Novak and Ukraine’s Volodymyr Demchyshyn aimed at resolving an impasse over Russian gas supplies to war-torn Ukraine.
Standoffs between Ukraine and Russia over gas delivery and payments are nothing new. Ukraine’s refusal to meet price rises in Russian gas supplies (which Russia said reflected the market price) has led to two incidents in the past decade — in 2006 and 2009 — where supplies to Ukraine were temporarily cut.
The 2015 impasse related to the conflict under way in eastern Ukraine — Ukrainian national gas supplier Naftogaz has stopped delivery to the eastern provinces of Donetsk and Lugansk since February 18 citing damage to infrastructure and lack of accessibility, a move that President Vladimir Putin condemned as smacking of “genocide”. Russia began channelling gas to those regions through other routes, deducting quantities from that which Ukrainian authorities had prepaid for.
With Ukraine’s prepayment for gas only lasting till early March, the threat of another cutoff loomed large, with potential consequences for the rest of Europe.
Around half of Russian gas entering the EU comes through Ukraine, and the previous standoffs had led to accusations from Russia that Ukraine had siphoned off gas intended for the EU.
In 2009, Russia responded by greatly reducing supplies to Europe, leading to supply disruption, particularly to countries in southern Europe such as Bulgaria, Romania, Greece, Hungary, and Austria in the cold winter months.
Fortunately for Europe another crisis has been averted for now — on Monday the three sides reached an agreement which involves Russia not counting the gas going to the eastern part of Ukraine towards the gas that Ukraine has paid for . In return, Ukraine has pledged to keep up payments. “I am reassured that the supply of gas to the EU markets remains secure,” said Sefcovic in a statement following the meeting.
Whether it’s been dealt with for the long term, of course, is another matter. The joint statement on Monday noted that the situation in eastern Ukraine remained “highly complex in legal, technical and political terms”.
Ever since the 2006 crisis European leaders have expressed their intention to both create more routes for Russian gas into Europe, as well as find sources beyond Russia. Around a third of Europe’s gas comes from Russia, with the rest coming from a range of sources including Norway, Britain, the Netherlands, and Algeria, and liquefied natural gas (LNG) imports.
Those ambitions have so far had some success: learning the lessons of the previous crises many European countries have learnt to build up large stockpiles over the winter period, while more and more interconnections have been built between states to ensure that supplies reach them in the case of scarcity. Countries have also diversified their sources — Slovakia, for example, once entirely dependent on Russia, now receives gas from Norway. Even Ukraine has diversified its sources getting some from Slovakia and Norway.
The Nord Stream Baltic pipeline bringing Russian gas to northern Germany has been up and running since 2012 and others are in the works, including the trans-Adriatic and trans-Anatolian that would bring gas from other sources such as Azerbaijan and beyond.
However, diversification has not progressed at the rate many had hoped for. The ambitious Nabucco pipeline was shelved in 2013 as a result of funding issues while plans for a separate South Stream pipeline were also abandoned at the end of 2014 after it came up against EU competition rules.
According to the EU, six member states remain entirely dependent on a single source for their gas supplies.
Recognising the pressing need to continue to diversify (the EU imports 53 per cent of its energy needs), the EU launched its plans for an energy union last week to create a “secure sustainable competitive” energy market for Europe. It stressed the need to reduce dependence on individual sources, and create more interconnections between European countries, promoting the free flow of energy across borders. What this amounts to remains to be seen.
“The EU tend to set aspirational goals rather than realist goals,” says Andrew Neff, senior analyst at IHS Global Insight, pointing to the unwillingness of many states to cede national sovereignty. “Countries want the union in times of crisis but the rest of the time they are geared up to defending national security.”
LNG has long been put forward as an alternative — for example, last year, Britain’s former foreign secretary suggested that as part of a rejigging of energy policy, talks would take place over the potential for increasing US imports.
However, this remains a long way off, and while supplies do come from the Middle East Asia remains a far more attractive destination for their supplies with its higher prices, demand, and growth, says Neff.
Meanwhile, hopes for a European shale gas boom have disappointed. Last year, Bloomberg reported that in Poland — where much of Europe’s reserves are thought to lie — even the highest test flows were just a third of what were needed for commercial production.
All in all, Europe’s ambitions of getting away from Russian gas seem rather bleak. Rather its efforts to diversify are more about keeping its dependence on Russian gas from going above 30 per cent to 40 per cent, rather than being able to take it down towards a fifth, says Neff.
For the foreseeable future, Europe’s complex, highly interdependent relationship with Russia is likely to continue.
(Source: Business Line, March 5, 2015)