India’s diesel demand set for detour as drivers switch to gasoline
India’s strong diesel demand growth is decoupling from the car market as motorists increasingly turn to gasoline vehicles, leaving it more reliant on patchy demand from construction and heavy industry. A slowdown in demand growth in India — one of Asia’s biggest diesel guzzlers — could add to a persistent glut of diesel in the region, fuelled in part by strong exports from China, and put pressure on regional refining profit margins . Transportation has historically accounted for two-thirds of India’s diesel use, but a steady decline in diesel’s discount to gasoline has seen sales of diesel-powered cars fall to a record low share of total sales, according to industry body Society of Indian Automobile Manufacturers (SIAM). This diminishing draw from autos means diesel demand growth in Asia’s third-largest economy could now depend mainly on government and company infrastructure spending, rather than daily use by an increasingly mobile population. India’s economy grew at its slowest pace in more than four years in the March quarter and the risk of a wider fiscal deficit threatens government spending as private investment falls, leaving the outlook for construction activity appears uncertain over the near to medium term. The largest drivers of diesel demand growth in India are commercial vehicles including trucks and public transport, where consumption is linked to the overall economy, followed by passenger vehicles, said K Ravichandran, senior vice president at ICRA, a unit of Moody’s Investors Service. “India’s diesel demand growth will largely depend on the performance of the economy, now that diesel passenger vehicles have become less glamorous as the price differential with petrol is coming down,” Ravichandran said. GEAR SHIFT Diesel-powered cars accounted for 19% of total car sales in India in the 2018/19 financial year, compared with nearly 50% of sales in 2012/13, according to SIAM. That drop in diesel-fuelled auto sales in turn contributed to slower diesel consumption growth, from roughly 7% annually from 2010 through 2013, to 3% for 2018-19, according to data from the Ministry of Petroleum & Natural gas. Industry executives expect diesel sales to continue to struggle as diesel’s historical price advantage to gasoline diminishes. In 2010, diesel traded at a roughly 23 rupees ($0.33) per litre discount to gasoline, but is now less than 7 rupees cheaper, according Petroleum Planning and Analysis Cell, a think-tank attached to the federal oil ministry. “The motivation for owning a diesel vehicle is basically the pricing. With that price differential reducing, there is going to be a preference for petrol vehicles,” said M K Surana, the chairman of India’s third largest state refiner Hindustan Petroleum Corp Ltd Surana expects diesel demand to grow 2.5%-3% in 2019/20, below the India’s petroleum ministry’s initial projections of 3.5%. The auto sector also expects diesel to struggle. Maruti Suzuki India Ltd, India’s biggest automaker, will stop making diesel cars next fiscal year, blaming uncertain fuel prices and stricter emission standards. Mahindra and Mahindra Ltd, India’s third largest automaker, plans to stop production of some diesel vehicles. Beyond diesel, India’s overall auto sales have been sluggish, recording the slowest pace of growth in four years in 2018-19, according to SIAM. FARM SECTOR SLOWDOWN At the same time, a renewables push across the farm sector could cut diesel use in irrigation pumps if the government follows through on plans to boost solar generation capacity. In February, India approved subsidised sales of solar pumps to millions of farmers, which it expects will cut diesel demand by about 1.1 million tonnes a year. The country consumed 83.5 million tonnes of diesel in 2018/19. The government’s ambitious target for electric vehicles to make up 30 percent of auto sales by 2030 may also dent diesel demand. Still, over the longer term India’s overall growth trajectory is expected to underpin fuel demand. “Strong economic momentum should support industrial/freight activities, providing further impetus to long-term gasoil demand growth,” said Sri Paravaikkarasu, director at Singapore-based consultancy FGE.
Argentina opens tender for $2 bn Vaca Muerta gas pipeline
Argentina has opened the tender for a new $2 billion gas pipeline from the huge Vaca Muerta shale field, which according to the country’s Energy Secretariat, should be completed the middle of 2021. The pipeline, which a government source previously estimated would cost $2 billion, will run from the southern province of Neuquen to Salliquelo, a town in the province of Buenos Aires. “It is expected that by the (Southern Hemisphere) winter of 2021 it should be finished, so we are in a hurry to get (the tender) out,” Carlos Casares, undersecretary for hydrocarbons and fuel, told Reuters at the Argentina Oil, Gas, and Energy Summit in Buenos Aires. “Any investor that has won the tender will be given an escape route if the economic context does not allow it to be built,” he said, explaining that they had to take into account upcoming elections that are stoking political uncertainty. President Mauricio Macri, who will seek re-election in October, is betting on the development of Vaca Muerta to cut energy imports and make the country a net exporter of hydrocarbons, creating a new source of foreign currency income. Vaca Muerta is a non-conventional hydrocarbon formation the size of Belgium, which could house one of the largest reserves of unconventional hydrocarbons in the world.
Reduction of government stake in oil companies a credit negative: Moody’s
The government’s latest plan to reduce stake in select state-run companies including oil and gas firms could be credit negative for Indian Oil Corporation (IOC), Bharat Petroleum (BPCL) and Oil India, Moody’s Investors Service said in a report. “A reduction in the government’s direct stake to below 51 percent could result in a lower assessment of support incorporated into the rating of these companies, a credit negative. The Baa2 ratings of IOCL and BPCL incorporate two notches of uplift, while that of OIL incorporates one notch of uplift,” the report said. According to the rating agency, a change in policy along with Rs 1.1 trillion disinvestment target indicate that the government’s direct ownership could fall below 51 percent in the state-owned oil companies – Oil and Natural Gas Corporation (ONGC), IOC, BPCL and Oil India, who had a market capitalization of Rs 4.5 trillion as on 5 July 2019. The government is open to reducing its stake to as low as 40 percent, according to an Economic Times report. “The idea is to unlock the value in these firms. In the case of oil firms, their cross-holdings amongst each other give us that space,” an official told ET. Analysts point out that reducing stake in state-owned oil and gas Public Sector Undertakings may leave less room for these companies to divest their cross-holdings. “We highlight that as the government brings down its ‘effective’ stake in these companies to 51 percent gradually through disinvestments, the energy PSUs may not be able to divest their investment cross-holdings, as it becomes strategic for the government to retain a majority stake and control,” Kotak Institutional Equities said in a report. It added that GAIL, IOC, Oil India and ONGC hold significant cross-holdings in each other, which may have to be held in the long run in case the government reduces its stake over the next few years. Finance minister Nirmala Sitharaman had in her budget speech said the government was considering the option of taking its stake below 51 percent to an appropriate level on a case-by-case basis in companies that have to be retained under state control. She noted that the government has decided to modify the 51 percent government stake definition to include the holdings of state-controlled entities. Also, in a post-budget interaction, Department of Investment and Public Asset Management secretary Atanu Chakraborty had said the government had made the separation between control and 51 percent stake for the first time.
Many ‘maharatna’ and ‘navratna’ cos may lose PSU tag post equity dilution
Several of ‘maharatna’ and ‘navratna’ companies, including ONGC, IOC, GAIL and NTPC, could soon become independent board-run entities outside the scrutiny of CAG and CVC if the government implements a proposal to take out the PSU tag from some of the entities after its shareholding falls below the threshold 51 percent mark. Government sources said that Finance Ministry is planning to approach NITI Aayog to prepare yet another list of PSUs where their holding could be brought down to below 51 percent and also point out which of these could shed the PSU tag and become independently board-run private companies. For a company to remain a government-controlled public sector undertaking (PSU), either the Centre or the state government or both together should hold more than 51 percent stake in it. The Budget proposed that 51 percent stake could include direct and indirect shareholding of the government through other state-run companies and financial institutions. “As per the definition of a government company, the Central government and the state government together have to have 51 percent equity. If that comes down, then it does not have the character of the government company. So when this decision is taken, we will also be consciously deciding whether that particular company needs to be retained with the tag of the government company,” Finance Secretary Subhash Chandra Garg told IANS when asked about the government’s plan on privatization. Though Garg did not elaborate, sources said three categories of companies would be retained by the government: one where government and its institutions hold 51 percent or more, second where government stake is below 51 percent but the company still retains PSU tag with a change in law and third; where companies become almost private entities with government holding of say, 26 or 40 percent, and is run by a board. It is the third set of companies where several professionally run ‘maharatna’ and ‘navratna’ PSUs would fall. The government intends to offer complete freedom to some of these entities to run their operations while also keeping the entities outside the scrutiny of CVC and CAG. At present, there are more than two dozen CPSEs that are widely held by the public with a government stake of less than or close to 60 per cent. These include ‘maharatna’ and ‘navratna’ CPSEs like Engineers India Ltd (EIL-52%), Indian Oil Corporation (IOC-52.18%), Bharat Petroleum Corporation (BPCL-53.29), Gail India (52.64%), Oil and Natural Gas Corporation (ONGC-64.25%), Power Finance Corporation (PFC-59.05%), Powergrid Corporation (PGCIL-55.37%), NTPC, Shipping Corporation of India (SCI-63.75%), Bharat Heavy Electricals (BHEL-63.17%), NBCC (68.18%), Container Corporation (Concor a” 54.80%). Some of these may be earlier targets for bringing down equity below 51 percent level. If the government sells more of its equity in these entities, it could also raise its disinvestment proceeds easily from the market without looking at other instruments such as share buyback, new issues of ETFs or higher dividend payout from PSUs including the declaration of a special dividend. This would also eliminate pressure on achieving disinvestment target, as even a small issue by a bluechip PSU can get better realization for government shares. The shares of most of these companies have got a good valuation from the market. The government has set a disinvestment target of Rs 105,000 billion for FY20.
ONGC Videsh to miss disinvestment bus despite Modi govt’s ambitious target
The Narendra Modi government might be keen to take a number of central public sector enterprises to the stock market, but it has put the plan to list ONGC Videsh Ltd (OVL) — the overseas investment arm of the Oil and Natural Gas Corporation — on the backburner. The Modi government has decided to proceed with an aggressive disinvestment programme, with a revised target of Rs 1050 billion, but is not comfortable with the idea of launching an initial public offering for OVL. “ONGC Videsh is still heavily dependent on the parent company for manpower and other critical operations. Though the company has registered strong financial performance, it may not be a prudent decision to list it as a separate entity at this stage,” a government official not wishing to be named told ThePrint. Last year in December, ONGC was toying with the idea of listing the profitable OVL as a separate company. The proposal, however, did not see the light of the day as market conditions were not conducive. The government has also decided, as reported first by ThePrint, to put on hold the proposal of merging public sector oil companies. The focus instead will be on increasing domestic production. Sources said there will be no mergers of oil PSUs in the immediate future after the marriage between ONGC and Hindustan Petroleum Corporation Ltd (HPCL) led to multiple problems. Review of all projects OVL has made investments in oil and gas projects in numerous countries, including Iran, Venezuela, Colombia and Mozambique. Sources said the government might review all major investments made overseas by OVL to ensure that each of them functions smoothly, and avoid any disruption. Last month, an informal ministerial group under Union Home Minister Amit Shah held a meeting to review the $2.2-2.4 billion investment proposal in Mozambique by the Bharat Petroleum Corp. Ltd. Besides Shah, the meeting was attended by Oil Minister Dharmendra Pradhan, External Affairs Minister S. Jaishankar, and Commerce Minister Piyush Goyal, among others. Earlier, in the wake of falling global crude prices, Pradhan had raised concerns over investments made by public sector firms in the Rovuma Offshore Area-1 in Mozambique. The investments made during the UPA era were estimated at about $6 billion. “There is a need for regular reviews by top level officials as these include huge investments overseas and there is little scope to go wrong,” the official quoted above said. Amid rising geopolitical tensions, India’s total crude oil production has been a cause for concern. The country’s total crude production was 37.5 million metric tonnes in 2014-15, but has fallen to 34.2 million metric tonnes in 2018-19, leading to increased imports.
Opec sees lower 2020 demand for its oil, points to surplus
Opec on Thursday forecast world demand for its crude will decline next year as rivals pump more, pointing to the return of a surplus despite an Opec-led pact to restrain supplies. Giving its first 2020 forecasts in a monthly report, the Organization of the Petroleum Exporting Countries said the world would need 29.27 million barrels per day (bpd) of crude from its 14 members next year, down 1.34 million bpd from this year. The drop in demand for Opec crude highlights the sustained boost that Opec’s policy to support prices by supply cuts is giving to US shale and other rival supply. This potentially gives US President Donald Trump more room to keep up sanctions on Opec members Iran and Venezuela. “US tight crude production is anticipated to continue to grow as new pipelines will allow more Permian crude to flow to the US Gulf Coast export hub,” Opec said, using another term for shale oil. Opec in the report also forecast that world oil demand would rise at the same pace as this year and that the world economy would expand at this year’s pace, despite slower growth in the United States and China. “The 2020 forecast assumes that no further downside risks materialize, particularly that trade-related issues do not escalate further,” Opec said of the economic outlook. “Brexit poses an additional risk, as does a continuation in the current slowdown in manufacturing activity.” Opec and its allies last week renewed a supply-cutting pact until March 2020, citing the need to avoid a build-up of inventories that could hit prices. Opec also said its oil output in June fell by 68,000 bpd to 29.83 million bpd, above the 2020 demand forecast. This suggests there will be a 2020 supply surplus of over 500,000 bpd if Opec keeps pumping at June’s rate and other things remain equal.
Assam Gas Company, Oil India, GAIL sign agreement for setting up of new CGD
Consortium of three Public sector units , Assam Gas Company Ltd (AGCL), Oil India Limited (OIL) and GAIL Gas Ltd on Thursday signed a joint venture agreement for incorporating a new company for implementation of the City Gas Distribution (CGD) Networks. The Joint Venture Company shall implement the City Gas Distribution (CGD) Networks and supply Piped Natural Gas to the domestic, commercial and industrial customers and CNG (Compressed Natural Gas) to the vehicles in Kamrup, Kamrup (Metro), Cachar, Hailakandi and Karimganj districts in Assam. In these five districts, approximately 4.16 lakh households will be connected with the Piped Natural Gas (PNG) and 72 CNG stations will be set up in these districts. In a statement the state government stated, Government of Assam, “ Under the persuasive follow up of the Government of Assam, the National Gas Grid Pipeline (Urja Ganga Project) which was originally planned for extension from Jagadishpur in Western Uttar Pradesh, to Haldia in West Bengal, was consented to be extended to Guwahati in Assam, by the Government of India through an intermediate spur line from Barauni in Bihar to Guwahati and the Gas Pipeline construction work is being carried out by GAIL India Limited. The Barauni to Guwahati section of the Nation Gas Grid is likely to be completed by December, 2020. Thereafter, eight states of the North East will be connected by Indradhanush Gas Grid Ltd. to the National Gas Grid.” Managing Director, AGCL., Aditya Kumar Sharma; Executive Director (Business Development), Oil India Limited, S. K. Singh; CEO, GAIL, Gas Ltd., A. K. Jana signed the Joint Venture Agreement in the presence of Industries & Commerce Minister Chandra Mohan Patwary, Media Adviser to Chief Minister, Hrishikesh Goswami. The statement stated with the connection of Assam to the National Gas Grid, steady supply of Natural Gas shall initiate a spurt in the industrial sector, power generation sector, automotive CNG sector and domestic piped gas to households sector and it will act as a catalyst to trigger immense development and employment opportunities throughout Assam and other parts of Northeast Region. The supply of Piped Natural Gas to the industrial, commercial and domestic customers in the first phase in Kamrup, Kamrup (Metro), Cachar, Hailakandi and Karimganj districts will be a major initiative in this regard. AGCL, along with OIL and GAIL Gas Ltd (GGL) formed a Consortium and bid for laying, building and operating the City Gas Distribution Networks in two Geographical Areas (GA) in Assam. GA-2 comprises of Cachar, Hailakandi and Karimganj districts and GA-3 comprises of Kamrup and Kamrup (Metro) districts. After competitive bidding, the Consortium won and was awarded by the Petroleum & Natural Gas Regulatory Board (PNGRB) the authorization for the work. Around Rs.1,700 crores will be spent for the purpose in the coming years. Around 95,000 households will be connected with the Piped Natural Gas (PNG) and 21 CNG stations will be set up in Cachar, Hailakandi and Karimganj districts at an estimated cost of approximately Rs. 500 crores. Around 3,21,000 households will be connected with the Piped Natural Gas (PNG) and 51 CNG stations will be set up in Kamrup and Kamrup (Metro) districts in the coming years at an estimated cost of approximately Rs. 1,200 crores. The Government of Assam has initiated the preliminary work on the project and the Detailed Feasibility Study has been completed. Domestic and commercial pipe gas connections in Guwahati city will be available within the next two years on the city being connected with the National Gas Grid. In addition, CNG Stations will also be set up during this period to meet the requirement of clean fuel for transport sector.
China’s CNOOC, Sinopec to jointly study, explore mostly offshore blocks
China’s offshore oil and gas specialist CNOOC Ltd said on Wednesday it entered a framework deal with China Petroleum and Chemical Corp, or Sinopec Corp, to jointly study and explore mostly offshore oil and gas blocks * Under the deal, the two state oil firms will jointly study and explore for oil and gas resources at Bohai Bay off north China, Beibu Gulf in the South China Sea, South Yellow Sea area as well as onshore North Jiangsu basin * The cooperation, that covers 19 blocks with a total area of 26,900 square kilometres, will be carried out in three years, CNOOC said, without stating when that will start
Asset monetisation: Ministries and Niti Aayog differ on how to split GAIL
Though it is amply clear by now that the marketing and pipeline businesses of state-run GAIL (India) will be separated, opinions of departments within the government seem to differ on the ownership and shape of the new entity to be created. While the ministry of petroleum and natural gas feel the pipeline company should remain a subsidiary of GAIL, same as GAIL Gas which operates the city gas distribution business, the Niti Aayog and the department of investment and public asset management (DIPAM) are of the view that the pipeline division should be an independent entity. According to sources, the Prime Minister’s Office had called a meeting to hear out both the options but is yet to give any direction. Sale of pipelines is part of the government’s asset recycling or monetization plan. Apart from pipelines, transmission lines of Power Grid Corporation, telecom towers of BSNL and MTNL, ports and railway stations are the other assets under the radar of the government. GAIL started the work to transfer its pipeline vertical into a subsidiary of the parent company and hired a consultant to work out the options last year. Earlier in the year, petroleum minister Dharmendra Pradhan had made it clear that GAIL should separate the two businesses. The company earns 70% of its revenue through marketing whereas 40% of profits come from the natural gas transmission business. GAIL has a pipeline network of over 11,400 km in India accounting for three-fourths of natural gas transmission. It is also working to add another 5,000 km of pipelines which include the Pradhan Mantri Urja Ganga Project which will connect the eastern and the north-eastern states. The gas marketer has often come under criticism for prioritizing its own gas for transmission. Sources also added that pipeline owned and managed by ONGC and Indian Oil may also be looked into in the future for monetization. DIPAM is believed to been working on various models of monetization of existing assets of PSUs. The receipts from monetization are likely to be used for expansion of the asset. One of the options is also that real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) will run the revenue-generating assets on the transfer-operate-transfer basis and investors will be able to buy units.
Spent Rs 10,000 crore on capex in FY19: Vedanta
Stating that its growth plans will see it becoming the world’s largest zinc producer and among the top three silver producers, mining giant Vedanta Ltd Thursday said it spent around Rs 10,000 crore in FY’19 on capital expenditure programs. “As India’s largest private sector oil and gas producer, our company aims to double its current contribution of 27 percent of nation’s production,” the company’s Chairman Navin Agarwal said at it’s Annual General Meeting (AGM). India currently imports around 80 percent of its oil and gas requirements, amounting to USD 150 billion, he said. “We are the largest primary producer of aluminum in the country. Our plans will see us produce three million tonnes of integrated aluminum, an increase of 50 percent,” he added. Looking at the medium term, Agarwal said Vedanta’s plans include a total capital investment of Rs 55,000 crore to increase production by about 50 percent across its businesses which the company expects to fund from internal cash flows. The mega targets set in the Union Budget 2019-20 for investment in infrastructure sector at Rs 100 lakh crore over the next five years will lead to urbanization and industrialization in the country, generating significant demand for natural resources, he said. India currently has a resources’ import bill of USD 465 billion, Agarwal added.