Colombo: The agreement as well as a task force to implement it were announced after a meeting between Modi and Sri Lankan President Maithripala Sirisena here.
“Today, Lanka IOC and Ceylon Petroleum Corporation have agreed to jointly develop the Upper Tank Farm of the China Bay Installation in Trincomalee on mutually agreed terms.” “A Joint Task Force will be constituted soon to work out the modalities. India stands ready to help Trincomalee become a regional petroleum hub,” Modi said.
Lanka IOC, IndianOil’s subsidiary in Sri Lanka, is the only private oil company other than the state-owned Ceylon Petroleum Corporation (CPC) that operates retail petrol and diesel stations in the island nation. Lanka IOC operates about 150 petrol and diesel stations in Sri Lanka and its major facilities here include an oil terminal at Trincomalee, Sri Lanka’s largest petroleum storage facility and an 18,000 tonnes per annum capacity lubricants blending plant and state-of-the-art fuels and lubricants testing laboratory at Trincomalee.
Presently, it holds a market share of about 43.5 per cent. Modi, who reached here this morning in the last leg of his three-nation tour, further said he was looking forward to “early commencement of work on the ground in the Sampur Coal Power Project”. “This landmark project would meet Sri Lanka’s energy needs,” he added.
Modi also announced a fresh Line of Credit of up to $318 million for the railways sector, which can be used to procure rolling stock, and to restore and upgrade existing railway track.
Modi said that the ocean economy held “enormous promise” for both the countries. “Our
decision to set up a Joint Task Force on Ocean Economy is a significant step, especially because of our proximity,” he added. Modi said that economic ties are “a key pillar of relationship between the two countries and their bilateral trade has grown impressively over the past decade”.
“Our trade has seen impressive growth over the past decade. I am aware of your concerns about trade with India. As I said in Delhi, we will try and address them,” he added.
“The agreement today on cooperation between our customs authorities is a step in that direction. It will simplify trade and reduce non-tariff barriers on both sides. We are not just looking at addressing problems. We are also focusing on new opportunities,” said Modi.
(Source: Millennium Post March 14, 2015)
GOVERNMENT NOD FOR NATURAL GAS DIVERSION FROM RCF TO POWER PLANTS
NEW DELHI: The government has allowed diversion of natural gas that Rashtriya Chemicals and Fertilisers (RCF) receives from KG-D6 fields to power plants in Andhra Pradesh and Telangana to help generate 450 MW of electricity.
RCF gets 2.2 million standard cubic metres per day of gas from Reliance Industries’ eastern offshore KG-D6 fields for production of urea at its plant located in Maharashtra. Gas from Andhra coast is ferried through a cross-country pipeline to RCF plants.
On the other hand, power plants in Andhra Pradesh and Telangana are dependent on use of imported gas (Liquefied Natural Gas) which can be imported only on the west coast because there are no LNG terminals on Andhra coast.
To tide over this issue, the government has allowed RCF’s quota of KG-D6 gas to be supplied to the power plants. Instead, RCF will use the imported LNG that was meant to be supplied to the power plants.
For RCF, the so-called swap will be revenue neutral as the cost of imported LNG will be borne by the power plants and it will continue to pay the government fixed rate for KG-D6 gas.
“Department of Fertilizers has allowed swapping of KG-D6 gas presently being supplied to RCF Units located in Maharashtra with Regasified Liquid Natural Gas (RLNG), thereby facilitating supply of additional gas volume to the tune of 2.2 mmscmd to Andhra Pradesh and Telangana states,” an official statement said here.
2.2 mmscmd of gas can generated 450 MW. Of this, Telangana will get 242 MW (53.89 per cent) and Andhra Pradesh about 208 MW.
Private power plants “located in the states of Andhra Pradesh and Telangana have pipeline connectivity (to receive KG-D6 gas), whereas the LNG terminals operational as on date are located on the western coast of the country.
“Further, even though East West pipeline provides physical connectivity of eastern part but it is not possible for LNG to flow from western parts of India to AP. Therefore, direct LNG supply to customers in AP and Telangana is not possible and can only be achieved through swapping of gas,” it said.
State gas utility GAIL (India) Ltd will enter into necessary contractual arrangements with RCF, pipeline company RGTIL and private power stations for supply of imported LNG.
“This will help in mitigating the power shortage in Telangana state, which would benefit the farmers having 18.62 lakh pump sets in saving rabi crops. Further, the unscheduled power cuts in Telangana state can be minimized to a great extent, which will also help the consumers of Telangana state and public at large. This will also help AP state to mitigate the power deficit and benefit the farmers of the state,” the statement said.
(Source: The Economic Times, March 14, 2015)
MODI SARKAR CAUGHT IN A BIND AS RETRO TAX CASES TUMBLE OUT
NEW DELHI: Multi-national firms which may have been under the impression the retrospective tax was dead and buried are likely to be disabused of the notion. Notices to MNCs relying upon the retrospective amendment could eventually result in a spate of tax demands, a development that may dampen the investment climate which had been uplifted after Congress joined hands with BJP to pass the insurance Bill.
Making matters worse, at least from the perspective of the recipients of potential tax demands, the Narendra Modi-led government is in a bind as under the law, enacted in 2012 by the previous United Progressive Alliance regime, lower-level officers are bound by statute to ask companies to pay tax.
A senior government official said as long as the law stands, the legal process will be followed in case of transactions that are already under the taxman’s scanner and cannot be halted by executive action.
As many as 36 cases — where initial notices have been issued — are currently being processed and may result in a final tax demand. To be sure, these tax demands will not be issued at one go. These could be issued over months or even years once the tax department finishes its analysis of various transactions.
On Friday, the tax department asked Cairn India to pay back taxes of Rs 20,495 crore for not withholding tax on payment made to Cairn Energy Plc, its former parent. Friday’s tax notice follows a draft demand on UK-based Cairn Energy Plc, seeking to tax capital gains it made in 2006 when it transferred its Indian assets to a new company, Cairn India, which is now listed and is part of the Vedanta Group.
The tax claims on Cairn Plc and its former Indian subsidiary have the potential to harm India’s image, which had taken a battering after the 2012 law, which was enacted to overcome a SC verdict that a 2007 purchase by Vodafone Plc of the Indian telecom business of Hutchison was not taxable.
A finance ministry official said the action by the tax authorities is not arbitrary or abuse of power but within parameters of law. “It (Cairn) is an old case where action had been initiated earlier… The company can take recourse to appellate mechanism,” the official said.
In 35-36 cases where action had been initiated earlier, orders will have to be issued over next few years when they become time-barred. Most of the other cases pertain to later years, so demand orders will have to be issued before they also become time-barred.
The Cairn case dates from fiscal year 2006-07. The tax department is now working its way through transactions in subsequent years which could be within the ambit of the retro law. This could result in tax demands being issued over years, resulting in a drip-feed of bad publicity.
The 36 transactions which could fall foul of the retro law include Vedanta’s buyout of Mitsui’s stake in Sesa Goa, SABMiller’s acquisition of a 100% stake in Fosters India, Sanofi Aventis’ acquisition of a majority holding in Indian vaccine company Shantha Biotech, and even Kraft’s worldwide buyout of Cadbury.
This is because notices had been issued soon after the retrospective amendment was passed in 2012. Thus companies involved in these deals may not be able to approach the special panel set up by the government to examine any new action under the law.
Cairn itself had withdrawn a petition it had filed in the Delhi High Court for quashing of a show-cause notice issued to it in March 2014, probably in the hope that it may be eligible to make use of the new mechanism. Tax experts say if the law remains on the books it will continue to haunt investors.
“The law stands as such and unless it is completely done away with, assessing officers are likely to apply the provisions of retrospective amendment,” said Sanjay Sanghvi, partner, Khaitan & Co. The tax demands on Cairn have come at an inappropriate time for Finance Minister Arun Jaitley, who is meeting foreign investors in the UK.
The matter was raised by his UK counterpart George Osborne. An official present at the meeting in London on Friday told ET that the finance minister conveyed to UK’s chancellor of exchequer that no fresh notice had been issued to Cairn and the company could opt for judicial remedies.
Already battling charges of being pro-corporate, the new government is caught between the devil and the deep sea. Though it has promised that fresh cases will not be started, the backlog is large enough to keep investors fretting and fuming for years. “The only solution to putting this problem away forever is to repeal the retrospective amendment,” said Sanjay Sanghvi, partner, Khaitan & Co.
Milind S Kothari, managing partner & head (direct tax), BDO India LLP agrees. “Unfortunately, there are some very large and high-profile cases such as that of Cairn Energy where the promise of the government cannot be delivered till such time the law on retrospectivity is not withdrawn and therefore, would continue to face proceedings under the law,” he said.
That may be a political hot potato for the government, exposing it to the charges of letting multinationals get away with not paying thousands of crores of potential taxes.
(Source: The Economic Times, March 14, 2015)
NOT EASY TO START GAS PRODUCTION IN KG BASIN: GUJARAT GOVERNMENT
GANDHINAGAR: Gujarat government today admitted in the Legislative Assembly that it was facing several technical difficulties in its oil and gas exploration project in Krishna-Godawari basin, leading to delay in start of commercial production.
The state-run Gujarat State Petroleum Corporation (GSPC) has an exploration block in the KG basin in Andhra Pradesh.
During the question hour, Joitabhai Patel, Congress MLA from Dhanera asked the energy and petroleum minister Saurabh Patel about the progress in the exploration and reasons for delay in commencement of commercial production of gas by GSPC.
In his written answer, Patel admitted there were several problems. KG basin is a deep sea block, which creates many technical challenges for oil exploration at a very high temperature and pressure, he said.
The block has a temperature of 400 degree Fahrenheit (204 degree Celsius) and pressure of 12,000 pounds per square inch (PSI) at the bottom, and the engineering work in these circumstances takes more time, he said.
Being an off-shore block, there were further geographical problems and as a result the production was yet to start, the minister said. Last month the Gujarat government had stated in the Assembly that it had spent Rs 2,847.25 crore on exploration in KG basin in the last two years.
(Source: The Economic Times, March 14, 2015)
E-COM COMPANIES PUT ON NOTICE; LNG EXEMPTED FOR A YEAR
Thiruvananthapuram: Finance Minister KM Mani proposes to strengthen the tax machinery in the State. Budget proposals include enabling online payments; online services; online registration; e-refunds by integrating commercial tax, excise and registration departments with GRASS, the online treasury system.
GST is a destination-based tax system, and tax on goods brought by consumers from other States through online trade is expected to accrue to the State.
All companies and entities maintaining an e-commerce website will be made liable to file the details of inbound and outbound goods sold through such sites in a prescribed format on monthly basis.
This will help ascertain the accurate quantum of e-commerce transactions ahead of introduction of GST. Necessary amendments will be made in the Kerala VAT Act for the purpose.
Amendments would be made in sections 54 and 82 of the Act for collection of information through general survey and enquiry. This will ensure better tax compliance.
To bring more accountability in the movement of goods, all job-workers receiving goods from outside the State for job works shall be mandated to take registration irrespective of the turnover.
Registration will be made mandatory if turnover reaches Rs. 10 lakh, whether taxable or not. The time limit for assessments under sections 24 and 25 which expires on March 31, 2015, shall be extended by one year.
In order to encourage dealers who sets good example in compliance with tax laws and to promote best practices in tax compliance,
Steps will be taken to analyse the information received from various sources using information technology, thereby increasing tax compliance.
A green card scheme would be implemented to ensure priority in delivery of services from the department to eligible dealers.
It would be clarified in the Act and Rules that ultimate tax liability under the Kerala VAT Act will be on the principal contract amount. This would have retrospective effect from April 1, 2005.
Tax practitioners will have a significant role to play when GST is implemented. An annual renewal fee of Rs. 500 will be introduced for inducting them in to the new system. Photo identity cards will be issued to them.
More dealer friendly services will be implemented with the aid of IT, the Finance Minister said.
Modern systems for revenue recovery, personnel management and audit management will be put in place. Integrated check posts will be operationalised with closed circuit systems that can be monitored remotely.
A budget provision of Rs. 20 crore has been made for this purpose.
LNG would be exempted from VAT for a year, given its status as an environment-friendly energy source capable of changing the industrial landscape. A revenue loss of Rs. 100 crore is expected.
Used plastic and electronic waste, and recycling plant for plastics shall be exempted from tax.
Pyrolysis oil obtained from recycling of plastics at the point of sale shall be exempted from tax. The revenue loss expected is Rs. 10 crore.
The tax rate of electronic goods and systems notified by the Government, manufactured and sold and meant for defence purpose of the country is reduced to five per cent. A revenue loss of Rs. 5 crore is expected.
The tax exemption granted to khadi products sold by manufacturing units approved by Kerala Khadi and Village Industries Board would be extended to units approved by Khadi and Village Industries Commission.
This would be given retrospective effect from April 1, 2005. The revenue loss expected is Rs. 3.50 crore. Fabricated wall panels made by Kochi-based FACT from a by-product, glass fibre reinforced gypsum, is being exempted from tax. The revenue loss expected is Rs. 5 crore.
The tax exemption granted in 2012 to honey, honey bee box and accessories would be given retrospective effect with effect from April 1, 2005.
The rent limit under luxury tax with respect to rooms in charitable hospitals enjoying exemption under VAT will be raised to Rs. 2,000.
Conversion of paddy land made before the promulgation of Kerala Paddy Land and Wet Land Conservation Act is sought to be regularised.
Accordingly, a fee equivalent to 25 per cent of the notified fare value of similar land in the locality will be levied for such regularisation. This is expected to generate Rs. 150 crore.
(Source: Business Line March 14, 2015)
KARNATAKA RAISES VAT ON LIQUOR, PETROL AND DIESEL
Bangalore: Chief Minister Siddaramaiah strode a safe path by not making any dramatic announcements in his Rs. 911-crore surplus budget, which was presented in Vidhana Soudha on Friday.
With an eye on zilla panchyat and gram panchyat polls, Siddaramaiah, who holds the Finance portfolio, offered minor concessions to rural populace. To fund rural development projects, he has increased VAT on liquor, tobacco and petrol/diesel.
He offered some sops for urban households too. “I propose to reduce the effective age of senior citizen from the current 65 years to 60 years to extend the benefit of exemption from payment of professional tax,” he said.
“I propose to exempt persons drawing salary less than Rs. 15,000 per month from payment of professional tax as against the present limit of Rs. 10,000 per month.” The total receipts are estimated to be Rs. 1,39,476 crore during 2015-16. The budget estimates envisage revenue receipts of Rs. 1,16,360 crore and capital receipts of Rs. 166 crore, including borrowings of Rs. 22,950 crore.
The total expenditure is estimated to be Rs. 1,42,534 crore, consisting of revenue expenditure of Rs. 1,15,450 crore and capital expenditure of Rs. 20,564 crore and debt repayment of Rs. 5,788 crore.
Fiscal deficit is expected to be Rs. 20,220 crore, which is 2.75 per cent of GSDP. Total liabilities at Rs. 1,80,815 crore at the end of 2015-16 are estimated to be 24.56 per cent of GSDP.
“This is within the limit of 25 per cent for 2015-16 mandated in Karnataka Fiscal Responsibility Act. Therefore, all these three fiscal parameter are within the mandate of the Act. This reflects fiscal responsibility of the State,” said Siddaramaiah. The State’s total tax revenue for 2015-16 is estimated to be Rs. 1,01,235 crore, which is an increase of 20.57 per cent over the revised estimate of 2014-15. An amount of Rs. 5,206 crore is expected to be collected from non-tax revenues.
The State government expects to receive Rs. 24,790 crore by way of the share in Central taxes in the budget and another Rs. 9,919 crore as grants from the Centre. These revenue receipts are estimated to be supplemented by gross borrowings of Rs. 22,950 crore, non-debt capital receipts of Rs. 75 crore and recovery of loans to the extent of Rs. 91 crore.
Various State owned boards and corporations and local bodies are expected to mobilise Rs. 8,645 crore through internal resource generation and borrowings made on the basis of their own financial strength and own revenues.
As per the revised estimates 2014-15, the total receipts are Rs. 1,31,273 crore compared to the budget estimates of Rs. 1,36,249 crore. The revenue mobilisation efforts of the State stand at Rs. 1,08,908 crore out of which the Own Tax Revenues are estimated at Rs. 68,554 crore.
As per the revised estimates, the total expenditure is Rs. 1,32,835 crore.
(Source: Business Line March 14, 2015)
MANGALORE REFINERY AND PETROCHEMICALS LTD TO SHUT 120,000 BPD CRUDE UNIT IN APRIL
NEW DELHI: India’s Mangalore Refinery and Petrochemicals Ltd (MRPL) plans to shut a 120,000 barrel per day crude distillation unit (CDU) for about 10 days from early April for planned maintenance, its head of refinery operations said on Friday.
MRPL, a subsidiary of state-run exploration firm Oil and Natural Gas Corp, runs a coastal refinery in southern Karnataka state with a capacity of 300,000 bpd.
The refiner also plans to shut a 1.6 million tonne a year hydrocracker at the refinery that produces middle distillates such as diesel for minor work, Vijay G. Joshi told Reuters.
The refiner has three CDUs and two hydrocrackers.
“We will use the opportunity to do some minor jobs on the hydrocracker … Also, some job needs to be done at our captive power plant,” he said.
MRPL’s product supply commitments would not be affected by the shutdown, Joshi added.
Joshi said MRPL also plans to shut its second hydrocrakcer of 1.2 million tonnes a year in the October-December quarter for catalyst replacement. A catalyst change typically takes 30-45 days.
(Source: The Economic Times, March 14, 2015)
CAIRN INDIA SLAPPED WITH RS 20,495 CRORE TAX DEMAND
NEW DELHI: Income tax authorities issued a tax demand of Rs 20,495 crore on Cairn India for failing to deduct withholding tax on alleged capital gains made by its former parent Cairn UK Holdings.
Cairn India on Friday said it will pursue all possible options to protect its interest. The tax authorities have demanded Cairn India pay about Rs 20,495 crore, which includes tax and interest of Rs 10,247 crore. Cairn India’s shares fell 3.5% on Friday to Rs 225.70.
“Cairn India Limited does not agree with this alleged demand and will pursue all possible options to protect its interest,” the company said in statement to the stock exchanges. The tax demand relates to a transaction carried out by Cairn UK Holdings Ltd (CUHL), a subsidiary of Cairn Energy Plc, “transferring the shares of Cairn India Holdings Ltd to Cairn India Ltd as part of internal group re-organisation in 2006-07 to facilitate the IPO of Cairn India Limited,” it said. The department has already slapped a tax demand on Cairn Energy Plc seeking a bite of an Rs 24,500 crore worth of capital gains it supposedly made in 2006 on this transaction.
The company said it has “always been fully compliant” with all Indian Income tax laws and income tax assessments including transfer pricing assessment were duly completed for 2006-07, earlier.
The demand on Cairn India follows an order to Cairn UK Holdings earlier in the week. Cairn Energy, which had in 2011 sold majority stake in its Indian unit to mining group Vedanta for $ 8.67 billion, still holds a 9.8 % stake in Cairn India. The government has also provisionally attached CUHL’s remaining stake in Cairn India Ltd.
Cairn Energy is filing a notice of dispute under the UK-India Investment Treaty to protect its legal position.
The tax demand notice to Cairn India is similar to the one issued to Vodafone for not withholding tax on payments made to Hong Kong-based Hutchison Whampoa for buying out Hutchison Essar’s operations here. The notice was challenged by Vodafone and it subsequently won the case in Supreme Court prompting the government of the day to amend the income tax retrospectively from 1961 to tax indirect transfer of Indian companies.
(Source: The Economic Times, March 14, 2015)
CAIRN INDIA EMPOWERS RURAL WOMEN WITH EMPLOYMENT GENERATION SCHEME
NEW DELHI: ‘Skill training’ is still a far cry for women in most of the rural India, where even stepping out of their household is a big achievement. Cairn India, through various unique initiatives, aims to encourage more women to cross social barriers and chart out a new future for them and their families.
The company conducts specific CSR programs for the upliftment of rural women in its areas of operations – Rajasthan, Gujarat and Andhra Pradesh. The company undertakes targeted interventions built on the micro enterprise framework of skill development.
The objective is to provide income generating opportunities to these women so that they can support themselves and their families. Improvement in their economic conditions also helps elevate the social stature of these women, who get more say in decision-making at homes and in the society.
Cairn India organises programs on tailoring units, farming products, masonry training, maternal and child healthcare programs, sanitary napkin production units, job counseling for young women etc.
Trained Women Masons break taboos, build toilets for Swachh Bharat Abhiyan. A group of 26 women broke all social taboos to enroll themselves at Bhimda Spoke Centre, Rajasthan for a skill training course in masonry. This vocational programme is offered by Cairn India in partnership with ILFS Skills.
The three-month programme consists of using modern methods of teaching, including use of multimedia & audio visual aids, and practical hands-on training. During this period, apart from learning the technical skills, the enrolled women also imparted functional literacy. As a result, they can now sign their name, count currency notes and even read documents. The programme ensured that these women are not only financially independent but are also equipped to face the world confidently.
After completing the training, these women are currently working as masons for constructing toilets under Swachh Bharat campaign of Government of Rajasthan, supported by Cairn India.
They now earn an average Rs. 500-600/day, something unimaginable for them even a few months ago. With increased income and a new socio-economic status, this has been path defining moment for them.
(Source: Millennium Post, March 14, 2015)
RELIANCE INDUSTRIES KEEN ON INVESTING IN START-UPS
MUMBAI: After mentoring 11 start-ups, the venture investment arm of Reliance Industries is now looking forward to invest in new companies which will be crucial to its growth, a top official said today.
Eleven start-ups completed a mentoring programme launched by RIL’s arm Gennext Ventures and Microsoft Ventures recently and both the partners today announced that they have started inviting applications for the second batch where around a dozen start-ups will be mentored.
“For the second batch our intent is yes (we will invest). For the first batch, we were not ready, we were learning. In second batch, we think that we can assimilate the learnings from the first batch and start to internally line up so that we are in a position to start investing,” Gennext Ventures Managing Partner Vivek Rai Gupta told PTI here.
Both RIL and Microsoft have not invested in any of the 11 companies which underwent the mentorship programme, he said, stressing that introduction to VC funds has resulted in 30-40 per cent of them getting commitments.
For investing, it will be looking at companies engaged in the digital space, including financial services, security, energy management, healthcare, home automation and connected cars, he said.
Gennext, which has already invested in two companies which are outside the first batch of 11, will be looking to invest in companies which are allied not just with the upcoming 4G launch in the telecom space, but also other business including the “core business”, he said.
He, however, did not give any idea about the money which RIL would invest, saying Gennext is “flexible”.
“We are very flexible. At the end of the day, what determines the ticket size is the opportunity because we are making investments as a corporate, by and large we will take only small stakes,” he said, adding that it will pick up only up to 15 per cent stake.
Gupta exuded confidence that with RIL showing faith in a company, it will be able to attract more financial investors.
“If we invest, we think our validation is a good stamp of approval and there are a lot of venture capitalists who will top up with their funding,” he said.
RIL wants the investments to be “mutually beneficial” both for itself as well as the company.
“For the companies, we provide value, the companies provide us solutions and services for our future growth interests,” he said.
Microsoft India’s director for start-ups, Kattayil Rajinish Menon said the company is not interested in investing in any of the start-ups which will get mentored by the accelerator programme.
Gupta said Gennext was pleasantly surprised with the quality of the start-ups and also their receptiveness.
For the second batch, both Gennext and Microsoft said they will target an equal number of of mentoring around a dozen start-ups at the former’s specially created facility at RIL’s campus in neighbouring Navi Mumbai.
(Source: The Economic Times, March 14, 2015)
HPCL AIMS TO RESTART FIRE-HIT GASOLINE UNIT BY SATURDAY: COMPANY OFFICIAL
NEW DELHI: India’s Hindustan Petroleum Corp aims to restart a catalytic reformer (CCR) gasoline-making unit by Saturday following a minor fire caused by a leak, its head of refineries B.K. Namdeo told Reuters.
HPCL’s 166,000 barrels-per-day (bpd) Vizag refinery in southern India has one CCR and an isomerisation unit.
The plant also has two naphtha hydrotreaters (NHT), each attached to the gasoline-making units of fluid catalytic cracker (FCC) and the CCR.
“There was a minor fire in one of the vessels of the CCR due to a flange leak. We had shut the CCR and attached NHT. The other units FCC-NHT and isomerisation were operational,” Namdeo said.
He said the company has already re-started the NHT that had been shut down.
“Testing is now going on for the CCR, hopefully it would be started by tomorrow,” he said, adding that there would be no impact on supplies.
Namdeo said the fire was contained within an hour without significant damage to the unit.
(Source: Economic Times March 14, 2015)
IEA SEES RENEWED PRESSURE ON OIL PRICES AS GLUT WORSENS
LONDON: Oil prices might have stabilized only temporarily because the global oil glut is worsening and U.S. production shows no sign of slowing, the International Energy Agency said on Friday.
The West’s energy watchdog said the United States may soon run out of spare capacity to store crude, which would put additional downward pressure on prices.
That process would last at least until the second half of 2015, when growth in U.S. oil production is expected to start abating.
Combined with an increase in global demand, the expected U.S. production slowdown would give some support to oil prices and respite to oil producers’ group OPEC, the IEA said.
“On the face of it, the oil price appears to be stabilizing. What a precarious balance it is, however,” the Paris-based IEA said in its monthly report.
“Behind the façade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly.”
The IEA said steep drops in the U.S. rig count have been a key driver of the recent price rebound, which saw Brent crude rising to $60 per barrel after falling as low as $46 in January from last year’s peaks of $115.
“Yet U.S. supply so far shows precious little sign of slowing down. Quite to the contrary, it continues to defy expectations,” the IEA said.
In February, non-OPEC production is estimated to have risen by about 270,000 barrels per day (bpd) on a month-on-month basis to 57.3 million bpd, led by higher output in North America.
Global supply rose by 1.3 million bpd year-on-year to an estimated 94 million bpd in February, led by a 1.4-million-bpd gain for non-OPEC producers.
U.S. crude inventories soared due to output growth and plunging crude refinery throughput, with seasonal and unplanned refinery outages, weak margins and high gasoline stock builds.
At last count, U.S. crude stocks stood at a record 468 million barrels, the IEA said.
“U.S. stocks may soon test storage capacity limits. That would inevitably lead to renewed price weakness, which in turn could trigger the supply cuts that have so far remained elusive,” the IEA said.
“While the U.S. supply response to lower prices might take longer to kick in than expected, it might also prove more abrupt,” it said, adding that growth would abate in the second half of 2015.
The IEA’s conclusions will disappoint OPEC, which kept its output steady at the group’s last meeting in November to protect market share and stifle U.S. oil output growth.
In the second quarter of 2015, when demand is at its weakest due to global refinery maintenance, the need for OPEC crude will be 28.5 million bpd, the IEA said – compared to the group’s current output of 30.22 million bpd in February.
The IEA raised its demand forecast for the second half of 2015, which in turn led to a higher call on OPEC crude of 30.3 million bpd in the same period – closer to the group’s real production levels and the official target of 30 million bpd.
Having bottomed in the second quarter of 2014, global oil demand growth has since steadily risen, with year-on-year gains estimated at 1.0 million bpd for the first quarter of 2015, the IEA said.
The forecast of demand growth for 2015 as a whole has been raised by 75,000 bpd to 1.0 million bpd versus the last report and versus the 680,000 bpd growth seen in 2014, bringing global demand this year to an average of 93.5 million bpd.
“Tentative signs of a demand recovery have emerged with the turn of the year, with a heavy emphasis reserved for the word ‘tentative’,” the IEA said.
In other bullish factors – beyond political instability in certain producing countries such as Iraq and Libya – refined product markets have proved unexpectedly strong, the IEA said.
“Not only have product prices lagged those of crude during the selloff – as is common in a downturn – but they have raced ahead of them in the rebound, keeping refining margins remarkably firm, and supporting unexpectedly strong throughputs in once-depressed refining centers such as Europe and OECD Asia,” the IEA said.
“Product demand has shown signs of life, with even European demand emerging from a secular decline to show strong growth of 3.2 percent in December and 0.9 percent in January”. — Reuters
(Source: The Financial Express, March 14, 2015)
IEA SEES INDIA, CHINA FILLING STRATEGIC RESERVES WITH CHEAP OIL
LONDON: India and China are set to fill up their strategic petroleum reserves this year, taking advantage of lower oil prices, according to the International Energy Agency.
The two nations are building emergency stockpiles with millions of barrels of crude that mirror the reserves of oil and refined products that the US and its western allies amassed after the first oil crisis of 1973 to 1974.
“Cheaper oil facilitates the building of strategic reserves,” the Paris-based IEA said on Friday in its monthly oil market report.
The purchases, if confirmed, will add to global oil consumption growth, the IEA said, offsetting “current weak fundamentals” of supply and demand and potentially boosting prices. Brent crude, a global oil benchmark, has fallen 47% over the past year to trade at $57.03 a barrel at 8:53 am in London.
“Since oil prices began their rapid retreat last June, the import bills of oil-importing economies have declined,” the IEA said. “This has assisted governments in many of these countries in either adding to their strategic reserves or putting in place firm budgetary provisions to increase oil holdings.”
The energy watchdog said China was “expected to again stockpile crude in 2015” as it completes new tanking capacity. Beijing in November for the first time revealed details of its oil stockpiling programme, saying it held about 91 million barrels in four different locations. The US holds 696 millions barrels of oil in its emergency reserve, the largest in the world.
India has yet to start storing crude oil, but the IEA said the government has approved a $338 million budget to cover the filling of its first emergency tanks this year. At current prices, that would amount to 6.5 million to 7 million barrels of crude. The Indian Strategic Petroleum Reserves Ltd., the company in charge of the stockpile, has already built a tank farm in eastern India capable of holding 10 million barrels of crude. Another two facilities in western India are expected to be completed by the end of the year, adding a combined 28 million barrels of capacity.
The IEA, adviser to 29 oil-consuming nations, said Vietnam has also used lower oil prices to boost its commercial stockpiles held at refineries.
China and India have said in the past they need to build strategic reserves to offset the risk of a disruption in supplies, mostly from the Middle East and North Africa. Western countries have used their strategic reserves only three times over the past 35 years, during the first Gulf War in Iraq in 1991, after hurricane Katrina in 2005 and in 2011, after the start of the war in Libya.
(Source: Mint March 14, 2015)