NEW DELHI: State-run oil marketing firms Indian Oil, Bharat Petroleum and Hindustan Petroleum are on an expansion spree-setting up 3,100 petrol pumps outlets in 2011-12-brushing aside financial concerns arising out of their combined revenue loss of Rs 15,000 crore in the first nine months of this fiscal.
‘State-run fuel retailers have added over 3,100 retail outlets in 2011-12, which works out to about 8.7 outlets per day,’ says a latest report by Petroleum Planning & Analysis Cell, a data keeping arm of oil ministry. Each pump costs between Rs 50 lakh and Rs 3 crore, depending on the location and size of the unit, the report adds. The total pump outlets inIndiahave grown to 45,000 by the end of this March.
‘All additional outlets have come from PSU stable, and private outlet number has actually declined marginally,’ the report adds.
Rapid expansion by state firms comes at a time when the private sector is downsizing its retail network. Essar, Shell and Reliance Industries have closed some of their pumps due to subsidised sales by state-oil firms.
IOC,India’s biggest fuel retailer by volume, has defended its move to expand network. “We are state-run companies. Unlike private firms, we can’t shut down our outlets. We have responsibilities to cater to the country’s growing fuel need.
Over 64% of our retail expansion is KSK (kisan seva Kendra),” said IOC chairman RS Butola. IOC opened 900 petrol pumps in 2010-11, and 575 of them were in KSKs, says Butola. “We would maintain the same ratio. Other pumps are mostly located in semi-urban and small towns.”
However, officials at state oil companies say the policy of expanding retail outlets in an environment where the government directly controls diesel prices and indirectly prohibits companies makes no sense. “The more we will sell petrol and diesel, the more (revenue) losses we would incur,” said a senior executive of a Mumbai-based oil company, requesting anonymity.
IOC, BPCL and HPCL have slipped into red in the first nine months ended Dec 31, 2011, and are seeking government compensation as well as discounts from upstream companies to bail them out.
The report also says sale of jet fuel, or aviation turbine fuel, in March fell for the first time in 30 months. It cited slow down in aviation sector as one of the major reasons for the decline. “The government has recently allowed airlines to directly import jet fuel, but it is too early to assess its impact,” a PPAC official said.
Diesel has recorded a robust 10.3% growth in March due to higher sale of diesel vehicles, as the fuel is significantly cheaper than petrol. “This trend is unlikely to stop till diesel price is aligned to other competing fuels,” the report said.
The report says March also saw an 11.5% jump in petrol consumption, mainly because dealers built up inventory expecting a petrol price hike after assembly elections in Punjab, Uttar Pradesh, Uttrakhand and Goa.
REVIEW 80% HIKE IN CRUDE CESS: PANEL
NEW DELHI: A parliamentary panel has told the government to reconsider the 80% increase in the cess on crude oil production to R4,500 a tonne as it has reduced the resources available with oil producers to expand their operations. The cess was increased in the Union Budget for 2012-13.
The increase in the cess has added to ONGC’s outgo under the head by R4,500 crore a year, and for OilIndiathe outgo is R810 crore.
“By this increase, these oil companies will be deprived of resources for their own utilisation and investment targets,” the standing committee on petroleum and natural gas said in its report tabled in Lok Sabha this week.
The panel suggested it was essential to give the oil producers relief as they are already burdened by the financial assistance that they give to oil marketing companies IOC, HPCL and BPCL in keeping auto and cooking fuel affordable to the consumer. Now, the government and the upstream companies bear the subsidy on sensitive petroleum products like diesel, kerosene and LPG, while a part of the losses are absorbed by the retailers.
The panel also told the government that it should work out a fuel subsidy sharing formula so that retailers would know at the beginning of the financial year, how much they have to contribute to keep auto and cooking fuel affordable to the consumer.
The three oil marketing companies have an unmet under-recovery or losses from selling fuel below cost of R56,647 crore for the last quarter of 2011-12. The oil ministry has asked the finance ministry to give about R40,000 crore in addition to the R45,000 crore the finance ministry has already sanctioned for the year. Oil marketing companies are awaiting a final decision by the finance ministry before they announce their annual accounts for 2011-12.
“The government should inform the amount of under-recovery that would be borne by each oil marketing company at the beginning of the financial year so that each company can plan their finances better,” the panel told the government.
On the other hand, upstream companies have traditionally been contributing about a third of the total losses incurred by IOC, HPCL and BPCL.
However, in the recent past, it has been raised to about 38% as losses from selling fuel below cost rose due to the high global oil prices.
In the first three quarters of 2011-12, upstream firms provisionally met 38% of the R97,313 crore losses incurred by oil marketing companies. In the full fiscal, retailers’ under-recovery rose to R1,38,000 crore.
GIVE POWER SECTOR TOP PRIORITY IN GAS DISBURSAL: PANEL
NEW DELHI:India’s natural gas output is plunging owing to the sharp drop in production from Reliance Industries’ D6 block in theKrishna-GodavariBasin. Nevertheless, the government is under pressure to change its gas allocation policy in favour of the power sector.
A parliamentary panel has sought topmost priority for the power sector, the rapid development of which is integral to sustained levels of high economic growth, in allocation of existing and future domestic gas supplies.
As of now, the fertiliser sector is given the highest priority in gas disbursal, followed by the city gas sector in the government’s policy for utilisation of the hydrocarbon resource. Power comes third on the priority list.
“Considering the fact that the power sector plays an important role in economic development of the country…, the committee would like to re-emphasise that the sector needs top priority in allocation of gas,” the standing committee on energy has said in its latest report.
The oil ministry has assured the panel that it would seek guidance from the latter’s recommendation.
“The committee’s recommendation to attach high priority sector to the power sector in the allocation of gas noted for guidance,” the ministry said in the action taken report.
The fertiliser sector has been given the top priory in gas allocation because the product is subsidised and the central government has to bear the subsidy, while city gas distribution is important to check vehicular pollution in metros.
Gas-based projects totalling 4,200 MW commissioned during the 11th Five-Year Plan are unable to start operations due to non-availability of gas.
“Gas-based power plants are not able to fully utilise their capacity due to fuel shortage. Better allocation of gas for the power sector will be a welcome step,” said PTC India chairman Tantra Narayan Thakur.
The fall in production from RIL’s D6 has aggravated the gas shortage for the power sector. The block was expected to reach peak production of 80 million metric standard cubic metres per day (mmscmd) by the end of 2012. But instead production from the field has dropped to 34 mmscmd and is projected to further fall to 20 mmscmd by 2015.
Indiais projected to face a domestic gas shortfall of 20-25% over the long term despite an increase in production. In the short term, the country is meeting the gas shortfall by importing liquefied natural gas. To meet its long-term shortfall, the government is trying to tie up piped gas supplies fromTurkmenistanandIran.
(Source: The Financial Express, May 12, 2012)
RBI MAY SELL DOLLARS DIRECTLY TO OIL COMPANIES TO CHECK RUPEE VOLATILITY
NEW DELHI: The government and the central bank are pondering over a plan to move bulk dollar purchases by oil marketing companies out of a turbulent currency market to make the weakening rupee less volatile.
With a weekly demand of $2-3 billion, roughly one out of every 10 dollars bought or sold in the Indian foreign exchange market is by oil companies. In a choppy market, the rupee comes under pressure whenever these companies step in to buy the greenback.
“In such circumstances, a direct dollar line to oil companies can help check volatility in currency markets…It has been discussed,” said an official familiar with the matter.India’s crude oil and petroleum product imports totalled about $155 billion last year.
On a few occasions in the past, the Reserve Bank of India (RBI) has temporarily opened a special window to supply dollars to oil companies to ring-fence the currency market.
The last time such a facility was offered to oil companies was in 2008, when the collapse of Lehman Brothers and the subsequent financial meltdown froze money markets across the world.
Termed special market operation, the transaction involves the central bank selling dollars directly to oil companies at the reference rate – which is based on the dollar-rupee exchange rates prevailing around mid-day – and receiving securities or rupee equivalent from the companies.
In 2008, oil companies had exchanged oil bonds (issued by the government) for dollars from the RBI. But this time the proposal is to let the RBI receive rupee equivalent from oil companies buying dollars, said another person familiar with the proposal.
Often, oil companies have to bear the brunt of a volatile rupee which pushes up the oil import bill. “Our dates for entering the market are known to all as we have to pay for crude imports as per contract,” said a senior board member of an oil company. Oil companies had written to the RBI seeking a direct dollar window.
Crude prices have fallen from a high of $115 a barrel to $110 now. But the rupee has slipped by 4 to a dollar. “The rupee’s depreciation would have offset the gains from fall in crude prices,” said PV Narsimhan, former director (finance), IndianOil.
According to industry estimates, every dollar rise or fall in crude price would impact sales by 3,500 crore annually; a fall of $5 a barrel would reduce under-recoveries of oil companies by around 40,000 crore a year. Thus, a direct dollar line could also help in marginally lowering the import bill.
Besides market intervention, the RBI has recently taken steps to improve dollar supply. Banks have been allowed to offer higher returns on dollar deposits by NRIs while corporates have been directed to convert export earnings into rupees. Chances are the RBI may explore other options to ease supply.
“This may well be the time to take dollar buying for defence imports out of the foreign exchange market,” said Essar Group Treasurer Partha Bhattacharyya.
The rupee, which came under pressure due to policy flip-flops and the Euro zone crisis, has fallen almost 9% against the dollar since March, forcing the RBI to intervene and take regulatory measures. The local currency ended lower at 53.63 to a dollar on Friday against Thursday’s close of 53.42. It touched a low of 53.69 in intra-day trade.
Hinting at more measures, RBI Deputy Governor Subir Gokarn said on Friday the central bank will continue to use instruments within its ambit to curb volatility in the foreign exchange market.
STATE REFINERS SPENT OVER RS 32,000 CRORE TO UPGRADE REFINERIES: JAIPAL REDDY
NEW DELHI: Oil minister S Jaipal Reddy said refiners had invested over Rs 32,000 crore in upgrading facilities for producing better quality of Euro-III and Euro-IV petrol and diesel.
In line with the auto fuel policy, lead was phased out from petrol completely from Feb 1, 2000, he said.
The government had simultaneously introduced BS-IV (or Euro-IV) grade auto fuels in certain metros and BS-III (or Euro-IV) grade auto fuels in major towns.
Adoption of modern technologies by Indian refineries has helped in increasing the distillate yield, quality upgradation of petrol and diesel and reduction in specific energy consumption, an oil ministry statement quoting Reddy said.
The industry average distillate yield has also improved from 75% in 2009-10 to 76.8% (provisional) in 2011-12.
Similarly the industry average of specific energy has come down from 68 in 2009-10 to 63 (provisional) in 2011-12.
The minister said Indian refineries had been continuously upgrading their technologies in line with the auto fuel policy and as per their operational requirement.
He said apart from primary processing technologies such as crude oil fractionation by atmospheric distillation and vacuum distillation for initial separation, the major modern process technologies employed across state-run refineries for producing petroleum products include secondary upgradation technologies for yield improvement, thermal cracking processes and fluidised catalytic cracking.
OVL EYES 25 PER CENT STAKE IN SOUTH ATLANTIC EXPLORATION BLOCK
NEW DELHI: ONGC Videsh Ltd, the overseas arm of state-owned Oil and Natural Gas Corp (ONGC), is in talks to buy 25% stake in an exploration block off Falkland Islands in theSouth Atlanticsea.
ONGC Videsh is in talks to buy 25% stake of UK-listed Falkland Oil and Gas Ltd in two exploration blocks, lying 350 miles off the Southern tip ofArgentina, sources privy to the development said.
FOGL, an oil and gas exploration company focused on its extensive licence areas to the south and east of theFalkland Islands, will retain operatorship of the licence.
The blocks are located in the south and eastFalklandbasins in water depths ranging from 500 meter to 2,000 meter. The resources estimate of 15 prospects identified may hold up to 15 billion barrels of oil equivalent or 46 trillion cubic feet of gas reserves.
As per the terms being discussed with FOGL, OVL would contribute its pro-rata share of 2012 drilling programme, comprising two exploration wells. OVL would also pay its pro-rata share of certain historical costs incurred during 2011 related to preparation for drilling this year. The costs incurred are estimated to be $68 million.
Besides, OVL would make a cash payment of $40 million.
If the Loligo prospect, where drilling is due this year, turns out to be a gas discovery, a liquefied natural gas (LNG) terminal would be built onshore with a capacity of about 7 million tonne per annum for exports to consumption centres likeIndia.
But if the reserves are of lesser than quantity, a floating LNG project may be developed, they said.
FOGL plans to drill one exploration well (Loligo) in Phase-1 in the Northern License Area. In Southern Licence Area it has committed to drill one well by December 30, 2015.
As per the licence terms, a discovery area can be held for five years to allow time for appraisal drilling and submission of a development plan, sources said adding exploitation (production) period has been capped at 35 years.
ONGC VIDESH TO GIVE UP VIETNAMESE OIL HUNT IN SOUTH CHINA SEA
NEW DELHI: ONGC Videsh Ltd (OVL) is likely to relinquish a Vietnamese oil block in South China Sea after failing to drill wells because of hard seabed in the area, a move which will impact on the strategic presence ofIndiain the region witnessing growing Chinese influence.
With the global arm of state-owned ONGC citing “techno- commercial considerations” for pulling out of the Block 128 in Vietnamese waters, the establishment here also seems to be disinterested in continuing the project which was not “economically viable”.
The company has maintained “drilling rig was deployed on the location in September, 2009. However, the well could not be drilled with the rig as it had difficulty in anchoring at the location due to hard sea bed. The drilling activity was terminated……The company has invested about USD 46 million till 31st March, 2011.”
The Block 128, which is an offshore deepwater block, is located at a water depth of more than 400 metres with 7,058 sq km area inVietnam.
However, the move assumes significance in the backdrop of increasing Chinese influence in the region, parts of which are also claimed byVietnam,Taiwan,Malaysia, andBruneiand which is witnessing wider territorial dispute.Chinaclaims nearly the entire region which is believed to contain large oil and natural gas deposits.
Citing territorial dispute,Chinahas also raised objections to Indian oil exploration projects in the region.
Indiahas been maintaining that it was for the countries in that region to sort out any territorial dispute and finally, also that in the international waterways, there should be freedom of navigation.
GAIL, TIDCO TO SET UP A JV POWER PLANT IN TAMIL NADU
CHENNAI: The Gas Authority of India Ltd (Gail) and the Tamil Nadu Industrial Development Corporation Ltd (Tidco) would jointly promote a special purpose vehicle to set up a 500 MW liquefied natural gas (LNG) fuelled power plant at an outlay of Rs.2,000 crore, Tamil Nadu Chief Minister J. Jayalalithaa said.
Announcing this in the state assembly Jayalalithaa said: “With the gas available through the Kochi-Bangalore pipeline a 500 MW power plant at an outlay of Rs.2,000 crore will be set up in the first phase. Over the next five years the project will be expanded involving an outlay of Rs.10,000 crore.”
Gail is laying LNG pipeline betweenKochiin Kerala andBangalorein Karnataka via Tamil Nadu. Around 310 km of pipeline will traverse through the state and Gail would supply gas for industries, vehicles and houses, she said.
The chief minister said Gail was also planning to set up a floating storage degasification unit along the coast at an outlay of Rs.2,500 crore.
Pointing out that the state is mainly dependent on coal and petroleum products for its energy needs she said the government has realised the importance of LNG in fulfilling its energy requirements.
She said the state government has signed a memorandum of understanding with the Indian Oil Corporation to set up a five million tonne per annum LNG terminal here.
Once the LNG terminal goes on stream in 2016 it would feed around 18 million cubic metre of LNG daily for power generation, industries and houses, Jayalalithaa said.
According to Jayalalithaa, the state government would form special purpose vehicles to promote industrial estates in Tuticorin,Velloreand Krishnagiri districts, besides a hub for heavy engineering industries at Ennore.
OIL PRICES LIKELY TO STAY HIGH DESPITE GOOD SUPPLY: IEA
LONDON: Tension betweenIranand the West is likely to keep oil prices high despite a dramatic improvement in world supply and a big build in stocks, the International Energy Agency (IEA) said on Friday.
The agency, which advises 28 industrialised nations on energy policy, said soaring global oil supply from OPEC countries and theUnited Statesfar outpaced global demand, curbed by poor economic activity in developed nations. The agency said global oil supply rose 600,000 barrels per day (bpd) to 91 million bpd in April and was now 3.9 million bpd over year ago levels, with 90% of the increase coming from OPEC. Saudi Arabia has said it pumped 10.1 million bpd last month, its highest for more than 30 years, in a bid to meet growing demand and curb oil prices, which hit a three-and-a-half-year high in March.
But the IEA said in its monthly Oil Market Report that uncertainty remained and the agency, which last year released strategic oil stocks to compensate for the outage of Libyan production, would be ready to act if necessary.
“The path of market fundamentals for the rest of the year remains highly uncertain and geopolitical risks will likely continue to keep prices high,” the IEA said.
“The IEA will monitor market conditions and stands ready to act if supply conditions warrant it.” The agency kept its forecast for global oil demand growth this year broadly unchanged, raising it by just 20,000 bpd from its previous report to 790,000 bpd.
This would bring global oil consumption this year to around 90 million bpd, it said. World oil supply was likely to more than match the increase in demand, the IEA said. OPEC oil supply had risen by 410,000 bpd in April, withIraq,NigeriaandLibyaproviding 85 percent of the increase, well ahead of demand for OPEC oil.
“OPEC producers have stepped up to the plate and raised supply,” David Fyfe, head of the IEA’s Oil Industry and Markets division and one of the authors of the report, told Reuters. North Sea Brent crude futures rose above $128 per barrel in March as investors worried conflict betweenIranand the West could cut off oil supplies from theMiddle EastGulf.
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