Energy group Total criticises EIB’s decision not to finance gas
Total’s head of gas, power and renewables said on Thursday that the European Investment Bank (EIB) had made a “poor decision” to stop financing all fossil fuel projects because it ignored the benefits of using gas over coal. “I think it is a poor decision by the European Investment Bank not to finance any new gas project. This decision has been taken on an unfair ground, driven by opinions that are clearly ignoring the benefit of gas compared to coal,” Philippe Sauquet told a gas and power conference in Paris on Thursday. “Gas has never been so much criticised in Europe,” he said.
PSU oil biggies to stay out of BPCL divestment
State-run entities will stay off when the government puts India’s second-largest public sector oil refiner and fuel retailer Bharat Petroleum (BPCL) on the block, a move that is expected to make the offering attractive for foreign majors. “Since 2014, we have a clear vision that the government has no business to be in business … Nitty gritty and details of the disinvestment process will have to be worked out but when I say the government has no business to be in business, it is indicative of possible future course of action,” oil and steel minister Dharmendra Pradhan said on the sidelines of an industry function on Thursday. The cabinet on Wednesday cleared the proposal to privatise BPCL by selling the government’s 53.3% stake with management control to a strategic investor. This will be the first privatisation of an oil company by the Narendra Modi government. BPCL will give the buyer access to 14% of India’s oil refining capacity and about a fourth of the fuel marketing infrastructure in the world’s fastest-growing energy market. PSU oil biggies to stay out of BPCL divestment On Thursday, the decision to sell BPCL drew flak from Congress member and former oil minister Veerappa Moily who described it as “an attempt to sell away an important soul of the public sector”. There is no reason to sell a profitable company managed by excellent professionals, he said in a statement demanding a rollback. Pradhan pointed out that private competition in telecom and aviation sectors led to customers benefiting from price cuts, efficiency and better service.
Fuel shortages push India to build strategic natural gas reserve
After oil, India is set to build strategic reserve of natural gas, to further strengthen country’s energy security and shield itself from supply disruptions coming from perennial political risk in the prime energy supplying countries in the Middle East and Africa. The reserve will also help the country cope with demand spike and price rise in the event of border skirmishes and war like situation that played out with Pakistan recently. For building strategic gas reserve, the plan is to inject depleted gas fields with the fuel or develop storage in large salt caverns. The plan for strategic gas reserves emerges from an official study that suggests that consumption of natural gas would grow two-folds by 2030 resulting in large gap between demand and domestic production. This would increase imports of gas and take it closer to levels of oil imports, where the country has depend on overseas supplies to meet over 80 per cent of domestic consumption. At present, almost of half of domestic consumption of natural gas is met from imports. The suggestion for building strategic gas reserve has also come from Niti Aayog that is finalising a national Energy Policy. The policy draft has made a case for a gas storage required, if consumers have to be assured of un-interrupted supplies. Official sources said that a panel in the petroleum and natural gas ministry is currently studying various suggestions for building the gas reserve and will take a call on the matter soon after report of experts on the issue come. It also plans to hire consultants to evaluate options. It is expected that natural gas reserve would rely more on private sector to build gas storage capacity. In this regard, depleted oil and gas fields of national oil companies (NoCs) will be offered on competitive basis to interested gas marketers, both for strategic and commercial storages. A policy in this regard may be formulated by the oil ministry. Also, other options like salt caverns and aquifers would also be explored to build strategic gas reserve. Once the storage is identified, bids would be invited to use the storage. Overseas gas producing companies may also be offered stake in such storage as is being done in the case of strategic oil reserve. The storage facility may be chosen close to the pipeline infrastructure so that the fuel can be easily used in times of need. “The strategic gas reserve would work well for the country as it would ensure uninterrupted fuel supply to key infrastructure projects. However, the cost structure for storage should be such that fuel price for customers is kept low. Close to 25,000 MW of gas based power projects are either under stress or functioning at very low capacity due to shortage of gas,” said a power sector analyst not willing to be named. For India strategic storage of gas would work well also because the domestic gas production has remained stagnant for past few years. In the current fiscal (FY20), upto September while gas production has declined by 1.5 per cent, LNG imports has risen 7.9 per cent. India already has operational 5.33 million tonne underground strategic oil reserve facility at Vishakhapatnam, Mangalore and Padur. This is also being further expanded to augment strategic oil reserves facility with 90-100 days stock. The idea about strategic gas reserve is not new to India. Several heavy energy consuming countries have build storage to ensure supply security. US has almost a third of global gas storage while Russia, Ukraine, Canada and Germany together account for another big chunk. China, is also a gas storage facilities.
Going for more professionalism in PSUs via equity dilution: Dharmendra Pradhan
State-run companies need to be more accountable to the people of the country and the government has taken the decision to dilute equity stake for making them more professional, Union minister Dharmendra Pradhan said on Thursday The Union Cabinet on Wednesday decided to sell its entire stake in three enterprises and bring down stake below 51 per cent in select PSUs. The opposition Congress on Thursday staged protests in Parliament against privatisation of oil PSU BPCL and Shipping Corp. “We need to be accountable…that is why we took these decisions. The Prime Minister took these decisions in Cabinet meeting yesterday. We are going for equity dilution that means going for more professionalism. and I believe you (PSUs) must…promote it,” the steel minister said in his address at the ISA Steel Conclave event here. Pradhan also urged steel PSUs SAIL and RINL to be more competitive. If private industry can produce steel facing competition from their competitors and and that in same market conditions, then SAIL and Rashtriya Ispat Nigam Ltd (RINL) will also have to do the same, he said. The minister said said it is not him or the SAIL management that owns the entity but the general public, hence the accountability of the government is more towards the people. “Since these are government companies our accountability is more towards people,” Pradhan said. The country’s largest steel maker SAIL posted a loss of Rs 342.84 crore for the July-September quarter. The minister also asked the steel industry to work towards the mission of Green Steel, according to a release. “Industry must deploy technology, innovation to develop environment friendly processes,” the minister said. The Petroleum and Natural Gas Ministry has launched Pradhan Mantri Urja Ganga project in the Eastern India, which can provide gas to all the Steel plants, located in the area. Being an environment-friendly and affordable fuel, the Steel industry should move towards it, replacing coal, he said.
ONGC projects marginal rise in oil production, cuts gas output guidance from KG block
India’s state-owned petroleum explorer Oil and Natural Gas Corporation (ONGC) is likely to witness only a marginal rise in crude oil production by 2024 and has cut an earlier guidance on gas output from flagship block KG-98/2, a company executive said during an analyst call post the second quarter results. The executive told analysts ONGC expects marginal increase in total crude oil production by 2024 from the current annual level of 23-24 Million Tonne and the contribution from its mega offshore deep water project – KG-DWN-98/2 – will result in an increase in gas production to 35 Billion Cubic Meter (BCM) by 2024, as compared to a projection of 40 BCM made earlier. “As far as oil is concerned till 2022, 2023 and 2024, you can take same level plus 2 MT on account of KG 98/2 coming online. Current fiscal we will produce over 25 BCM of gas. From 2021-2022, when KG 98/2 starts contributing in a major way, from that time onwards the production will be between 32-35 bcm. So, between 2021 and 2024 there will be a build up annually with production rate around 32 BCM and in 2023-2024 it will reach around 35 bcm, lower than our earlier guidance of 40 bcm,” the executive said during the analyst call. The company’s mega offshore deep-water project in the east coast is one of ONGC’s biggest and most ambitious projects where it aims to invest up to $5 billion during the entire lifecycle of the asset. Peak production from KG basin is projected to account for 17 per cent and 24 per cent of current standalone annual oil and gas production. “All of our fields are old and it is not unusual for fields to face a declining trend. Most of our production comes from offshore fields and because of weather window many activities could not be carried out in Mumbai during this time. All efforts are underway to arrest the decline as far as Mumbai is concerned,” the executive said. He also said the company plans to spend Rs 35,000 crore in 2021-2022 as compared to Rs 32,000 crore planned for the current fiscal year ending March 2020. ONGC’s crude oil production during the first six months of the current financial year declined 4.7 per cent to 11.71 Million Tonne while gas production during the period increased marginally to 12.66 BCM. The company expects its crude oil production to fall from 24.23 million tonne in 2018-19 to 23.8 Million Tonne this fiscal. Natural gas production is expected to decline to 25 BCM in the current financial year from 25.81 BCM last year. The executive of the company also called for the government to deregulate natural gas prices as an incentive for exploration and production. “We strongly believe that there is no rational in bringing administered price as far as gas is concerned. We believe sooner than later if E&P activity in the country is to be promoted there has to be reforms in areas of pricing of gas. Price has to be discovered by the market rather than a formula. We are struggling to sell gas at the price at which it is currently prevailing,” he said. A panel led by Niti Aayog vice chairman Rajiv Kumar had reportedly suggested free-market pricing for natural gas produced from all fields to boost domestic production. Heads of multinational companies – BP and Total- also raised concerns over natural gas prices during a recent visit to India. Oil minister Dharmendra Pradhan, replying to a question asked in Parliament this week, said there is no proposal to change the formula for pricing of natural gas at present.
BPCL sale: Asset strip, two-phased share sale proposed to make BPCL attractive
With the aim to attract a larger number of investors to take over public sector oil refiner Bharat Petroleum Corporation Ltd (BPCL), the government is looking at further stripping some assets from the parent entity while splitting the share sale plan into two phases. Official sources said that trifurcation of BPCL’s assets may be carried out before the government’s shares are put up for sale to strategic investors. Also, the government’s 53.29 per cent in the company may be sold in two phases with only between 28-30 per cent of the equity shares to be offered in the first phase to strategic investors with transfer of management control. “BPCL has few joint ventures where the holding of the other partner is substantial. It would be best to look at exit option from such joint ventures to avoid complications for strategic investors at a later stage,” another official with direct knowledge of the development said. “Like a carve out for BPCL’s Numaligarh Refinery approved by the Cabinet on Wednesday, BPCL may also exit from its 50:50 joint venture with Oman Oil Company for 7.8 million tonnes Bina refinery in Madhya Pradesh before being put to sale to strategic investors,” the official added. Oman Oil may be offered first right to take over balance 50 per cent in Bina Refinery, or Bharat Oman Refineries. The government is trying to make BPCL best fit case for a takeover as there is fear that no company, including global majors, may commit to invest close to Rs 1 lakh crore required to complete the BPCL transaction at one go. This includes about Rs 60,000 crore for taking over the entire government stake of 53.29 per cent in BPCL and balance for an expected open offer under the takeover regulations. So a two-phased share sale will automatically reduce the investment commitment of investors to just about Rs 30,000 crore. This would also work to the advantage of the government as it can completely exit BPCL later when the valuation of the company improves post infusion of funds by the strategic investor. With further asset strip, the strategic investor may have to shell out even lower to take control of BPCL. The government has tried this model earlier during the strategic disinvestment of metal and mining PSUs Hindustan Zinc Ltd (HZL) and BALCO. The then Atal Bihari Vajpayee government retained minority shareholding in these companies post sale and change of management control. Even now, the government is holding on to 24 per cent stake in Container Corporation of India (ConCor) while ceding management control to a strategic investor who will control 30 per cent shareholding. On its part, DIPAM is working out a plan to offload entire government equity to a strategic partner, possibly a large overseas oil entity like Saudi Aramco, Total, ExxonMobil, or BP. However, with oil market globally facing a slowdown with demand not picking up despite supply squeeze, the appetite for a large acquisition becomes difficult. While no Indian company looks like mobilising such huge funds for BPCL’s buy, industry experts hinted that companies from Russia and the Gulf region could be targeted to get the necessary investment. This, sources said, could be done through government to government talks as most oil companies in the region are state-controlled. BPCL, in present times, will be an attractive buy for companies ranging from Aramco of Saudi Arabia to French energy giant Total SA which are vying to enter the world’s fastest-growing fuel retail market including entry in retail space where BPCL has significant presence. Alternatively, the government could also keep other oil PSUs such as Indian Oil Corporation (IOC), or OIL India on a standby to go in for share buybacks in the event strategic sale to a private partner met with little success. BPCL operates four refineries at Mumbai, Kochi in Kerala, Bina in Madhya Pradesh and Numaligarh in Assam with a combined capacity to convert 38.3 million tonnes of crude oil into fuel. It has 15,078 petrol pumps and 6,004 LPG distributors. After the cabinet decision, BPCL’s strategic disinvestment will proceed without inclusion of Numaligarh Refinery. With a capacity of 3 million tonnes (mt), NRL is relatively small in scheme of things at BPCL. Its separation will not have much impact on BPCL’s valuation. But if Bina Refinery is divested, almost of fourth of BPCL’s refining capacity would be out from the parent, making BPCL a lot lighter. Sources said that it may be premature but the thinking is also to separate refining and retailing operations of BPCL as most global entities are more interested in getting a foothold in India’s fuel retailing operations than getting into fuel refining. Global companies are looking at outlet for their existing refining operations overseas and India with the tag of being third biggest fuel consumer, presents an attractive market. The government proposes to raise Rs 1.05 lakh crore from disinvestment in the current financial year. It had exceeded asset-sale targets of Rs 1 lakh crore in FY18 and Rs 80,000 crore in FY19.