Coronavirus impact: A mixed bag for Indian oil and gas companies
With global oil and gas industry still scrambling to decode the overall impact of Coronavirus on oil demand and economic growth, Indian refiners are treading a tightrope to balance inventory losses, deal with lower product cracks and utilising the fall in freight and spot cargo rates. Benchmark Brent crude oil prices have fallen almost 20 per cent to $55.14 per barrel in a month, primarily driven by investor concerns on oil demand destruction, as China one of the largest consumers and importers of crude oil grapples with mounting death and spread of the virus. “Refining margins have been very weak, while the entire market was hoping for IMO 2020 upside on product cracks. However, things have not panned out the way it was projected till now. Secondly, fuel oil cracks have crashed, demand has certainly taken a beating, whether it is petrol, diesel or Aviation Turbine Fuel due to Coronavirus outbreak and overall impact on China,” K Ravichandran, a Senior Vice President at ICRA said. He also said the demand for petrol, diesel and aviation turbine fuel are expected to decline globally, impacting Indian refiners as the three transport fuels combined account for a bulk of the refiners’ production. “Overall transportation fuel demand will take a beating and the three transportation fuels account for 60-70 per cent of Indian refiner’s production. So, to that extent it is negative from refining point of view,” Ravichandran said. While the Gross Refining Margins of Indian refiners are expected to come under pressure in the near-term, they are expected to get some relief due to fall in spot oil cargos as well as reduced freight rates. Moreover, oil sellers are looking for alternative buyers in Asia for prompt cargo deliveries as demand from China dries up, reducing the premium on such cargoes. The premiums on spot oil cargoes has come down and the premium on freight rates has also declined, according to M K Surana, Chairman at Hindustan Petroleum (HPCL). “The company will explore all the opportunities which will benefit it. The current scenario may help us tie-up crude cargoes at a lower premium or discounts if possible. Lower freight rate also helps us. There is a definite slide in the rates of VLCCs and Suezmax but the slide in the case of VLCC as compared to Suezmax is steeper,” he said during a media interaction Wednesday. According to S&P Global Platts Analytics, the freight rate for Very Large Crude Carriers on the USGC-China route has dropped 35 per cent from January 21, falling to levels not seen since mid-September. While the slide in global oil prices will lead to some inventory losses for Indian oil refiners, lower prices will also offer some relief on the overhead costs. “Correction in oil prices will definitely give some relief on the power and fuel cost of refiners, that will be a positive, working capital relief will also bode well for refiners. Shipping related costs will also reduce.” Ravichandran said. While domestic fuel prices have fallen in response to the fall in global oil prices, HPCL chairman Surana indicated that domestic fuel prices may fall further if oil prices go down and product cracks remain at the same levels. “Domestic fuel prices get guided by international prices. If crude prices go down, unless there is a substantial increase in product cracks, fuel prices will come down, however, there may be a time-lag. The exchange rate, as well as demand-supply dynamics between zones, also plays a part in domestic fuel pricing. So, it will be a combination of these factors,” Surana had said during the interaction. According to Moody’s investor service, weak oil prices will reduce the profitability and credit metrics of upstream companies. Organization of Petroleum Exporting Countries (OPEC) has already initiated talks for the need to extend oil production cuts in a bid to ensure that global oil markets are not oversupplied. S&P Global Platts believes a 1 million barrel per day (mbpd) headline OPEC production cut through second quarter is a reasonable expectation. A 1 mbpd headline cut would amount to a 600,000 bpd decline in supplies from here, as Saudi Arabia is already producing 400,000 bpd below their allowed quota,” Shin Kim, head of supply and production analytics at S&P Global Platts, said. The research firm’s worst-case scenario shows a drop of 4 mbpd in oil demand in February while its best-case scenario shows a drop of 1.5 mbpd. An extended disruption of economic activity in China would also reverberate around the world given the size and interconnectedness of the Chinese economy. This disruption, in turn, would have a significant impact on global oil markets. Death toll in China has crossed 563 and has infected more than 28,000 people in the country. The lockdown has entered its third week, and now has been expanded to encircle around 50 million people in the province of Hubei.
Govt identifies 44 new areas for city gas distribution auctions
The Petroleum and Natural Gas Regulatory Board (PNGRB) has proposed 44 new geographical areas for the upcoming 11th round of bidding for city gas distribution (CGD). According to the new tentative list, the highest number of CGD areas will fall in Tamil Nadu (eight), to be followed by Maharashtra (seven) and Madhya Pradesh (six). At present, the CGD network covers 232 geographical areas spread over 407 districts in 27 states. Under the ninth and 10th rounds of bidding for CGD networks, the numbers of CNG stations and domestic piped natural gas (PNG) connections are expected to increase by 8,181 and 42 million, respectively, in the next 8-10 years. The present share of gas in the energy basket of the country is 6.2%, and the target is to take it to 15% by 2030. As of September 2019, there were 1,815 CNG stations and 5.42 million domestic connections across the country. Currently, about 76% of the compressed natural gas (CNG) stations and 80-90% of the PNG connections are concentrated in Delhi, Gujarat and Maharashtra. The Ministry of Petroleum and Natural Gas (MoPNG) has prepared a draft policy for CGD, which, the government expects, will become a template for every state to come up with their own CGD policies. CGD network operators are seen to benefit from a sustained weakness in global spot LNG prices and an expected decline in domestic gas prices. Ad Kotak Institutional Equities expects domestic gas prices to decline by around $1/mbtu in the upcoming revision for the first half of FY21. Apart from state-run GAIL Gas, Gujarat Gas, Indraprastha Gas, Mahanagar Gas, Indian Oil, Hindustan Petroleum and private entities such as Adani Gas and Torrent Gas have significant presence in the sector. According to Kotak, CGD companies source around 15% of their domestic gas requirement from the Panna-Mukta-Tapti fields and after the expiry of production sharing contract from this field in December 2019, the fuel extracted from this field is seen to fall to $3.6 per million British thermal units (mbtu), against its earlier contracted price of $5.7/mbtu.
Govt identifies 44 new areas for city gas distribution auctions
The Petroleum and Natural Gas Regulatory Board (PNGRB) has proposed 44 new geographical areas for the upcoming 11th round of bidding for city gas distribution (CGD). According to the new tentative list, the highest number of CGD areas will fall in Tamil Nadu (eight), to be followed by Maharashtra (seven) and Madhya Pradesh (six). At present, the CGD network covers 232 geographical areas spread over 407 districts in 27 states. Under the ninth and 10th rounds of bidding for CGD networks, the numbers of CNG stations and domestic piped natural gas (PNG) connections are expected to increase by 8,181 and 42 million, respectively, in the next 8-10 years. The present share of gas in the energy basket of the country is 6.2%, and the target is to take it to 15% by 2030. As of September 2019, there were 1,815 CNG stations and 5.42 million domestic connections across the country. Currently, about 76% of the compressed natural gas (CNG) stations and 80-90% of the PNG connections are concentrated in Delhi, Gujarat and Maharashtra. The Ministry of Petroleum and Natural Gas (MoPNG) has prepared a draft policy for CGD, which, the government expects, will become a template for every state to come up with their own CGD policies. CGD network operators are seen to benefit from a sustained weakness in global spot LNG prices and an expected decline in domestic gas prices. Ad Kotak Institutional Equities expects domestic gas prices to decline by around $1/mbtu in the upcoming revision for the first half of FY21. Apart from state-run GAIL Gas, Gujarat Gas, Indraprastha Gas, Mahanagar Gas, Indian Oil, Hindustan Petroleum and private entities such as Adani Gas and Torrent Gas have significant presence in the sector. According to Kotak, CGD companies source around 15% of their domestic gas requirement from the Panna-Mukta-Tapti fields and after the expiry of production sharing contract from this field in December 2019, the fuel extracted from this field is seen to fall to $3.6 per million British thermal units (mbtu), against its earlier contracted price of $5.7/mbtu.
IGL Q3 net rises 43%
Indraprastha Gas Ltd, the firm that supplies CNG to automobiles and piped cooking gas to household kitchens in national capital and adjoining towns, on Thursday reported a 43 per cent jump in its third quarter net profit on rise in gas sales volumes. Standalone net profit in October-December 2019 at Rs 283.59 crore was 43 per cent than net profit of Rs 197.94 crore a year back, the company said in a statement here. Gross turnover rose 10 per cent to Rs 1,831.16 crore. “IGL registered an overall sales volume growth of 13 per cent over the corresponding quarter in the last fiscal, with the average daily sale going up from 5.91 million standard cubic meters per day (mmscmd) to 6.70 mmscmd,” it said. CNG recorded sales volume growth of 9 per cent, while piped natural gas recorded sales volume growth of 18 per cent in the quarter as compared to last year. IGL sells compressed natural gas (CNG) to over 11 lakh vehicles running in the national capital region through a network of over 520 CNG stations. It also supplies piped natural gas to over 12 lakh households in these cities. The pipeline network is being further expanded by IGL to cover Ajmer, Pali and Rajsamand in Rajasthan, Shamli, parts of Meerut, Fatehpur, Hamirpur and parts of Kanpur in Uttar Pradesh and Kaithal in Haryana, IGL said.