Oil guzzler India says OPEC+ decision to hit economic recovery
India, the world’s third-biggest oil importer and consumer, on Friday said the decision by major producers to continue with output cuts as prices move higher could threaten the consumption led-recovery in some countries. The Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, agreed on Thursday not to increase supply in April as they await a more substantial recovery in demand amid the coronavirus pandemic. Crude prices rose after announcement and are up 33 per cent this year. Brent crude futures for May on Friday rose nearly 1 per cent, to $67.44 a barrel, and are on track for a near 2 per cent gain this week. “As one of the largest crude-consuming countries, India is concerned that such actions by producing countries have the potential to undermine consumption-led recovery and more so hurt consumers, especially in our price-sensitive market,” Minister for Petroleum and Natural Gas Dharmendra Pradhan told Reuters. India, hit hard by the soaring oil prices, urged producers to ease output cuts and help the global economic recovery from the coronavirus pandemic. “We were really hopeful that OPEC and OPEC+ would have eased the production cuts to some degree taking into account the fragile recovery of the global economy, particularly in developing countries,” Pradhan said. Rising oil prices are posing fiscal challenges for India, where heavily-taxed retail fuel prices have touched record highs in some parts of the country, threatening the demand-driven recovery. India, Asia’s third-largest economy, imports about 84 per cent of its oil and relies on Middle Eastern supplies for meeting over three-fifths of its demand. Responding to India’s repeated request for an increase in output, Saudi Energy Minister Prince Abdulaziz bin Salman responded on Thursday by saying India should start using oil it bought cheaply during the price collapse last year. However, he said, “we will continue to work with each other…we share their (India’s) view that avoidance of volatility (in prices) will help both producers and consumers.”
Explained | Why LPG prices are rising
The government has blamed the rise in international rates for the spike in prices of LPG in India. The surge could push it to resume paying the subsidy on cooking gas, which was stopped after global prices fell when the pandemic began to take hold. Cooking gas prices in Delhi zoomed from Rs 581.5 a cylinder in May 2020 to Rs 819 as of March 1, 2021 Adding to the woes of consumers, the price of liquefied petroleum gas (LPG) for domestic consumption has increased by 41 per cent or Rs 237.5 per cylinder in the last ten months. Cooking gas prices in Delhi zoomed from Rs 581.5 a cylinder in May 2020 to Rs 819 as of March 1, 2021. In 2021 alone, prices were hiked by Rs 125 per cylinder with three consecutive hikes in February, going against the conventional practice of having only one hike in a month. India has a total of around 288 million LPG consumers, of which 135 million are served by Indian Oil Corporation, 74 milion by Bharat Petroleum Corporation and 79 million by Hindustan Petroleum Corporation. There has been a 95 per cent increase in India’s LPG consumption from 148 million in 2014-15. The country’s LPG penetration is almost 99 per cent now, mainly owing to the Pradhan Mantri Ujjwala Yojana (PMUY). It is this spike in the number of users that makes the rise in prices a cause for concern as more than 80 million people below the poverty line are consumers under the Ujjwala scheme. Moreover, the government did away with the direct benefit transfer on LPG (DBTL) subsidy from May 2020. The price of LPG is decided based on an import parity price (IPP) formula, which is based on international product prices. Saudi Aramco’s contract prices are considered a benchmark for this calculation. The IPP formula includes Saudi Aramco’s LPG prices, free-on-board price, ocean freight charges, customs duties and port dues. Local freight charges, bottling charges, marketing costs, margins for OMCs, dealer commissions and Goods and Services Tax are also factored in before determining the final LPG retail price in India. In addition, currency fluctuations also affect prices. It is because of this weightage of international prices that the government points to the rise in global prices as the major reason for the spike in Indian rates. Why LPG prices are increasing The Indian Basket Crude oil price increased from an average of $20.20 a barrel in May 2020 to $64.54 a barrel on March 2, 2021. Brent crude prices increased to $63.77 a barrel at one point on March 2 as compared to a historic low of $19 a barrel in April 2020. India’s LPG mix has a 60 per cent share of butane and 40 per cent share of propane. Hence, the prices of these two are considered vital. In March, Saudi Aramco set its term contract price at $625 per metric tonne, up by $20 per mt from February. Similarly, butane prices also increased by $10 to $595 per mt in March. This is a 171 per cent increase in propane and a 148 per cent increase in butane prices since May 2020, when the propane price was at $230 per mt and butane at $240 per mt. On the other hand, the exchange rate on March 2 was Rs 73.29 per dollar as compared to the average rate of Rs 76.23 per dollar in May. How the price rise will affect the government The government had eliminated the subsidy on LPG when international prices dipped owing to the COVID-19 pandemic. In Delhi and several other States, the government stopped paying a subsidy under the DBTL scheme from May. The current increase in prices means that the government will have to bring back the subsidy on cooking gas. In the Budget last month, Finance Minister Nirmala Sitharaman had provided Rs 124.80 billion as LPG subsidy for 2021-22, as compared to Rs 255.20 billion in 2020-21 and Rs 356.05 billion in 2019-20. This indicates that the government is likely to bring back the subsidy mechanism soon.
Praj Industries, Repos Energy plan to tie up for bio-mobility
Bio-based technologies and engineering company Praj Industries and Repos Energy plan to join hands for bio-mobility and launch mobile biofuel selling units. In a statement, Repos Energy said that a collaboration was discussed during a recent the two companies. The two companies are likely to sign a memorandum of understanding soon in this regard. With the government pushing the use of sustainable resources of energy, the concept of bio-mobility is set to gain momentum in the coming months, it said. Amid the various developments and new policies which are being set to boost the production of fuel from bio-waste, the shift towards the use of greener and greener fuels is the only solution. “To bring this solution to the end-users through technology on wheels, Praj Industries, with Repos Energy, energy distribution startup will soon bring biofuel on wheels,” said the statement. Founder Chairman of Praj Industries, Pramod Chaudhari said: “We want to build a carbon-neutral energy distribution ecosystem from agriculture to end-users through a vehicle. What Repos offers as a distribution solution was the only missing link in our ecosystem. Together, we can move towards carbon-neutral indigenous fuels.” Co-founder of Repos Energy, Chetan Walunj said that India is on its way to become one of the highest consumers of energy in the coming decade. “We need to explore the newer and greener ways of energy distribution using technology. And this is the only way ahead to meet the PM’s mission of COP 21,” he said.
Petrol price can come down to Rs 75 if brought under GST, but there is lack of political will: SBI Economists
Petrol price can go down to Rs 75 a litre across the country if brought under the ambit of the Goods and Services Tax (GST), but there is a lack of political will, which is keeping Indian oil product prices at one of the highest in the world, economists at SBI said on Thursday. Diesel will come at Rs 68 a litre and the revenue loss for the Centre and states will be only Rs 1 lakh crore or 0.4 per cent of GDP, according to the calculation by the economists made under the assumption of global crude prices at USD 60 a barrel and exchange rate at Rs 73 per dollar. At present, every state has its own way of taxing fuels, while the Centre also collects its own duties and cess. Petrol prices have touched Rs 100 per litre in some pockets of the country and concerns are being expressed about the high taxation which is making the fuels dearer. The SBI economists said bringing petrol and diesel under the goods and services tax is an unfinished agenda of the GST framework and getting the prices under the new indirect taxes framework can help. “Centre and states are loathing to bring crude oil products under the GST regime as sales tax/VAT (value added tax) on petroleum products is a major source of own tax revenue for them. Thus, there is lack of political will to bring crude under the ambit of GST,” they said. At present, states choose to levy a combination of ad valorem tax, cess, extra VAT/surcharge based on their needs and these taxes are imposed after taking into account the crude price, the transportation charge, the dealer commission and the flat excise duty imposed by the Centre, they explained. Assuming for the crude prices and dollar rate, transportation charges at Rs 7.25 for diesel and Rs 3.82 for petrol, dealer commission of Rs 2.53 for diesel and Rs 3.67 for petrol, cess of Rs 30 for petrol and Rs 20 for diesel which will be divided equally between the Centre and states, and GST rate at 28 per cent, the economists came at the final price estimates. A growth in the consumption – diesel going up 15 per cent and petrol by 10 per cent – has been used to assess the Rs 1 lakh crore fiscal impact of getting petroleum prices under GST, it said. An increase of USD 1 in the crude oil prices will push up the petrol price by around 50 paise and diesel prices by around Rs 1.50, and bring down the overall deviation by around Rs 1,500 crore under the baseline scenario, it said. States, which have the highest share of tax revenues at present, will be the biggest losers if the system shifts to GST, it said, quickly adding that such a move will help consumers pay up to Rs 30 less. Interestingly, the simulation exercise suggests that when crude oil price declines by USD 10 per barrel, Centre and states could save close to Rs 18,000 crore, if they keep the petrol prices at baseline prices without passing the benefit to consumers, which is higher than the savings of Rs 9,000 crore when the crude prices go up by a same measure. “We thus recommend the government build up an oil price stabilisation fund which can be used in bad times for compensating revenue loss by cross subsidising fund saved from good times, without hurting the consumer,” it said. For the LPG cylinders, the economists proposed an increased and graded subsidy may be provided to poor consumers which can be tapered off over a period of, say, 5-years. Meanwhile, the note said the latest revenue and expenditure numbers could lead to lowering of fiscal deficit to 8.7 per cent in FY21, down from 9.5 per cent in the revised budget estimates. It is highly likely that the Government might cancel its Rs 49,000 crore borrowing planned in the last fortnight of March, they said.
India’s Reliance looks to green energy, hydrogen as aims for net zero
India’s Reliance Industries, operator of the world’s biggest refining complex, said on Wednesday its non-energy businesses and increased use of renewable power would help it meet a goal of net zero carbon by 2035. The leading petrochemical producer and operator of a refining complex in the western Gujarat state that can daily process 1.4 million barrels of crude is also present in India’s retail and telecom sectors. Reliance has traditionally used its own fossil fuel-fired generation for its giant refineries and manufacturing plants. Now the company is “aggressively working” towards using renewable power from the grid, Sanjiv Singh, president of Reliance’s oil to chemical business said at IHS CERAWEEK. As pressure mounts on the energy industry to reduce its carbon emissions, governments and companies globally are betting on clean hydrogen playing a leading role, but its future uses and costs are uncertain. Singh said Reliance was among those seeking to use green hydrogen, or hydrogen produced using only renewable energy. “Utilisation of green hydrogen will become a very big option. Now we are working on different options for producing green hydrogen,” he said. Singh, who joined Reliance in August after retiring as chairman of the country’s biggest refiner and fuel retailer Indian Oil Corp, said Reliance’s 2035 target was challenging because of the company’s sheer size. “Nevertheless we are committed to achieve this,” he said, adding the group’s less energy intensive activities and efficient energy use would play the biggest part. In addition, Singh said Reliance was working on investing in technologies to capture and store carbon for conversion into products and chemicals to decarbonise its business. “I think no single formula is going to work to achieve this (2035 net zero carbon) target but a combination of everything. I am sure that we are going to achieve this target,” he said. Morgan Stanley in a report last month said Reliance could invest $13 billion-$15 billion over a decade to build a portfolio of 18 gigawatts of renewables, 15 gigawatts for battery manufacturing and 3 gigawatts of hydrogen fuel sales amongst others.
Stakeholders urge Centre to cut excise duty on auto fuels
Various stakeholders have urged the government to cut excise duty on petrol and diesel to rescue consumers from the spiralling prices of the auto fuels amid the pandemic. Sources said that the Finance Ministry has been urged to take a call on the high levels of duty on the two petroleum products as its higher prices also has an impact on inflation that has fallen to 4.06 per cent in January but has the potential to rise further. The news of a successful Covid-19 vaccine and production cut by oil rich countries has suddenly firmed up global oil prices that gained over $ 10 per barrel since January hover close to $ 65 a barrel now. What this has done is that it has put pressure on petrol and diesel prices that have been raised consistently for past two month by oil marketing companies taking petrol and diesel prices to touch new highs. In Mumbai, petrol is priced 97.57 a litre on Tuesday very close to reaching Rs 100 a litre. In other metro cities also the pump price of petrol has breached all time high levels and in some places petrol isd already priced at over Rs 100 a litre. Taxes, duties and commission on petrol comprise over 200 per cent of the base price of the product that as of March 1 (in Delhi) stayed at Rs 33.26 a litre. The excise component is around 100 per cent of the base price while state level VAT is roughly about 65 per cent of the base price. With regard to diesel, while the base price Rs 34.97 a litre in Delhi, excise duty component is Rs 31.80 a litre and VAT Rs 11.94 a litre. “The high level of taxes along with current firming of global oil market has played havoc for auto fuel consumers in the times of the pandemic. The finance ministry should look at reducing excise duty on the two products so that retail price eases in the time of high volatility,” said a representative of the oil industry that has recommended for a cut in excise duty on petroleum products. While the case for a cut in duty on petrol and diesel has been made, sources indicated that government would only look at this option later this month when crude price stabilises. It is understood that finance ministry has taken note of rising fuel prices and iumpact of central duty on it and may take appropriate action soon. The Covid-19 pandemic and stimulus measure announced by the government to tide over the current economic crisis has already overstretched government finances with exercise now to see new avenues to boost revenue while cutting down on non-critical expenditure. In May, the Centre had substantially raised excise duty on petrol and diesel to mobilise additional resources that would go into funding its Aatmanirbhar Bharat Package. In fact, the centre has kept room for further raising excise duty on the two products in case the situation warranted.
Finance Ministry begins discussion on easing diesel-petrol prices
Amid mounting pressure from all the quarters to reduce taxes on petrol and diesel, the Finance Ministry vigorously started to discuss the burning issue which has created a hole in consumers’ pockets, sources told on Tuesday. “The government is discussing as to what extent the taxes could be cut, and that too, without having much stress on either the Centre or the state government. The discussion has been started among the Ministry officials on how to bring the Centre and government on a platform where relief from high fuel prices can be given to the common man,” said highly placed sources. They said that the Finance Ministry is exploring all kinds of possible options to handle the imminent crisis and is trying to bring states and the Centre at one platform to ensure an expeditious reduction of the prices. Currently, the petrol prices in Delhi are Rs 91.17 per litre and diesel is at Rs 81.47 per litre. Sources privy to knowledge said that apart from excise duty cut, ministry officials have started to find a way to start deliberation with states, as asked by Finance Minister Nirmala Sitharaman last month. The Finance Minister had said that the only way to find a solution to this problem is that the Centre and states should hold a dialogue. “I concede that’s where action has to be, let’s see what we can do,” said Sitharaman, adding that she agrees the end-users should pay less for fuel. Earlier in an interview with ANI, Petroleum Minister Dharmendra Pradhan had appealed to Finance Minister that diesel and petrol prices are hurting the common people and Sitharaman should have a dialogue with the states to bring the prices down. Last week, Reserve Bank Governor Shaktikanta Das has also said that diesel and petrol prices do have an impact on the cost side. “They play as cost-push factor across a range of activities. It’s not just that passengers who use cars and bikes. High fuel prices also have an impact on the cost of manufacturing, transportation, and other aspects, I am sure the state and central government will take a positive decision in a coordinated manner,” the RBI Governor had said. As the coronavirus pandemic hit economic activity, the Centre has twice raised taxes on petrol and diesel in the last 12 months to boost sagging tax revenues instead of passing on the benefits of low oil prices last year to consumers.
Qatargas delivers its first LNG cargo to India’s Ennore terminal
Qatargas said Feb. 28 it delivered its first LNG cargo to India’s Ennore LNG receiving terminal as the Asian country seeks to increase its use of natural gas. The cargo was delivered via a Q-Flex vessel, named Al Nuaman, which was loaded with 147,000 cm of LNG on Feb. 11 at Ras Laffan port, and called at the Ennore terminal, near the southern Indian city of Chennai, on Feb. 20. The cargo was delivered to Indian Oil LNG Private Ltd., a subsidiary of Indian Oil Corp., which operates the 5 million mt/year terminal. India relies on both domestic gas production and the more expensive LNG imports to meet its gas demand. The country is targeting a 15% share of gas in its energy mix by 2030, from about 6% in 2019. Earlier in February 2019, Qatargas helped commission the Ennore terminal by supplying LNG volumes, which were delivered by the Swiss commodity trader, Gunvor, Qatargas said. The $735 million LNG terminal, commissioned in February 2019, is the first one to be built on India’s east coast, at Tamil Nadu’s Kamarajar port. The terminal has two above-ground storage tanks, with a capacity of 180,000 cm each, and two 36” lines fitted along the jetty trestle that are used for transferring LNG from ship to the storage tanks. The terminal is dedicated to LNG import, storage, regasification and send-out. Qatargas started supplying LNG to India in July 1999, serving Petronet. India is set to commission the Jaigarh LNG receiving terminal in Maharashtra later this year, in addition to other gas-related infrastructure projects, Qatargas said. These additional terminals will “significantly” increase India’s capacity to import LNG, it said. In 2020, India took advantage of low spot prices, and boosted its purchase of LNG cargoes, as COVID-19 related demand destruction started impacting northeast Asia.
Gujarat-based City Gas Distribution companies lead CNG station surge
Gujarat-based city gas distribution (CGD) companies are planning to aggressively add new compressed natural gas (CNG) stations. The expansion is driven by the government’s greater push for the usage of cleaner fuels, growing adoption of CNG amid surging petrol and diesel prices, as well as the allotment of new geographical areas for creating CGD networks. Companies such as Gujarat Gas Ltd (GGL), Torrent Gas Ltd (TGL) and Sabarmati Gas Ltd (SGL) have chalked out ambitious plans to expand their network of CNG stations next fiscal. In fact, these firms continued adding new stations during the current fiscal despite the challenges posed by the Covid-19 pandemic. “GGL has so far commercialized 107 CNG stations across geographies this fiscal,” said Sanjeev Kumar, managing director, GGL, the largest CGD player in India. Kumar added: “We plan to further increase the number to 150 by March 2021.” The company added 107 stations in just eight months, which was the fastest addition by any company in India during the given timeframe. Now, the state-run GGL plans to add 200-plus CNG stations in 2021-22, involving a capital expenditure of about Rs 4 billion. At present, the company has 500 stations in several parts of the country, including Gujarat. Torrent Gas intends to set up 150 CNG stations in 2021-22. The private sector CGD player has so far commissioned 86 CNG stations this fiscal and aims to establish 25 more by the end of 2020-21, which will take its total tally of operational CNG stations to 160. “The company intends to invest about Rs 10 billion for creating CNG infrastructure over the next five years,” said a spokesperson of Torrent Gas. Sabarmati Gas Ltd set up 26 new stations and plans to reach 30 by March-end. The public sector CGD player aims to establish similar number of new stations in the next fiscal as well, said sources. “To ensure wider and faster availability of green fuel, our chief minister Vijaybhai Rupani launched the unique CNG Sahbhaagi Yojana, under which 384 letters of intent (LOIs) have already been issued,” said the managing director of GGL. “In order to achieve this, GGL has doubled its executive capabilities.” The company is also setting up a CNG station at Kevadia in Narmada district. According to a Torrent Gas spokesperson, there is significant emphasis by the Government of India on the usage of cleaner fuel for transportation and hence there is a general push to set up more CNG stations. As petrol and diesel prices have been de-regulated, the price of CNG is cheaper by 50% and 60% when compared with diesel and petrol, respectively. Hence, the consumer adoption of CNG has accelerated.
Fuel prices may fall by April, says petroleum minister Dharmendra Pradhan
Union minister for petroleum, natural gas and steel Dharmendra Pradhan said that he has asked his counterparts in petroleum producing countries to increase their oil production so that Indian consumers get relief from soaring fuel prices. “In April last year, major oil-producing countries decided to cut production as there was a sharp fall in demand due to the Covid-19 pandemic. These countries are producing less fuel to make more profit. While less fuel is still being produced, the demand for fuel has reached the point as it was before pre-Covid situation. Therefore, petrol and diesel prices have increased in the country,” Pradhan told reporters during an interaction in Varanasi on Saturday evening. “I am in touch with my counterparts of major oil-producing countries and have spoken to them. I have asked them to increase fuel production in order that prices of oil may come down in our country which buys fuel from these countries.” He said that as the largest oil buyer, India is creating pressure on oil-producing countries like Russia, Qatar and Kuwait among others to increase production. When production will increase, the cost of per barrel buying will come down and subsequently retail fuel price will also fall. Asked about a timeline by when prices of diesel, petrol and gas will come down, he said that no one can predict that. “But the prices of cooking gas, diesel and petrol may come down by March or April,” he said. Fuel prices have been on fire this month with oil companies raising petrol and diesel prices 16 times so far. The last upward revision of fuel prices was on Saturday. On Friday, Pradhan had said fuel prices are likely to drop as winter ends and attributed the rising rates to an increase in demand during the season. In Varanasi on Saturday, the minister said that all boats that along the Ganga in the city will now run on CNG for which a CNG station has been set up at Khidkiya Ghat. He also said that his ministry is working to ensure cooking gas connection in every house, in all eastern UP districts from Gorakhpur to Sonbhadra.