Energy News Monitor | Volume XIII: Issue 33
HIGH EXPECTATIONS REVITALISE THE INDIAN OIL SECTOR
Monthly Oil News Commentary: December 2016 – January 2017
India
India’s petroleum consumption has been in the limelight for some time now. This month was no different. According to the Ministry of Petroleum, India’s fuel consumption is expected to touch 200 MT FY17. In FY16 India’s fuel consumption grew at 10.9 per cent to 183.5 MT. In 2016 consumption of petroleum products was 750 MT in the United States and 500 MT in China.
It was also reported that the government was in advanced stages of awarding oil and gas blocks under the new HELP. The launch of the national sedimentary data repository is expected to provide the new exploration policy an additional thrust and help to ramp up output.
In FY17 a 60 MTPA refinery is expected to be built by the three PSU oil firms, IOC, BPCL and HPCL on the West coast. The companies have already signed an initial pact to construct the refinery at a cost of $30 billion. IOC will have the major share of 50 percent. The oil ministry concluded the auction of 67 Discovered Small Fields in FY16 where a bulk of the participation came from new entrants. The auctions witnessed 134 e-bids from 42 companies. One of the expectations in the oil industry is an increase in oil prices on account of the OPEC decision to cut output by 1.2 MBPD. Some expect a decrease in excise duty on fuel in the budget for FY18. An increase in petroleum prices is also expected to increase the petroleum subsidy budget for FY18 and also affect oil company balance sheets.
Some of the milestones in the oil industry for FY17 included Russia’s oil major Rosneft’s decision to acquire Essar Oil and its Vadinar refinery at over $10 billion and the launch of Ujjwala Yojana that aimed to provide 50 million LPG connections to BPL families with a support of Rs 1,600 per connection in the subsequent three years.
The government was reported to have ruled out the system of subsidising petroleum but has said that it may reduce excise duties if oil prices continued to increase. Though the government has claimed that it has passed on 50 percent of the reduction in oil prices to consumers the retail price of petroleum products has remained the same as it was when crude oil price was three times its current prices.
When oil prices fell in the second half of 2014 and early 2015, the government hiked excise duty on petrol and diesel nine times to increase its take that helped the government meet its revenue and fiscal deficit targets. In all, it raised excise duty on petrol by Rs 11.77 a litre and that on diesel by Rs 13.47. For every dollar increase in the price of a barrel of crude oil India’s import bill increases by over $1.3 billion. India spent $63.96 billion on crude oil import in FY16, about half of $112.7 billion outgo in the previous fiscal and $143 billion in FY14. For the current fiscal, the import bill has been pegged at $66 billion at an average import price of $48 per barrel.
HSBC forecast that India’s trade position of petroleum products in the country’s imports could fall from the current second place to third place between 2015 and 2030. Petroleum products fall from India’s second largest import to third largest over the forecast period, behind industrial machinery and mineral manufactures. This is in line with the government’s focus to raise the share of manufacturing in GDP to 25 percent from 14 percent currently.
Rest of the World
The IEA said that global oil prices would witness much more volatility in 2017 even if markets rebalance in the first half of the year if output cuts pledged by producers are implemented. OPEC agreed to cut output by 1.2 MBPD to 32.5 MBPD for the first six months of 2017, in addition to 558,000 bpd of cuts agreed by independent producers such as Russia, Oman and Mexico. The IEA expects US shale oil to increase production this year.
According to a poll by Reuters oil prices will gradually rise toward $60/bbl by the end of 2017 with further upside capped by a strong dollar, a likely recovery in US oil output and possible non-compliance by OPEC with agreed cuts. Brent crude futures is expected to average $57.43/bbl in 2017. The current forecast is marginally higher than the $57.01 forecast in the previous survey.
Average Brent prices are expected to improve with each subsequent quarter, starting with $53.88 in the first, to $56.61 in Q2, $58.79 in Q3 and $59.68 in the fourth quarter. Brent has averaged about $45 per barrel in 2016.
NATIONAL: OIL
India hopes to complete oil storage talks with UAE
January 24, 2017. India hopes to conclude negotiations with the United Arab Emirates (UAE) to fill its strategic oil reserves at Mangalore, in southern India, the foreign ministry said. Oil-rich Abu Dhabi has been in discussions to finalise a deal to lease part of India’s crude oil storage facilities. India, which imports about 80 percent of its oil needs, is building emergency storage in vast underground caverns to hold some 36.87 million barrels of crude as it seeks to hedge against energy security risks.
Source: Reuters
Centre sends 35 tonne petroleum products to crisis-hit Manipur
January 24, 2017. The Centre has dispatched 35 tonne of petroleum products to Manipur to tackle the crisis arising out of the 82-day economic blockade on a national highway which has crippled normal life in the state. While 35 tonne petroleum and diesel were sent through an Indian Airforce C-17 Globemaster plane, 70 tonne more petroleum products will be sent soon. The move came two days after an inter-ministerial meeting, chaired by Union Home Minister Rajnath Singh and attended by Oil Minister Dharmendra Pradhan, reviewed the stock of food grains and petroleum products in Manipur and how to replenish the supply.
Source: The Economic Times
NHAI eyes LPG bottling plant to expand highway
January 24, 2017. The liquefied petroleum gas (LPG) bottling plant set up by Hindustan Petroleum Corp Ltd (HPCL) on the direction of former Union finance minister and Hazaribag MP Yashwant Sinha at Chano under Baheri panchayat of Hazaribag Sadar block now faces a major hurdle. The National Highway Authority of India (NHAI) has selected a major portion of the land for conversion of Hazaribag- Barhi section of NH 33 into four lanes. The present land measuring 5.58 acres was provided to HPCL by Ranchi Industrial Area Development Authority (RIADA). Meanwhile, chief regional manager of HPCL Gautam Mahuli said that HPCL will not hand over even an inch of land of the existing plant to NHAI. He said that they have already taken up the matter with RIADA to provide more land to them for expansion of the existing bottling plant at Hazaribag. The plant meets the LPG requirements of consumers from Hazaribag, Ramgarh, Koderma, Rajmahal Palamau and Sahebgunj. Mahuli said due to non-availability of land, HPCL is only able to supply 3,000 LPG cylinders per day, which is less as per the statutory regulation of the Government of India. He said that HPCL can shift the present plant from Hazaribag to RIADA-acquired land in Barhi, however, it will take at least four years to complete the project. During this period, consumers in the concerned districts will face serious problems and will not be able to meet their fuel requirement, he said.
Source: The Economic Times
RBI may consider extending deadline for reduced MDR at petrol pumps: Oil Minister
January 24, 2017. Oil Minister Dharmendra Pradhan said RBI (Reserve Bank of India) may consider extending deadline for reduced Merchant Discount Rate (MDR) charges at petrol pumps beyond March 31 to promote digital transaction. The RBI had decided to slash MDR charges on payments made through debit cards and do away with levies on small transactions through mobile phones and Internet from January 1 to March 31. The MDR for debit card payments, including for payments made to the government, has been capped at 0.25 percent for transactions up to Rs 1,000 and 0.5 percent between Rs 1,000-2,000, the RBI said. The existing MDR cap is 0.75 percent for transactions up to Rs 2,000 and 1 percent for over Rs 2,000. However, there is no RBI cap on MDR on credit card payments.
Source: The Economic Times
Amarinder promises cheaper power, petrol, LPG in Punjab
January 23, 2017. Punjab Congress president Amarinder Singh promised cheaper petrol and liquefied petroleum gas (LPG) besides 10% reduction in electricity duty throughout the state. Elaborating on the promise to bring about parity in petrol and LPG prices with Chandigarh and neighbouring states, he said. In order to cut down on the cost, he said, taxes for petrol pumps will be rationalised to make them at par with others. This, he claimed, will help bring down the petrol price by about Rs 3 per litre. He said LPG price would come down to Rs 15 per cylinder through the initiative. He said the decision on reduction of petrol and LPG prices was based on the feedback received from the people, particularly industrialists who said the higher rates of these commodities were impacting their business in Punjab.
Source: The Economic Times
State oil firms use 90 percent capex on govt nudge
January 23, 2017. State oil firms have spent 90% of this fiscal’s capital expenditure in the first nine months, with ONGC Videsh Ltd (OVL), Oil India Ltd (OIL) and Indian Oil Corp (IOC) having exceeded their annual targets already. The government has nudged state firms to invest big and quick to boost jobs and economic growth in the country as private investment has languished. Relentless pressure from the government to pay higher dividend or to return unused cash to shareholders has also accelerated state firms investment in projects. Between April and December, they spent Rs 78,000 crore on drilling new oil wells, building processing platforms, expanding refining and storage capacity and fuel supply networks. The target for the full year is Rs 88,000 crore. OVL has spent Rs 16,519 crore, more than its annual target of Rs 14,843 crore as it purchased stake in some fields and contributed its share of capex in others. OIL’s capital spending of Rs 9,300 crore is more than double that of its annual target. With an investment of Rs 15,423 crore, IOC has just surpassed its annual target in nine months. ONGC has been relatively slow in making the planned expenditure. It has spent about Rs 19,000 crore, against an annual target of Rs 29,000 crore. Petroleum products consumption has grown 8.8% so far this fiscal year aided by lower prices and faster economic expansion in the country. To cater to the growing fuel demand, state firms have been adding refining capacity and building deeper networks of supplies across the country.
Source: The Economic Times
Petrol prices cross 2013 peak levels but political opposition missing
January 22, 2017. In February 2013, opposition parties, notably the Bharatiya Janata Party (BJP), took to the streets in protest as the price of petrol in the national capital spiralled to Rs 69.06. Petrol prices in the national capital have shot up to Rs 71.14. That for diesel is Rs 59.02, against Rs 48.16 in February 2013. Even kerosene and cooking gas prices have jumped — Rs 18.54 per litre against Rs 14.96, and Rs 585.00 per cylinder against Rs 410.50. More significantly, the petrol and diesel prices have surged past February 2013 levels despite the fact that crude oil is today ruling at less than half the rates prevailing then. Data shows that the Indian basket of crude oil — which comprises around 70 percent sour-grade Dubai and Oman crudes, and the balance in sweet-grade Brent — was $114 per barrel in early 2013. Today, it is at $54. True, the rupee-dollar exchange rate today is not as favourable as it was then — around Rs 68 to a dollar versus Rs 54.30 at that time. But even in rupee terms, crude oil prices are ruling at half the rates prevailing then — around Rs 3,625 per barrel now, versus Rs 6,210 at that time. In fact, data with the state-run oil sector think tank Petroleum Planning and Analysis Cell shows that prices of petroleum prices are among the steepest in India vis-a-vis neighbouring countries, save for kerosene and cooking gas in some cases, due to the huge subsidy involved. In terms of Indian rupees, retail price of petrol, for example, is Rs 43.70 in Pakistan, Rs 54.18 in Sri Lanka and Rs 75.42 in Bangladesh. Even in Nepal, which depends on India for a transit point for its entire petroleum needs, which adds much to the transportation cost, the price is lower at Rs 64.38. For diesel, the price is Rs 49.60 in Pakistan, Rs 43.99 in Sri Lanka, Rs 57 in Bangladesh and Rs 49.16 in Nepal. A look at the break-up of how transport fuels are priced — or taxed — reveals the high retail tariff for these products in India. Such data is drawn from what is called price build-up of petrol and diesel, available with the state-run oil marketing companies. The oil marketing companies, in turn, charged Rs 31.94 per litre to the dealers — that is the petrol pumps. The rest is what one paid in taxes and levies. In the national capital, a consumer of petrol today pays Rs 21.48 per litre as excise duty — this is nearly 75 percent of the refinery transfer price, or the price paid by the oil marketing companies like Indian Oil Corp and Bharat Petroleum Corp to the refineries.
Source: The Economic Times
Impartial work on UPA’s LPG scheme fuels BJP’s rise in UP
January 20, 2017. Another UPA government effort leveraged by Narendra Modi government appeared creating ripples for its impartial implementation in poll-bound Uttar Pradesh (UP). Oil Minister Dharmendra Pradhan has been aggressively pushing Ujjwala Scheme in relatively poor states like UP, Bihar, West Bengal and Odisha. Pradhan’s push has meant maximum enrolment in UP since the scheme was launched by PM in May last year from Ballia. About 50.26 lakh new LPG connections have been issued to the poor in UP since May last year. This works out to 12,500 households getting the massively subsidised Ujjwala LPG cylinders in each assembly segments across the state. Ujjwala LPG connections also have fewer critics compared to similarly targeted social outreach schemes like Indira Aawas Yojana or the food ration cards of yesteryears that were marred by massive errors of inclusion of ineligible beneficiaries and exclusion eligible beneficiaries. The oil ministry said it was made possible by leveraging the Socio-Economic Caste Census (SECC), popularly known as BPL census, carried out by the previous UPA regime during 2011-13. The data with the oil ministry suggest there were at least 10 districts in Uttar Pradesh – Sitapur, Kushinagar, Allahabad, Lakhimpur-Kheri, Bahraich, Unnao, Gonda, Gorakhpur, Hardoi, Kanpur Dehat — where more than none lakh new LPG cylinder connections was distributed since the launch of scheme in May last year.
Source: The Economic Times
Saudi oil giant likely to set up refinery in AP
January 19, 2017. Global giant in the oil sector, Saudi Aramco has hinted at setting up a refinery in Andhra Pradesh (AP). The Saudi Arabian oil major also evinced interest in turning coastal AP as one of its major bases but this plan will move forward only after the Centre okays the proposal. AP Chief Minister N Chandrababu Naidu held negotiations with Aramco president and CEO Amin al-Nasser, and extracted a positive response on making investments in AP. The CM promised Naseer to allot land and water without any hassle for the mega refinery. Naidu told Nasser that his government is firm on completing the mega petro-chemical corridor along the coast. Articulating elaborately on the oil reserves in the Krishna-Godavari basin, Chandrababu invited Aramco to invest in AP. Nasser said that Aramco would collaborate with the government in India first and study the possibility of partnering with Andhra Pradesh in setting up the refinery.
Source: The Times of India
NATIONAL: GAS
GSPC looks at financial restructuring post ONGC deal
January 22, 2017. After selling its stake in KG gas block to Oil and Natural Gas Corp (ONGC) for $1.2 billion, Gujarat State Petroleum Corp (GSPC) is mulling a big financial restructuring including trimming stake in some business like liquefied natural gas (LNG) and portfolio readjustment. The Gujarat government firm, which is saddled with nearly Rs 20,000 crore of debt, has a large gas trading business, gas transmission pipelines and city gas business. GSPC has already offered to IOC its entire 50% stake in Rs 4,500 crore LNG import terminal being set up at Mundra in Gujarat in partnership with Adani Group. The 5 million tonne a year import terminal is 90% complete. Asked if divesting stake in other ventures is an option. Within the country, GSPC has working interest in 23 blocks, out of which 16 blocks are producing and balance 7 are under exploration/development stage.
Source: Livemint
RIL writes down $6 bn for new accounting standards
January 18, 2017. Reliance Industries Ltd (RIL) has written down almost $6 billion (Rs 39,570 crore) of investments in its Krishna Godavari Basin D6 block and US shale gas assets attributing it to change in accounting policy. RIL said that while Indian Generally Accepted Accounting Principles (IGAAP) recognises two methods of accounting for oil and gas activities, namely, full cost method and successful efforts method, the new method under Indian Accounting Standards (Ind-AS) only recognises the successful efforts method which resulted in the huge write-down. The write-down constitutes Rs 20,114 crore on domestic oil and gas assets, mainly the KG-D6 fields. The company’s flagging KG-D6 field produced 0.26 barrels of crude oil and 24.4 billion cubic feet of natural gas in the third quarter of FY17, a reduction of almost 30% year-on-year.
Source: The Economic Times
Centre agrees to supply LNG to households in Yanam: Puducherry CM
January 18, 2017. Puducherry Chief Minister (CM) V Narayanasamy said the Centre has acceded to the Puducherry government’s plea to supply cooking gas to every household through pipelines in Yanam region, an enclave of Puducherry in Andhra Pradesh. Narayanasamy said the natural gas available in the Godavari basin off the coast of Kakinada would be used for supply of liquefied natural gas (LNG) to every house hold in Yanam region. A terminal would come up in Karaikal region as per the assurance given by the oil ministry. The territorial government had also decided to show considerable concessions in the sales tax for sale of the fuel by the IOC for the flights that would be operating soon from Puducherry airport, he said.
Source: The Economic Times
NATIONAL: COAL
Govt may cap number of coal blocks a company can hold
January 23, 2017. The government is considering capping the amount of coal blocks that a company can hold. The clause is part of the draft coal block allocation guidelines issued for public comments by the coal ministry and would apply to mines other than the 204 blocks that were cancelled by the Supreme Court in October 2014. The Centre may also specify the maximum number of coal blocks or amount of coal reserves or both that may be allocated to a company or corporation or its subsidiary or associate companies, the draft coal block allocation rules said. The draft rules have been framed to bring the provisions of Mines and Minerals Development and Regulation Act in line with the provisions of Coal Mines (Special Provisions) Rules, 2014, to bring uniformity in the coal block allocation. The rules provide that in case coal block is allotted or secured by a project with supplies from Coal India Ltd (CIL), then entitlement to receive coal will be proportionately reduced. The rules also limit the role of state governments and propose to invite representatives of the state government where the coal block is located, only if required.
Source: The Economic Times
CIL to launch coal auction for power companies with flexible lifting
January 19, 2017. Coal India Ltd (CIL) will hold long-term special forward auction for power producers with flexible lifting period of up to 3 years. CIL will soon notify the detailed offer, schedule dates for auction. Power utilities consume about 75-77 percent of the total coal, as per estimates. CIL, which accounts for over 80 percent of the domestic coal production, is eyeing 1 billion tonne of output by 2020.
Source: The Economic Times
Coal ministry to move Cabinet soon for fuel linkages to power sector
January 19, 2017. The coal ministry will soon seek the Cabinet’s approval for the auction of coal linkages for the power sector. He said that the government was never in a hurry to auction linkages for the power sector as there is sufficient availability of coal in the country for all the sectors. Earlier, the Cabinet Committee on Economic Affairs had approved allocation of coal linkages for non-regulated sector only through auction. Coal India Ltd had decided to allocate a total quantity of around 23.25 million tonnes per annum in the first tranche of coal linkage auction.
Source: The Economic Times
Electricity may get costlier as states demand higher royalty on coal: India Ratings
January 18, 2017. Chhattisgarh’s request for a revision in royalty rates on coal to 30 percent from the existing 14 percent ad-valorem, will push up the cost of electricity by 7 percent or 10-12 paisa per kWh, India Ratings said. The state government has constituted a study group to consider the revision in the royalty rates based on the request. Assuming a pithead price of Rs 720 per tonne for coal, the royalty increase will also lead to a higher contribution towards district mineral foundation (DMF) at 30 percent of royalty and National Mineral and Exploration Trust (NMET) at 2 percent of royalty, which translates into a higher cost of electricity generation by 10-12 paisa per kWh. Since January 2015, coal consumers have been hit by rising prices due to the imposition of DMF and NMET (effective January 2015), taking the effective royalty rate up to 18.48 percent from 14 percent. Additionally, if the royalty rates were to increase to 30 percent, the effective royalty rate would be 39.6 percent including DMF and NMET contribution. Furthermore, the clean energy cess increased to Rs 400 per tonne from Rs 200 per tonne in the Union Budget 2016.
Source: The Economic Times
NATIONAL: POWER
MSEDCL on aggressive recovery drive
January 24, 2017. The state power utility has appealed to the consumers to pay their pending dues towards electricity bills, if any, as it has undertaken an aggressive recovery drive. With the financial year nearing an end, Aurangabad circle of the Maharashtra State Electricity Distribution Company Limited (MSEDCL) has launched a campaign for collecting the outstanding amount. As a part of the drive, the MSEDCL staff has permanently disconnected power supply of 1,752 consumers in the circle for failing to pay their dues. The dues worth Rs 18.96 crore were left to be recovered from these consumers. Also, power connections of another 3,285 consumers have been snapped on a temporary basis due to non-recovery of dues worth Rs 19.3 crore. As far as Aurangabad is concerned, Rs 10.45 lakh has been recovered from 2,514 consumers. Over 1,000 consumers have had their power connections disconnected permanently, while 1,092 have lost electricity temporarily. Dues worth over Rs 20 crore are to be recovered from consumers whose power supply is cut.
Source: The Economic Times
Power audit to regulate consumption by biz entities in Gurgaon
January 24, 2017. Malls, hospitals, plazas, hotels and even government buildings in Gurgaon are likely to come under the dragnet of renewable energy department, which has made it mandatory for them to carry out an energy audit that will curb exceeded power consumption. This, the government hopes, will bring Gurgaon’s peak load – which stands at 1,400 MW – down by 30%. Invoking Section 18 of the Energy Conservation Act, 2001, the department of renewable energy passed new guidelines, making it mandatory for power consumers, drawing a connected load of 1 MW or more, to get an energy audit conducted by an auditor accredited by the bureau of energy efficiency (BEE), within 18 months from the date of notification. The order also fixes a penalty in case consumers fail to act on the expiry of the three years and six month period from the date of issuance of notification.
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