India to announce new Bio-ATF policy soon: Oil minister Dharmendra Pradhan
The oil ministry will soon announce a new Bio-Aviation Turbine Fuel (ATF) policy, oil minister Dharmendra Pradhan said today. The idea is to promote the use of clean biofuel in aviation. He was speaking to the media at the Indira Gandhi International (IGI) Airport during an event marking the arrival of the country’s first biofuel-powered aircraft operated by SpiceJet. Road transport and highways minister Nitin Gadkari, commerce minister Suresh Prabhu and Minister of State for Civil Aviation Jayant Sinha were also present on the occasion. “I would like to congratulate the Indian Institute of Petroleum. The oil ministry will soon come out with a new Bio-ATF policy. Under GST, bio-diesel taxation has been reduced to 12 per cent from 18 per cent. Similarly, ethanol is now taxed at 5 per cent as compared to 18 per cent earlier. The bio-fuel industry is set to gather pace, whether it is bio-diesel, ethanol blending, bio-CNG, ethanol procurement or 2G ethanol production,” Pradhan said. Low-cost carrier SpiceJet operated a demonstration flight of its biofuel-powered Bombardier Q400 aircraft from Dehradhun to Delhi today. The fuel for the flight – which comprised 25 per cent biofuel made from Jatropha crop and 75 per cent ATF — was developed by Indian Institute of Petroleum. Around 20 people, including officials from aviation regulator DGCA and SpiceJet, travelled in the test flight. The duration of the flight was around 25 minutes. “Today’s historic milestone is in-sync with Prime Minister Narendra Modi’s vision of promoting bio-fuels to create wealth from waste, reduce import dependency, lower carbon emissions and usher in a new momentum to take India forward on the path of prosperity,” Pradhan said in a social media post. The government had earlier this year approved the National Policy on bio-fuel, which allows blending of ethanol produced from damaged foodgrains, rotten potatoes, corn and sugar beet with petrol, hoping to cut oil imports by Rs 4,000 crore in the current financial year alone. The policy provides for viability gap funding (VGF) scheme for setting up 2G Ethanol bio refineries at a cost of Rs 5,000 crore in six years in addition to additional tax incentives and higher purchase price as compared to first generation biofuels. Fuel cost accounts for around 50 per cent of an airlines expenses in India. In a bid to reduce operational costs of airline operators, the country’s aviation industry has been appealing to the Goods and Service Tax (GST) council to include ATF under the ambit of GST.
Is Mahanagar Gas Stock Rout Justified?
Shares of Mumbai’s only city gas distributor Mahanagar Gas Ltd. have declined by more than a third since its last peak in November despite the government’s push to increase the consumption of cleaner fuels in India. The slide can be attributed to three main reasons—a promoter selling stake, rupee depreciation and higher gas prices. Promoter Selling Stake Royal Dutch Shell Group’s subsidiary BG Asia Pacific Holdings Pte. Ltd., which is a promoter of Mahanagar Gas, has so far sold 22.5 percent stake, according to data compiled by BloombergQuint from exchanges. BG Asia Pacific changed its strategy to invest more in the upstream exploration businesses. It offloaded shares in two tranches, selling at a discount to the prevailing market price. The company’s left with 10 percent. According to the Securities and Exchange Board of India’s listing regulations, it can’t sell the remainder until July 1, 2019. Rupee Depreciation In the last one year, the rupee depreciated by close to 9.5 percent against the U.S. dollar, while gas prices rose. Mahanagar Gas purchases fuel using dollars—which means it needs to pay more if the Indian currency weakens. Rising Input Gas Prices Moreover, rising administered gas prices for explorers in India increased investor concerns about the company’s ability to maintain margins. …But Stays Most Preferred Pick Yet, Mahanagar Gas, according to Bloomberg data, is the most-preferred pick among the three listed city gas distributors with only four analysts rating it a ‘Sell’ out of the 23 tracking the stock. Here’s why: Room To Protect Margins Compressed and piped natural gas, which are used as alternatives to petrol, diesel and liquefied petroleum gas, are at least 30-40 percent cheaper. That gives Mahangar Gas the room to increase retail prices. In the last one year, the company has hiked CNG and PNG prices thrice, helping it maintain margins. Cleaner Fuel Push To Aid Volumes Natural gas is cleaner and less polluting than conventional fuels, one of the reasons why the government wants to increase its percentage in the energy mix from 6 percent to 15 percent by 2030. Besides helping India reduce its carbon footprint in accordance with the COP-21 protocol, that would reduce the oil import bill. Mahanagar Gas’ volumes jumped over the last two years. With natural gas penetration at just 30 percent in Maharashtra, the growth potential is huge for city gas distributors, according to a Kotak Securities report. Mahanagar Gas has exclusive mandate to lay, build, expand and operate gas network in Mumbai till 2020, in Thane urban and adjoining municipalities until 2030, and in Raigad district till 2040. Cheaper Than Peers Despite being India’s most profitable listed city gas distribution company, it trades at a steep discount to its peers. It offers highest upside for investors. Ronnie Lott Womens Jersey
ONGC now looks to HPCL to fuel retail expansion plans
The impending merger of state-run Hindustan Petroleum Corp. Ltd (HPCL) and Mangalore Refineries and Petrochemicals Ltd (MRPL) may put a break on MRPL’s fuel retailing expansion plans, leaving its parent Oil and Natural Gas Corp. Ltd (ONGC) to fulfil these ambitions through HPCL, said two officials aware of the development. MRPL is a wholly owned subsidiary of ONGC and operates a 15 million tons per annum refinery in Mangalore, Karnataka. This January, ONGC acquired the government’s 51.11% stake in HPCL through an all-cash deal of ?369.15 billion. “MRPL has six fuel retail outlets. At best it can expand to a few more. But HPCL has 15,127 retail outlets. MRPL can never match that. Though MRPL is not competing with HPCL, in all probability, ONGC’s retail ambitions will be fulfilled with HPCL now onboard,” said one of the officials mentioned above. Post merger with HPCL, the fuel retail outlets of MRPL could be rebranded as HPCL’s. MRPL’s retail outlets are called HiQ, he said. Currently, MRPL relies on oil marketing companies (OMCs) Indian Oil Corp. Ld, Bharat Petroleum Corp. Ltd and HPCL to market its products in the fuel retail space. This results in lower offtake of products from MRPL with OMCs sometime preferring to bring in products from outside Karnataka to meet the state’s demand. As a result of this, MRPL is forced to rely on exports, resulting in marginally lower realization for the products. “MRPL is setting up retail outlets within its span of influence and expects to overcome this weakness in the medium term. Expected synergies from the acquisition of HPCL, by the parent company, ONGC are also expected to mitigate the lack of retail penetration,” said MRPL in its annual report for 2017-18. MRPL entered the fuel retail segment in 2008 and till 2013 it had plans to roll out 120 fuel retail outlets in the first phase of its retail expansion strategy. The company has the approval to set up 500 retail outlets and its parent ONGC has an approval to set up 1,100 retail outlets. Setting up a fuel retail outlet, including the land cost, requires around Rs.50 million. MRPL has gone slow on its retail plans as, like other OMCs, it was declined subsidy (compensation for selling fuels below market price). “MRPL wanted to be a significant player in fuel retailing, but being a standalone refinery, which is not part of any oil marketing company, it does not get compensated by the government for selling fuel below market price. The company fears that in the wake of higher oil prices, the government may once again require the OMCs to share the fuel subsidy burden. This will render MRPL’s retail outlets uncompetitive,” said the second official mentioned above. Crude oil prices have climbed 11.5% and is currently hovering around $74.5 a barrel. Mark Andrews Jersey
Gas pipelines at Surat airport: ONGC told to find solution
The district administration has directed Oil and Natural Gas Corporation (ONGC) to work out a solution for rerouting or covering of the buried sour gas pipelines passing through Surat airport, which are proving to be a major irritant in the proposed extension of runway from 2,905 metres to 3,810 metres. District collector Dr Dhaval Patel in a meeting held with officials of ONGC and Airports Authority of India (AAI) two days ago discussed the issue of the buried sour gas pipelines passing through the airport. The meeting was held after the state government and the AAI jointly decided to take ONGC on board to work out a solution for rerouting or covering of the pipelines in the airport area in a time-bound manner. ONGC had invited expression of interest (EoI) for the safe operation of the buried pipeline six months ago, but things are moving at a snail’s speed. Kentavius Street Womens Jersey
Petrol and diesel prices are already high, futures trading in them will only be speculative in nature
The Securities and Exchange Board of India (SEBI) is reported to be in the final stages to permit futures trading in petrol and diesel—Indian Commodity Exchange Ltd (ICX) has urged SEBI to allow it to trade in futures contracts for petrol and diesel. As it is, futures trading is allowed in crude oil. Petrol and diesel are, among others, the two major refinery products derived from crude oil. Hence, crude oil futures contract currently serves as a proxy for hedging in both petrol and diesel. This is not all. In the US, the world’s leading and most diverse derivatives marketplace, the CME Group comprising four exchanges—CME, CBOT, NYMEX and COMEX—offers the widest range of global benchmark products across all major asset classes. Its energy markets fuel almost all the world’s leading economies, and impact nearly every nation, including India, which is one of the world’s largest importers of crude oil and petroleum products. Futures and options on crude oil, refined products, natural gas, power, biofuels and coal at NYMEX help industry members and everyday investors in India to manage their price risk on imports and distribution of both crude oil and petroleum products like petrol and diesel. In the US, there are as many as 10 oil producing and distributing companies—British Petroleum, Chevron, ConocoPhillips, Exxon Mobil, Occidental Petroleum, Shell Oil, Anadarko Petroleum, Apache Corporation, XTO Energy and Amerada Hess. The price of crude oil in the US is determined by the global supply and demand. In recent years, the worldwide demand for crude oil has increased, and at times caused global oil prices to rise. Crude oil is the single-largest factor in determining the price of gasoline at the pumps in the US. In the US, at the gas stations (petrol pumps), the choices usually include the premium (most expensive) grade, the midgrade, the regular/unleaded (least expensive)—typically labelled in black—and diesel (typically labelled in green). The prices not only vary from grade to grade, but also from one producing company to another, besides from gas station to gas station. In India, private fuel retailers like Rosneft-owned Essar Oil and Reliance Industries have doubled their market share in the last three years, capturing close to 7% of petrol sales and over 8% of diesel sales. Private companies were allowed to sell petrol and diesel in March 2002. From April 2002 onwards, fuel pricing was also deregulated. Consequently, Reliance, Essar and Shell set up petrol pumps to directly compete with public-sector giants like Indian Oil (IOC). In the initial years, private firms were aggressive in setting up of petrol pumps. However, they slowed down once government control over pricing came back in vogue in 2004-05, and they couldn’t compete with subsidised fuel sold by PSUs. The government freed petrol price from its control in June 2010, and the same for diesel was done in October 2014, giving a fillip to fuel retailing by private firms. In 2017-18, private retailers commanded 6.8% market share in petrol sales and 8.2% in diesel. Private retailers sold 5.18 million tonnes of diesel in 2017-18. PSUs—IOC, Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL)—reported diesel sales of 58.29 million tonnes in 2017-18. Through the past four years, India’s fuel consumption grew by an average of 3-4% annually. In petrol, PSU sales were 21.99 million tonnes in 2017-18, against the sales of private retailers at 1.59 million tonnes in the same year. Over the past four years, private sales of petrol are rising at the cost of public sector sales. India had 61,678 petrol pumps as of January 2018. IOC operates the maximum (26,752 pumps), HPCL has 14,853 pumps and BPCL has 14,293 pumps. In the private sector, Essar has 4,275 petrol pumps, while Reliance has 1,400 retail outlets and Shell operates 100 petrol pumps. In India, the pricing of petroleum products plays a crucial role in its economy, as over 75% of consumption of crude oil is based on import, and the world market price of crude oil is highly volatile. Although the prices of petroleum have been deregulated since 2010, there has been no symmetric relationship between crude oil prices and those of petrol and diesel. Fuel prices are determined by trade pricing parity, comprising 80% import price parity and 20% export price parity. Beginning June 16, 2017, all petrol pumps across the nation have been changing their petrol and diesel prices each day, based on international market prices of crude oil and foreign exchange rates. These prices are fixed at 6:00 am in the morning every day. Prices, however, differ from city to city to make allowance for transport costs from oil refineries. Components of petrol prices Crude oil is the major raw material for both petrol and diesel. At present, 75% of India’s crude oil needs are met through imports. Therefore, international prices of crude oil and foreign exchange rates form the base components of prices of petrol and diesel in the country. Ironically, the import price of crude forms only a small portion of the retail price of diverse petroleum products. The final price is determined by a host of other factors. In fact, more than 57% of the retail price of petrol and diesel goes towards central and state taxes, duties, cess and dealer margins. While the central excise duty is a major component of taxes on petrol and diesel, state value-added taxes, which are ad valorem, vary from state to state. Nevertheless, since public-sector oil majors determine the day-to-day prices of petrol and diesel, there is obviously no case for futures trading in them. These prices are based on cost-plus basis. So, petrol pumps are not at a loss. There’s no need for them to hedge either their purchases or stocks of petrol and diesel. By and large, they live on hand-to-mouth basis. It is indeed naive to expect them to hedge their purchases and stocks in a futures market. Petrol and diesel prices are already quite high. Futures trading in them will only be speculative in nature and aggravate the
GAIL to launch portal allowing outsiders to hire its gas pipelines
State gas utility GAIL India Ltd will tomorrow launch a new portal to allow anyone to hire its vast pipeline network for transporting natural gas as it makes last-ditch attempt to ward off breaking of the company, people in the know of the development said. The oil ministry has been for last few months considering separating GAIL’s gas transportation and marketing business to resolve the conflict of the same entity doing both the jobs. One of the reasons for this was some industry players alleging that GAIL was not giving them access to its 11,000-kilometer pipeline network to transport their gas. Sources said while GAIL has maintained that it allows third-party access based on firm commitment, the company will tomorrow launch an online portal for common carrier capacity booking by marketing entities and consumers for transportation of natural gas through its pipelines. The ministry had in January stated that it is considering to split GAIL into two – one for laying pipelines and the other for marketing and petrochemicals – to encourage more transparency between the two operations and resolve the conflict of interest in it being both the transporter and marketer of natural gas. This is because it believed that all entities authorised to lay natural gas pipelines including GAIL have to “provide mandatory open access of its gas pipeline infrastructure on common carrier principle at the non-discriminatory basis, at transportation rates determined by the Petroleum and Natural Gas Regulatory Board (PNGRB)”. Citing a 2006 policy, it stated that in the long run with the maturity of gas markets, the authorised entities should have transportation of natural gas as their sole business activity and not have interest in gas marketing or city gas distribution network. GAIL is the country’s biggest gas marketing and trading firm and owns most of the country’s pipeline network. The ministry, however, seemed to have softened its stand on splitting GAIL since then. In its comments on the issue to a Parliamentary Standing Committee on Petroleum and Natural Gas, the ministry said that for unbundling “market maturity is critical”. It did not expand on market maturity. It is widely considered that the Indian gas market is far from mature. At an Open House called by the sector regulator, PNGRB on July 17 to discuss unified traffic for pipelines, global energy majors Royal Dutch Shell and BP plc sought separation of natural gas marketing and transportation business. While Shell sought “legal unbundling” of gas trading and transmission business, so that benefit goes to all shippers, BP felt unified tariff “should be done after unbundling of transmission and marketing functions of an entity”. GAIL Chairman and Managing Director B C Tripathi had on May 24 stated that unbundling of gas marketing and transportation business globally has been done only after the gas market has matured. In mature markets, monopoly gas transporting and marketing companies have been unbundled or split after the share of natural gas in energy mix has reached at least 15 per cent and a well-connected pipeline network built. Also, domestically produced natural gas forms bulk of consumption. In India, the share of natural gas in the energy mix is 6.2 per cent, its eastern and southern parts are not connected to any pipeline and domestically produced gas makes up for just 40 per cent of the consumption. GAIL also insists that it operates the two business at arm’s length principle and hasn’t ever tried to use its monopolistic situation for undue commercial gains. “Going forward, we will come up with a portal where capacity on our pipelines can be booked transparently,” he had said. The portal being launched tomorrow is a step in that direction. The company website already shows third-party access being given to all its pipelines on the common carrier principle basis. Nevin Lawson Jersey