Govt mulling to cut stake in IOC to below 51%
The government may cut its stake to below 51 percent in the Indian Oil Corporation, ET NOW reported quoting agencies. ET Now in a report said the government is looking to become a minority shareholder in the company. It currently hold 51.5 percent in the oil major. The central government has been on a divestment spree and is considering to cut stake in a number of companies. Indian Oil is the third oil company in which it is thinking of cutting stakes. State-owned oil and gas explorer ONGC is looking to sell its stake in recently-acquired refiner HPCL to a strategic investor, possibly an overseas oil company, to regain the debt-free status of the company existing prior to the expensive buy. The plan for Hindustan Petroleum Corporation Ltd (HPCL) follows the government’s go-ahead to invite a strategic investor for Bharat Petroleum Corporation Ltd (BPCL) where the Centre owns 53 percent stake. The divestment is important from the fiscal math perspective. India’s fiscal deficit at the halfway mark in 2019-20 stood at 92.6 percent of budgeted estimates, lower than 95.3 percent in April-September, 2018-19, helped by transfers from the RBI. With muted tax revenues, the government will have to undertake spending cuts and divest to achieve FY20 fiscal target of 3.3 percent of GDP, say economists.
IEA sees India’s oil demand doubling, import dependence rising to 90% by 2040
India’s oil demand will double to more than 9 million barrels a day, marking largest absolute consumption growth for any country, and its dependence on imports will rise to 90% by 2040, according to the International Energy Agency’s latest World Energy Outlook. This means the Indian economy will continue to depend in the near term on oil or fossil fuels in spite of the government’s stress on renewable energy and electric vehicles. This does not augur well as the suggested price trends in business as usual or stated policy environment scenarios do not offer much comfort on the price front in spite of subdued demand growth from other economies and rising exports from new players such as the US and Brazil. Oil is one of the key elements of the government’s fiscal math. Costlier fuel cramps government’s fiscal room for social spending or stimulus as it disturbs macro-economic parameters by raising costs for consumers, farmers, transporters and manufacturers. The report says a third of the growth in India’s oil will come from trucks. Another quarter will come from passenger cars, with the Indian car fleet growing by a factor of seven between now and 2040. Use of oil as a petrochemical feedstock will contribute the remaining 15% demand. On the global stage, the Outlook sees the oil trade becoming increasingly centred on Asia, with China soon overtaking the European Union as the world’s largest oil importer and holding that position to 2040, despite the flattening of its oil demand in the 2030s. But this also poses a challenge as the growing concentration of trade flows to Asia increases the amount of oil passing through major global chokepoints, with implications for global oil security. The Outlook also sees the influence of traditional players on the oil market waning, with the US output pushing down the share of OPEC countries and Russia in total oil production. This share drops to 47% in 2030, from 55% in the mid-2000s, implying that efforts to manage conditions in the oil market could face strong headwinds. Pressures on the hydrocarbon revenues of some of the world’s major producers also underline the importance of their efforts to diversify their economies.
Growth in global oil demand to slow from 2025: IEA
Growth in global oil demand is expected to slow from 2025 as fuel efficiency improves and the use of electric vehicles increases, but consumption is unlikely to peak in the next two decades, the International Energy Agency said on Wednesday. The Paris-based IEA, which advises Western governments on energy policy, said in its annual World Energy Outlook for the period to 2040 that demand growth would continue to increase even though there would be a marked slowdown in the 2030s.The agency’s central scenario – which incorporates existing energy policies and announced targets – is for demand for oil to rise by around 1 million barrels per day (bpd) on average every year to 2025, from 97 million bpd in 2018. Demand is then seen increasing by 0.1 million bpd a year on average during the 2030s to reach 106 million bpd in 2040. “There is a material slowdown after 2025, but this does not lead to a definitive peak in oil use,” the IEA said, citing increased demand from trucks and the shipping, aviation and petrochemical sectors. The IEA has been criticised by groups concerned about climate change who say the outlook underplays the speed at which the world could switch to renewable energy and undermines efforts to keep increases in global temperatures within 1.5-2 degrees Celsius. This year, the IEA renamed its main scenario “Stated Policies”, instead of “New Policies”, to clarify that it reflects current policies. It is one of three scenarios used to show how energy demand could evolve over the next two decades. This change is an improvement, said Joeri Rogelj of the Grantham Institute at Imperial College London. However, the IEA’s most ambitious scenario “remains inconsistent with 1.5 C and several aspects of the Paris Agreement and doesn’t present a scientifically consistent narrative”, he added. NO EMISSIONS PEAK The IEA outlook sees primary energy demand growing by a quarter by 2040, with renewable energy accounting for half of the rise and gas for 35%. The IEA’s central scenario also does not see energy-related carbon dioxide emissions peaking by 2040 due to economic growth and population increases. “Although emissions are rising, some governments are pushing major policy changes,” IEA executive director Fatih Birol told journalists in Paris. An expected rise of just over 100 million tonnes a year between 2018 and 2040, although lower than the average rate of increase since 2010 of 350 million tonnes a year, would not be enough of a reduction to curb global temperature rises. The IEA expects there will be 330 million electric cars on the road by 2040, up from an estimate of 300 million in last year’s outlook. That would displace around 4 million bpd of oil use, it said, compared to the 3.3 million bpd forecast previously. The largest increases in oil production are seen coming from the United States, the world’s biggest producer, as well as Iraq and Brazil. U.S. tight crude oil production is seen rising to 11 million bpd in 2035 from 6 million bpd in 2018. The share of oil production by members of the Organization of the Petroleum Exporting Countries plus Russia is seen falling to 47% for much of the next decade, a level not seen since the 1980s. “The oil price required to balance supply and demand in this scenario edges higher to nearly $90 a barrel in 2030 and $103 a barrel in 2040,” the report said of the IEA’s central scenario.
World’s thirst for oil to keep growing until 2030s
The world’s thirst for oil will continue to grow until the 2030s and climate-damaging emissions will keep climbing until at least 2040 – unless governments rethink how we fuel our lives, according to an important global energy industry forecast. Growing demand for SUVs could negate the environmental benefits of the increased use of electric cars. And current investment in renewable energy is “insufficient” to meet the needs of growing populations, notably in cities across Asia and Africa. This is according to the latest annual long-term outlook released Wednesday from the Paris-based International Energy Agency. The World Energy Outlook is closely watched by the oil industry, but it’s also increasingly important to governments because of its relevance to climate policy. And this year its report, while still focused on forecasting energy needs in the next 20 years, took a stronger-than-usual stand on climate change, calling for “strong leadership” from governments to bring down emissions. The IEA said that almost 20% of the growth in last year’s global energy use was “due to hotter summers pushing up demand for cooling and cold snaps leading to higher heating needs.” Environmental advocates say the IEA still isn’t doing enough to encourage renewable energy. Oil Change International notably criticized the IEA’s “over-reliance” on natural gas as a replacement for coal, saying that will lead to “climate chaos” because gas too contributes to emissions. Based on current emissions promises by governments, the IEA forecast global oil demand of 106.4 million barrels a day in 2040, up from 96.9 million last year. Global oil demand would slow in the 2030s, and coal use would shrink slightly. Emissions would continue to rise, if more slowly than today, and wouldn’t peak before 2040. The U.S. is central to whatever happens next. U.S. consumers and businesses were a leading source of growing oil demand last year, the IEA says. Also, the U.S. will account for 85% of the increase in global oil production by 2030, thanks to the shale boom. The report also lays out a more ambitious forecast if governments were to meet the goals in the 2015 Paris climate accord. That would require a big boost in wind and solar power, the IEA says, and a new push for energy efficiency, which has slowed in recent years. “The faltering momentum behind global energy efficiency improvements is cause for deep concern. It comes against a backdrop of rising needs for heating, cooling, lighting, mobility and other energy services,” the report said. The more ambitious scenario would also require work on new coal plants in Asia to capture their emissions, or by closing them early. And all that would lead to a big drop in oil demand – with repercussions for oil-producing countries that depend heavily on hydrocarbon income. “Governments must take the lead,” the report said. “Initiatives from individuals, civil society, companies and investors can make a major difference, but the greatest capacity to shape our energy destiny lies with governments.”
Govt may shut doors on consolidation in public sector oil firms
Government may shut doors on further consolidation in the public sector oil companies but allow companies to diversify and grow organically to achieve the scales that match the performance of international and domestic private sector oil and gas companies. Sources in the government said that unpleasant experience in the last year’s merger of PSU oil refiner and retailer HPCL with upstream major ONGC has tilted the equation in favor of organic growth for state-owned oil companies. There is also a thinking that the government should have no role in oil being a non core sector and most operations should be privatized. The government’s fresh thinking could seal the fate of an earlier plan to create an integrated public sector ‘oil major’ by merging companies having synergy of operations. Under that plan, the first case of ONGC-HPCL merger was completed last year and there was another plan in works to split gas transportation company GAIL into two and merge one of the entities with either IOC or Bharat Petroleum Corporation. According to sources, the fallout of the fresh move could also be that PSUs may not be encouraged to bid for Bharat petroleum Corporation Ltd. (BPCL), where government is selling its entire 53.29 per cent equity to a strategic investor. The Centre is hoping to bring in global oil majors such as Aramco, Total, Exxon to pick up its stake in BPCL that at current shares proices may be worth Rs 60,000 crore. “The projection for oil market remains subdued so putting additional pressure on oil companies to pick up government equity at this juncture is not called for. The companies need to diversify and grow operations by making investments at right places. Putting extra debt burden by pushing through M&A is not required so the consolidation plan would remain on hold for now,” the source quoted earlier said. ONGC’s acquisition of government’s share in HPCL has pushed the upstream oil major from debt free status into one where debt levels have reached closer to unsustainable levels. In one of the most expensive buys, ONGC last year paid Rs 36,915 crore to buy government’s entire 51.11 per cent stake in HPCL. But the deal brought down ONGC’s cash reserves to Rs 1,013 crore as of March 31, 2018 from Rs 10,799 crore as of March 31, 2014 and saddled it with Rs 25,593 crore debt in FY18. Moreover, post merger HPCL didn’t even recognise ONGC as its promoter for almost one-and-half-years before a Securities and Exchange Board of India (SEBI) rap forced it to list its majority owner as a promoter. The things could get worse if an M&A is pushed onto IOC that has already has minuscule cash balance. Though the company is showing relatively fair financial performance, a consolidation exercise would push it to add debt in its books that could weaken its operations. The company is in the midst of an expansion diversification exercise that could suffer if debt get added to its books. IOC is sitting on special oil bonds (liquid holdings) of value running into few thousand crores, but this could only part-finance any M&A deal. The proposal to merge oil PSUs was earlier mooted during the time Mani Shankar Aiyar. It was identical to the one that was explored by the current government — to merge HPCL and BPCL with ONGC, and OIL with IOC to create two large integrated oil and gas corporations. However, Aiyar’s idea was spiked by an official committee that studied the matter in 2005 but felt that a merger or formation of the holding company was not advisable at that juncture. The proposal was again revived in 2014 by the BJP-led government, but again in September 2015 a high-level panel on the recast of public sector oil firms did not favor mergers to create behemoths and instead suggested greater autonomy by transferring government shareholding in oil PSUs to a professionally managed trust. The talk of merger has once again started after then Finance Minister Arun Jaitley in his Budget for 2017-18 proposed to “create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies.” There are 13 oil PSUs ranging from upstream oil producers like ONGC and Oil India to downstream oil refining and fuel marketing firms IOC, BPCL and HPCL to gas transporter GAIL India Ltd and engineering firm Engineers India Ltd.
India to allow foreign companies to bid in oil sector selloff
India will allow global energy companies to bid during the strategic disinvestment of state-run oil companies, oil minister Dharmendra Pradhan has said. He added that the proposed partnership with Saudi Aramco and Abu Dhabi’s ADNOC for building a $44-billion mega refinery complex in Maharashtra was on “right track”. Reports from Abu Dhabi, where Pradhan is attending the energy conference and exhibition ADIPEC, quoted the minister as saying that the doors for foreign direct investments in India’s fuel retail market were opened by Prime Minister Narendra Modi when he met oil company bosses in Houston during his recent US visit. The Prime Minister’s round-table was attended, among others, by chief executives of ExxonMobil, BP, Royal Dutch Shell, Rosneft, Saudi Aramco and ADNOC. Agency reports quoted Pradhan as telling reporters in Abu Dhabi that India was “inviting” foreign majors and he was “enthusiastic” about their participation. The government is planning to hive off Bharat Petroleum (BPCL), the country’s third-largest fuel retailer and second-largest refiner in the public sector. It also holds the view that ONGC was free to sell Hindustan Petroleum (HPCL), the country’s secondlargest fuel retailer and thirdlargest public sector refiner. During Modi’s first term, the government had sold its entire 51 per cent stake in HPCL to flagship explorer ONGC with the aim of creating “world class” integrated oil company to compete with global majors.
Adani Gas Q2 net doubles to Rs 120 cr
Adani Gas Ltd on Tuesday reported more than doubling of its second quarter net profit on lower tax rate. Consolidated net profit in July-September was at Rs 120.06 crore, or Rs 1.09 per share, compared with Rs 50.66 crore, or Rs 0.46 per share, profit after tax (PAT) in the same period a year back, the company said in a statement. Revenue from operation soared 12 per cent to Rs 502.82 crore. The “increase in PAT reflects the reduction in tax expenses on account of changes made vide Tax Laws Amendment Ordinance 2019 as applicable to the company,” it said. The government had in September lowered base tax rate for corporates to 25 per cent from 30 per cent earlier. The volume of compressed natural gas (CNG) sold to automobiles increased 9 per cent, while there was a 6 per cent rise in sale of piped natural gas (PNG) to households. Overall, sales volume grew 7 per cent to 146 million standard cubic meters (mmscm) on the back of volume growth in both CNG and PNG distribution, the statement said. CNG volumes increased to 75 mmscm, while PNG sales grew to 71 mmscm. Gautam Adani, chairman, Adani Group said, “Adani Gas Ltd has expanded its footprint in the sector across the country with setting up gas stations.” The recent acquisitions in the city gas distribution licenses will successfully provide uninterrupted services across the geographical areas under AGL, he said, adding that French giant Total picking half of promoter equity in the company will help expand the network. Adani Gas is developing and operating City Gas Distribution (CGD) networks to supply PNG to industrial, commercial and domestic (residential) customers and CNG to the transport sector. Headquartered in Ahmedabad, the company has already set up city gas distribution networks in Ahmedabad, Vadodara in Gujarat, Faridabad in Haryana and Khurja in Uttar Pradesh. It has already started commercial operations at Porbandar in Gujarat and Palwal in Haryana, which the company won in the recent CGD bid round. In addition, its joint venture company has already commenced its commercial operations in the cities of Prayagraj, Chandigarh, Ernakulam, Panipat, Daman, Dharwad, Udhamsingh Nagar and Bulandsahar.
Reliance Industries’ deal with Aramco: Mukesh Ambani wants chemicals to dominate Jamnagar refinery output
Reliance Industries (RIL), India’s most profitable company, has prepared a blueprint for its oil-to-chemical (O2C) play as it advances the negotiations with strategic investor Saudi Aramco to sell strategic stake in the business. According to the plan, RIL wants to convert 70 per cent of its output from Jamnagar refinery and petrochemical complex to chemicals. At present, the complex produces 90 per cent fuels – primarily petrol, diesel, naphtha, kerosene and Liquefied Petroleum Gas (LPG) – and the rest 10 per cent chemicals. “The ultimate goal is to achieve over 70 per cent conversion of the crude, which is refined in RIL’s twin refineries in Jamnagar, to high-margin chemical building blocks of olefins and aromatics,” said company sources. The present petrochemicals production includes polymers, polyesters, fiber intermediates, aromatics, elastomers and composites solutions. “Saudi Aramco is keen on the concept of billionaire Mukesh Ambani and that is why it expressed its desire to become strategic partner in the business,” said sources. The Saudi government-owned company, which is going for the world’s largest initial public offering, plans to pick up 20 per cent stake in RIL’s O2C business – which includes material assets such as two refineries and a petrochemicals complex in Jamnagar, Gujarat, besides stake in fuel retailing – for Rs 1100 billion. In the last annual general meeting (AGM) of RIL, Ambani announced the deal with Aramco. “As the world migrates from fossil fuels to renewable energy, we will further maximise O2C conversion and upgrade our fuels to high value petrochemicals. This upgradation will be implemented in a phased manner over the next decade to meet the rapidly increasing demand for petrochemicals, in India and the region,” Ambani vaguely mentioned about the O2C plan in the annual report. The fundamentals of the O2C strategy are to employ advanced molecule management to upgrade the refinery intermediate streams by value, said company officials. “Furthermore, RIL has developed a disruptive innovative technology, a Multizone Catalytic Cracking (MCC) process, which converts a wide range of feedstock to high value propylene and ethylene in a single riser,” they said. RIL’s Jamnagar complex is in the global limelight, as it has commissioned the world’s first fully integrated Refinery Off Gas Cracker (ROGC) and petcoke gasifiers, besides the existing twin refineries, which is the world’s largest single location refining facility. The Jamnagar site has complexity index of 21.1, one of the highest in the world. According to the deal, Aramco will supply 500,000 barrels of crude oil every day to RIL’s Jamnagar refinery (28 per cent of their requirement) on a long-term basis. “Aramco will be able to add substantial value through the feedstock that they supply to RIL,” said the company sources. Ambani focusses on sustainability and circular economy concepts to convert RIL’s O2C business as one of the top five petrochemicals companies in the world. RIL’s hydrocarbon business faced challenges because of weak global trade since 2018-end. Volatility in global feedstock prices, muted demand and incremental supply from new capacities led to the challenging environment. The refining business also witnessed uncertainty in oil supply due to heightened geopolitical tensions in the Middle East, sanctions on Iran, sharp production decline in Venezuela and armed conflict in Libya. The production of high-value light distillate cracks was lower due to moderation in the petrol demand across key markets. RIL’s gross refining margin fell for the seven consecutive quarters until June 2019, before recovering in the second quarter. The Jamnagar refineries are capable of producing Euro VI fuel.
PSUs may be barred from bidding for BPCL stake
State-owned entities may be barred from bidding for the Centre’s stake in oil-refiner-marketer Bharat Petroleum Corporation (BPCL), which could fetch close to Rs. 700 billion or two-third of the disinvestment revenue target of Rs. 1050 billion for this fiscal, as it does not want to repeat PSU-to-PSU deals similar to ONGC-HPCL or PFC-REC. A clause this effect might be incorporated in the expression of interest (EoI) and preliminary information memorandum (PIM) document for BPCL stake sale, sources told FE. State-owned oil retailer Indian Oil Corporation (IOC) was evaluating the option of throwing its hat in the ring and taking over the entire 53.3% government stake in BPCL. According to an internal note circulated among IOC top brass which FE has accessed, its marketing division discussed “the issue of taking the government stake in BPCL or the ONGC stake in HPCL by IOC”, in the light of the risks to its business from a possible privatisation of BPCL, at a meeting on October 25. The note also talks about the “enormous pricing flexibility” that BPCL might enjoy if its new owner turns out to be one with major crude oil assets and experience in oil retailing, a scenario which could be to the detriment of IOC’s financials in the short term. The government’s stake in BPCL is worth about Rs. 600 billion at current market prices, but it could go up to Rs. 700 billion as the transaction is expected to happen at a premium over the current prices. In FY18, the government had raised Rs. 369.15 billion by selling its 51% stake in HPCL to upstream major ONGC and in FY19, its REC stake was sold to PFC for Rs. 150 billion. Even though the Centre mobilised a record Rs. 1000 billion in FY18 and Rs. 850 billion in FY19 from disinvestment of its stake in various companies, some of its sheen was taken away by the fact that CPSE-CPSE deals played a major role in boosting the receipts. Currently, IOC owns 43% fuel retail outlets in the country while BPCL’s share is 23%. HPCL owns 24% of the domestic fuel retail network. At FY19-end, IOC had reserves and surplus of Rs. 1030 billion and a debt to equity ratio of 0.7. Saudi Aramco, the world’s largest integrated oil and gas company, might team up with an Indian company to bid for BPCL as it was looking at downstream investments in high growth economies, including India.
Uniper says it sees Wilhelmshaven LNG terminal by 2023
German utility Uniper believes the planned Wilhelmshaven floating terminal for liquefied natural gas (LNG) can come on stream in the year 2023, its chief financial officer said in a call on Tuesday. Sascha Bibert, in a call with reporters on nine-month financial results, said that there is good demand for the gas and interest from suppliers of sea-borne gas into Germany. Uniper, which trades LNG and has LNG offtake commitments from U.S. producers, will be a facilitator of the 10 billion cubic metres regasification project, while various possible partners are interested in booking capacity or buying shares in a future terminal operator.