Pradhan sees fuel demand reaching pre-Corona level next month as India gets back to work
India has regained 65% of its appetite for fuel and demand will reach nearly pre-pandemic levels next month as economic activities pick up pace after the government’s announcement of a stimulus package and staggered easing of Corona restrictions, oil minister Dharmendra Pradhan told TOI on Saturday. “The world has seen an unprecedented erosion in fuel demand. Many countries saw refineries being shut down, plans being rescheduled. India has fared better in comparison. After the lockdown began (from March 25), fuel demand had dropped to 30-35% of the level seen in April 2019. Yet, major production capacities remained operational. Demand is back at 65% of the May 2019 level and will reach pre-Corona level in June,” Pradhan said. This compares well with fuel consumption in China, the world’s second-largest oil consumer and the pandemic’s epicentre, reaching 90% of the pre-Corona level after losing 40% of the demand in February, as per an IHS Markit report. A rebound in fuel demand indicates India is getting back to work and the world’s third-largest energy market is poised to regain its position as the global demand centre. “The pattern (the pace of consumption growth) may change. Two-wheelers will be back as an affordable option to maintain social distance and safety while commuting. Same with small cars. This will give impetus to petrol. Rising highway traffic, resumption of train service and farm sector activities fill push diesel sales. Aviation fuel will get a boost once flights resume from May 25,” he said. Latest industry data show petrol sales rising 7.5% and diesel sales jumping 72% in May following the government’s move to ease lockdown curbs to allow from April 20. Jet fuel sales grew 6-7% and LPG 4% during this period as only select cargo and repatriation flights took to the skies and domestic cooking fuel demand tapered off after the initial panic-buying triggered by the lockdown and commercial consumption was yet to return. Asked about current pump prices corresponding to $100 oil price and consumers not getting the benefit of historically low oil prices because of the government raising fuel taxes by Rs 13 and Rs 16 a litre of petrol and diesel, respectively, Pradhan said it did not put the burden on consumers and will raise resources for welfare schemes, stimulus package and infrastructure. “Pump prices have remained steady since they were last changed reduced when was $65/barrel. So it is wrong to say pump prices reflect oil at $100. It is pointless at such times to revise prices, especially when demand is gone. What do you do when things are bad. You tighten the purse strings. Focus on bare essentials. This is what all of us have seen our mother do. This (tax hike) is the same. Where will the money come from? We have to look after the poor, stimulate the economy. Build infrastructure. That is what the money will be used for.”
Reliance estimates USD 200-400 million liability in KG-D6 cost recovery dispute
Reliance Industries has estimated a maximum liability of USD 400 million (Rs 3,000 crore) in its nine-year old dispute with the government over alleged under-utilisation of capacity at the KG-D6 field due to failure to comply with an approved investment plan. Natural gas output from Dhirubhai-1 and 3 gas fields in the KG-D6 block in the Bay of Bengal started to lag company projections from the second year of production itself in 2010 and the field ceased to produce in February this year much ahead of its projected life. The government blamed the phenomenon to the company not sticking to the approved development plan and disallowed over USD 3 billion costs. The company disputed this and dragged the government to arbitration. In its mega rights issue offer document, Reliance said the central government sent notices to the firm and its partners in the KG-D6 block “disallowing cost recovery for alleged under-utilisation of capacity due to failure to comply with the approved development plan and demanded an additional share of profit petroleum.” “The company contended that there are no provisions in the KG-D6 contract which entitle the Central Government to disallow cost recovery on this basis,” it said. The Production Sharing Contract or PSC allows contractors to recovery all their capital and operating cost from the sale of oil and gas discovered and produced from a block before sharing profits with the government. Disallowing certain costs for recovery leads to the government claiming higher profit share. “On November 23, 2011, our company served an arbitration notice on the Central Government seeking to resolve a dispute relating to the cost recovery provisions of the KG-D6 PSC,” the firm said. While the two sides have filed their respective pleadings before the three-member arbitration tribunal, final hearings are tentatively scheduled from September to December 2021. “Our potential liability in respect of, or the financial impact of this proceeding on our company, if any, pertains to the additional profit petroleum alleged to be payable to the Central Government, and is estimated to be in the range between USD 200 million and USD 400 million,” it said, adding the matter is currently pending. Gas output from D1 and D3 fields in KG-D6 block was supposed to be 80 million standard cubic metres per day but actual production was only 35.33 mmscmd in 2011-12, 20.88 mmscmd in 2012-13 and 9.77 mmscmd in 2013-14. The output continued to drop in the subsequent years and the fields ceased to produce in February this year. “The Government of India (GOI), by its letters dated May 2, 2012, November 14, 2013, July 10, 2014, and June 3, 2016, has disallowed certain costs which the Production Sharing Contract (PSC), relating to Block KGDWN-98/3 (KG-D6) entitles the company to recover. “The company continues to maintain that a contractor is entitled to recover all of its costs under the terms of the PSC and there are no provisions that entitle the GOI to disallow the recovery of any contract cost as defined in the PSC,” it said. In these four notices, the government sought USD 247 million (Rs 1,869 crore) of additional profit petroleum after cost recovery was disallowed. The total penalty slapped till 2016, which was in the form of disallowing recovery of cost incurred for missing the target during six years beginning April 1, 2010, was USD 3.02 billion. The PSC allows Reliance and its partners BP Plc of the UK and Canada’s Niko Resources to deduct all capital and operating expenses from the sale of gas before sharing profit with the government. Reliance-BP had blamed unanticipated sand and water ingress for shutting down of one well after the other, leading to a drop in production. Reliance held 60 per cent interest in block KG-DWN-98/3 or KG-D6 in the Bay of Bengal. BP had 30 per cent and Niko the remaining 10 per cent. Facing cash problems, Niko exited the blocks, leaving Reliance with 66.66 per cent stake and the balance with BP.
No one can predict where oil prices will stabilise: Dharmendra Pradhan
Petroleum and steel minister Dharmendra Pradhan has spent the lockdown period trying to ensure that oil companies can take advantage of the low crude oil prices, while making cooking gas and subsidy available to Ujjwala scheme beneficiaries. In an interview, Pradhan tells Sanjay Dutta & Sidhartha that Indian steel producers have ramped up exports during the period. Excerpts: How has the lockdown affected petroleum and steel sectors? A: Lockdown is a global issue. It was needed to break the chain and there was consensus on it. Globally, the demand for oil products came down significantly. In April, nearly 70% of the demand went away. By May, 60-65% of the demand has been regained. With trains and civil aviation traffic returning, demand will improve. By June, we expect demand to be back at pre-lockdown levels. Also, before the lockdown, three large oil producers were trying to capture the oil market, which resulted in a glut. Coupled with low demand, prices crashed, which no one anticipated. While prices have started rising due to improved demand, no one can predict where prices will stabilize. The uncertainty in the oil market will remain for some time. In steel too, industrial and construction activity had come to a stop. India has managed to use its natural advantage of manpower and raw material and step up exports during this period. Despite a fall in global crude prices, retail prices remain high as the government has raised taxes… Pump prices correspond to crude price at $65 a barrel and does not put the burden (of hike in Central taxes) on consumers. Consumer prices have remained unchanged. There is an abnormal situation in the oil market when WTI (US benchmark crude) crashed below zero. In these times, it is pointless to revise prices, especially when demand is gone. What do you do when things are bad? You tighten the purse strings, focus on bare essentials. This is what all of us have seen our mothers do. This (tax hike) is the same. India has consciously adopted this fiscal model. We need resources for the poor, healthcare, to provide stimulus and build infrastructure. That is what the money will be used for. Due to movement of migrants, do you see labour problem in executing projects? Historically, eastern India has lagged in development. Since the Modi government came to power, it has been trying to correct this imbalance by pushing for a second Green Revolution with focus on the East, announced several large projects and major schemes also focused on benefiting people from this part of the country. Migration is not just an economic issue but a socio-psychological issue. It’s (currently) a reverse migration due to a health issue. Some people will return, others will look for new avenues. The projects announced in the East will create employment opportunities. The package that has been announced for MSME, how many units in the steel sector will benefit? How will it spur demand? It’s not just about MSMEs but a comprehensive package that addresses major issues in agriculture. There is special emphasis on housing which will benefit cement, steel, logistics, local industry and provide jobs. Every country has adopted different strategies, we have chosen this path. We are ahead of many countries on direct benefit transfer, which we have successfully used for transferring funds to the poor, including Ujjwala beneficiaries. It wasn’t a stimulus but a genuine money transfer. An important statement from the government is to enhance the role of the private sector. There are several oil and steel PSUs, what will be the strategy? It is a much-delayed and much-awaited decision which is consistent with our philosophy. It does not mean the closure of PSUs. There is unanimity on getting more capital and technology. This should have been done within two years of Independence. People want more job opportunities. The government should be a facilitator in getting investment. It should get more revenue which should be used for social welfare. The idea of the policies is to encourage value addition. We have opened the petroleum sector since 1990s, in steel private players are producing more steel than the public sector. What about BPCL disinvestment? An in-principle decision has been taken. It depends on the market. With oil prices falling, does the economics for electric vehicles change? There is no fundamental change. Electric vehicles were expected to contribute to the incremental requirement and not replace internal combustion engines. Naturally, people will use what is available. Price will be a factor and BS-6 fuel and vehicles are now available. The impact will be more in the three- and two-wheelers segment
India’s gas output falls by one-fifth in April
India’s natural gas production dropped by almost one-fifth in April due to lower offtake by industries during the nationwide coronavirus lockdown, according to official data released on Saturday. Gas output at 2.16 billion cubic metres in April was 18.6 per cent lower than 2.65 bcm production in the same month a year back, data released by the oil ministry showed. Lower production was due to a 15.3 per cent drop in output by the country’s top producer ONGC at 1.72 bcm. “The shortfall in gas production (by ONGC) is primarily due to less gas offtake by consumers due to Covid-19 lockdown,” it said. State-owned Oil India Ltd also produced 10 per cent less natural gas at 202.05 million cubic metres due to “loss of potential in Deohal area (in Assam) due to presence of CO2 in production stream (and) less gas offtake by consumers due to Covid-19 lockdown,” it said. India’s crude oil production fell 6.35 per cent to 2.5 million tonnes in April for the same reason. Oil and Natural Gas Corp (ONGC) output was marginally lower at 1.7 million tonnes in April, while fields operated by private firms such as Cairn produced 19.2 per cent less oil at 615,800 tonnes. Cairn’s Rajasthan fields produced 19.2 per cent less oil at 490,560 tonnes, the data showed. Crude oil production by ONGC was lower due to “closure of wells in Western Offshore due to less offtake by GAIL due to COVID-19 lockdown (and) restriction of movements for field operations in onshore fields due to Covid-19 lockdown,” it said. Cairn’s Rajasthan fields produced less due to delay in hook-up of new wells, delay in workover wells revival and new injector due to Covid-19 impact. Refineries produced about 30 per cent less fuel in April at 18.9 million tonnes as the lockdown kept most vehicles off the roads, evaporating demand. “Reasons for shortfall in production mainly include low demand due to Covid-19 lockdown,” the ministry said.
India’s crude oil imports fall, product exports surge in April
India’s crude oil imports in April recorded their biggest year-on-year fall in 10 months as coronavirus-induced lockdown restrictions halted economic activity and sapped demand. Crude oil imports in April fell 12.4% to 17.28 million tonnes from a year earlier, its steepest decline since June 2019, data on the website of Petroleum Planning and Analysis Cell said. Oil product imports also dropped 6.5% to 3.35 million tonnes, their first year-on-year decline in 16 months. But exports of refined products had their biggest rise year-on-year since October 2016 because of a slowdown in domestic demand. Fuel demand in April plunged more than 45% as coronavirus lockdown restrictions hit industrial activity. This prompted Indian refiners to continue prompt exports of refined fuels to avoid a complete shutdown. Prime Minister Narendra Modi has extended the country’s coronavirus lockdowns to May 31, but relaxed rules in areas with lower numbers of cases, raising hopes fuel demand will recover