First exploration and production, now retail fuel – BP extends courtship with Reliance
Oil and gas major BP is in the process of finalizing plans to establish a footprint in India’s retail fuel market, extending a partnership with Reliance Industries to a new segment a year after the two companies jointly pledged to invest $6 billion to boost domestic gas production. The move to venture into one of Asia’s fastest growing retail oil markets will pitch BP against other global oil majors like Shell, which already has a presence in India’s retail fuel market, as well as against private players like Nayara Energy, which is also aiming for a bigger slice of the market. Although BP has made it clear that it is talking to Reliance to jointly invest in the retail fuel sector, it has not yet announced specific details about the plan, such as the timing of its entry and the number of outlets it plans to set up. Analysts said that if BP and Reliance indeed decide to invest jointly in India’s retail fuel sector, they would be in a stronger position to compete together in a market dominated by state-run refiners than they would be if they invested independently. “For the future we have got our eyes on lots of things. You don’t just jump into retailing. You do a lot of planning. When it happens it will be something very special,” BP group chief executive Bob Dudley said recently in New Delhi. “We are in the middle of talking to Reliance. They have been great partners. We want to do it right rather than just do it,” he added. Business Focus The Indian government in 2016 granted BP a license to set up 3,500 fuel stations in India, but the company has not moved ahead with the plans so far. Instead, in June 2017, Reliance and BP said they would jointly invest up to $6 billion to develop already-discovered deepwater gas fields off the east coast of India, which would help to boost gas output by 30 million-35 million cu m/d (1 Bcf/d) in phases over 2020-2022. India has close to 60,000 retail fuel outlets spread across the country, out of which the three state-run firms — Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp — account for more than 90% of the market share. In 2002, India’s domestic private players Reliance and Nayara Energy, which was then called Essar Oil, ventured into the retail oil space, but were forced to close their fuel stations after the government decided to control prices post 2005. But after the diesel price deregulation in October 2014, Nayara re-opened outlets. Its CEO B. Anand recently told S&P Global Platts that the company had plans to open about 7,500 retail oil outlets in the next 2-3 years. Reliance, on the other hand, operates more than 1,300 retail fuel outlets. “With more transparency brought in the system through daily revision of retail oil prices, Reliance sees some avenues to recuperate its domestic retail business,” said Senthil Kumaran, consultant, oil markets, at Facts Global Energy. “BP has announced interest in partnering with Reliance. It may target small towns, growing rural markets and new highways to put up their new stations.” No U-Turn On Reforms The twin blows from higher crude prices and a weakening domestic currency prompted India earlier this month to cut retail fuel prices for the first time since aligning them with the global market a year earlier. Although the decision to reduce prices might have raised questions on whether New Delhi would resort to similar cuts often as general elections draw near, analysts and industry officials are of the view that this does not dilute the direction of the country’s energy policy reforms. “I think price controls will not be good for the sector in the longer term. And I have not heard any, even suggestions, that India will go back to price controls,” Dudley said. “There have been some reductions, on taxes. I understand that prices of fuel now are very painful in the country. So, finding a way through that, to make sure that the retail sector stays vibrant and the Indian oil companies stay vibrant, is very important,” he added. On October 4, the Indian government reduced the excise tax on gasoline and diesel by Rupee 1.50/liter ($0.02/liter). New Delhi has also asked state-run oil retailers such as Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp to reduce gasoline and diesel prices by Rupee 1/liter across the country. But Dudley added that India needs to speed up its decision making. “We plan for the long term and we’re here in India for the long term,” he added.
No Bharat Stage IV vehicle shall be sold across the country from April 1, 2020: Supreme Court
The Supreme Court Wednesday said that no Bharat Stage IV vehicle shall be sold across the country with effect from April 1, 2020. The Bharat stage emission standards are standards instituted by the government to regulate output of air pollutants from motor vehicles. The Bharat Stage VI (or BS-VI) emission norm would come into force from April 1, 2020 across the country. A three judge bench headed by Justice Madan B Lokur made it clear that only BS VI compliant vehicle shall be sold in the country from that date. The bench said the need of the hour was to move to a cleaner fuel. BS IV norms have been enforced across the country since April 2017. In 2016, the Centre had announced that the country would skip BS-V norms altogether and adopt BS-VI norms by 2020. Earlier it was reported that German luxury carmaker Mercedes Benz can bring in BS VI emission compliant models as early as 2018 to India for which it can also forge partnership with oil firms for higher grade oil. The car maker has already sought help from various ministries, including Ministry of Road Transport and Highways, which has asked them to get in touch with oil and gas firms. “We would be ready as early as 2018. We could bring the first set of vehicles in 2018 into the country,” Mercedes-Benz India Managing Director and CEO Roland Folger told PTI when asked about the company’s plans regarding launch of vehicles compliant with Bharat Stage (BS) VI emission norms. German luxury carmaker Mercedes Benz can bring in BS VI emission compliant models as early as 2018 to India for which it can also forge partnership with oil firms for higher grade oil. The car maker has already sought help from various ministries, including Ministry of Road Transport and Highways, which has asked them to get in touch with oil and gas firms.
India receives $822m investment commitment in first round of oil, gas block auction
India has received an investment commitment of $822-million in oil and gas exploration through agreements with successful bidders for 55 oil and gas blocks at the recently concluded maiden auction under the Open Acreage Licensing Policy (OALP). Of the 55 blocks, Anil Agarwal-controlled Vedanta bagged 41 blocks, while national exploration and production majors, Oil India Limited and ONGC Limited, bagged two and State-run companies like GAIL India, Bharat Petroleum Corporation and Hindustan Oil Exploration Company were successful in securing one block each. The exploration investments were committed in the course of the successful bidders signing a production sharing contract with the Petroleum and Natural Gas Ministry, government officials said. The signing of agreements following an auction under the OALP is significant because the last round of oil and gas block auctions was conducted under older policy in 2010, in which 256 blocks were offered of which 156 have been relinquished by investors citing unviable prospects. Following the signing of the agreement with the government, Cairns India, the oil and gas arm of Vedanta, said in a statement it had planned an investment to the tune of $1-billion to bring the 41 blocks it had secured into production. However, despite the investment commitments received in the course of follow-up auctions under OALP I, the government was concerned over the tepid response overall, particularly the absence of any foreign exploration and production companies. Government sources said that feedback received from foreign investors indicated that some of the clauses in the bid document of OALP I had discouraged them from participating in the auction. One such clause was that any holding company securing an asset would need to seek government clearance if the company wanted to make structural changes in the block secured at the auctions, even though the OALP permitted bidders to carve out the block for exploration projects. It was submitted to the Ministry that seeking clearance for any changes in the block would be an impediment in the case of any changes in the investing holding company in the case of mergers, acquisitions or change of ownership, which, in turn, might require changes in the structure of the oil and gas block secured. However, no clarification was forthcoming on whether the Ministry was tweaking the bid document to take care of such concerns even as the government readied to start the second round of auction under the OALP. Preliminary information on the second round, however, indicated a further fall in investor interest with only 13 submitting their expression of interests (EoI) to the Ministry. ONGC, which did not bid aggressively in the first round, submitted EoIs for 7 geographies, sources said. OALP permitted prospective investors to carve out their own exploration geographies and once the investors carve out such areas based on national data repositories, other investors could join in once the bidding at the auction commenced.
India’s H-Energy seeks LNG cargoes ahead of new terminal start-up
India’s H-Energy is seeking 17 cargoes of liquefied natural gas (LNG) for delivery over 2019 to 2022, three industry sources said on Wednesday. Offers are due by October 26 and the deal is expected to be awarded by October 31, one of the sources said. The company is seeking the cargoes ahead of the start-up of its LNG terminal in the west of the country. The terminal at the port of Jaigarh, with a capacity of 4 million metric tons a year, is expected to start operation in the first quarter of next year after an initial delay.
Sri Lanka Seeks Indian Advice on Oil Imports from Iran
Sri Lanka, which is dependent on Iranian light crude, has sought advice from India on its strategy on purchasing oil from the country in the light of tightening US sanctions. Sri Lanka’s Petroleum Minister Arjuna Ranatunga has sought information on how India will act in the case of tighter sanctions from Indian External Affairs Minister Sushma Swaraj, a statement from the office of the Prime Minister Ranil Wickremesinghe who is leading a delegation said, economy next website reported on Sunday. Swaraj had explained India’s strategy on oil purchases and has said Sri Lanka could also follow the process and promised further information. Sri Lanka’s aging state-run refinery, originally built by the Soviet Union, works best with Iranian light crude, with other heavier crudes not generating enough light distillates. US President Donald Trump announced in May that Washington was pulling out of the nuclear agreement which lifted nuclear-related sanctions against Tehran in exchange for restrictions on Tehran’s nuclear program. The deal had been signed between Iran and the five permanent members of the UN Security Council — the United States, Britain, France, Russia and China — plus Germany in 2015. The US administration reintroduced the previous sanctions while imposing new ones on the Islamic Republic. It also introduced punitive measures — known as secondary sanctions — against third countries doing business with Iran. A first round of American sanctions took effect in August, targeting Iran’s access to the US dollar, metals trading, coal, industrial software, and auto sector. A second round, forthcoming on November 4, will be targeting Iran’s oil sales and its Central Bank.
Australia will not trigger LNG export controls: Minister
Australia’s government will not impose controls on exports of liquefied natural gas (LNG) next year because it does not see any shortages in the domestic gas market, Resources Minister Matt Canavan told Reuters in an interview on Tuesday. The country, which is vying to become the world’s biggest LNG exporter, enacted a law last year to control LNG exports in reaction to surging domestic natural gas prices. Not triggering the export controls will ease concerns among its buyers including Japan, the world’s biggest LNG importer. “No … definitely not,” Canavan told Reuters when asked if he will trigger the mechanism. “Next year is not going to be a shortfall year.” Canavan is in Japan attending energy conferences and meeting with customers for Australia’s LNG, coal and other resource exports. Rising natural gas prices became a political issues in Australia as households and manufacturers complained of the higher costs, especially in the country’s more populous east coast. Yet Australia has an abundance of gas and is a major LNG supplier to Japan, China and South Korea under long-term contracts. To deal with the crisis, Australia’s government passed a law to limit exports from any of the three LNG plants on the country’s east coast to beef up local supply. That had sparked concern among buyers in Japan, where imports of the fuel soared after the Fukushima nuclear disaster led to the shutdown of the country’s reactors. The east coast plants, operated by Royal Dutch Shell , ConocoPhillips and Santos, agreed to plug any deficits. “We have also recently updated the agreement we have with the producers,” Canavan said. “Providing that agreement is met there will be no need for us to use the formal export controls that are in place now.” Australia no longer faces a looming gas shortage, thanks to the government pressure on exporters to divert the commodity into local markets and a reduced demand forecast for gas-fired power, the nation’s energy market operator said in June.
OMCs raking in profit as refining margins rise
The government decision to let state-owned oil marketing companies (OMCs) absorb Rs 1 per litre increase in retail price of petrol and diesel is unlikely make a major dent in their revenues as almost all entities are constantly making major gains from a rise in their gross refining margins or GRMs. GRM is a key measure of profitability for refining firms and is derived by deducting the cost of crude oil they buy from the total market value of the refined products they produce. The hardening of crude prices and favourable demand-supply equation in the global market have shot up GRMs of all oil marketing firms leaving them with higher profits even though the skyrocketing retail price of petrol and diesel continues to throw household budgets haywire. According to oil ministry’s Petroleum Planning and Analysis Cell (PPAC), the GRM of the country’s largest oil marketing company Indian Oil Corporation (IOC) has increased three-four times from its largest refineries in the last three years. This has also increased its net profit in the same margin. India has around 235 million metric tons per annum (MMTPA) of refining capacity, making it the second-largest refiner in Asia. The surplus capacity results in exports of products largely by private sector refineries. The weighted average GRM of nine IOC refineries stood at $ 5.06 a barrel in FY16 but it has more than doubled to $10.21 at the end of April-June quarter of FY19. Similarly, weighted average of two refineries of BPCL has increased from $6.59 in FY16 to $7.49 in Q1 of FY19. The GRM of two Hindustan Petroleum Corporation (HPCL) refineries has also increased from $ 6.68 a barrel to $ 7.15 a barrel in the same period. Though the GRMs of state-owned entities have risen, it is still lower than Reliance Industries that has seem its margins rise to $11.60 a barrel in FY18. Similarly, Nayara Energy (formerly Essar Oil) has also seen its GRM oscillating in the range of $9–11 a barrel. The higher GRM has come with higher profitability for companies. IOC has increased its profit to Rs 213.4612 billion in FY 18 increasing from Rs 191.0640 billion in FY17 and Rs 98.7798 billion in FY16. “Its not just the market dynamics that is dictating higher GRMs for OMCs. Freedom to price auto fuel and reduction in subsidy sharing burden has increased OMCs’ investible capital that has been used to upgrade technology and hence there is an improvement in GRMs. This should not been seen as OMCs making abnormal profits and hence having capacity to bear more burden of faulty government policies,” said an industry expert asking not to be named. Earlier this month, the Centre decided to reduce the retail price of petrol and diesel by Rs 2.50 per litre through excise duty cut of Rs 1.50 per litre and getting OMCs to absorb another Rs 1 hike in auto fuel prices. It also asked state to reduce duty to the tune of a similar Rs 2.50 per litre on both the products. Sources said the OMCs are now fearing that their higher GRM s may be capped so that government is able to reduce the retail price of sensitive fuels such as petrol and diesel even though global oil prices are expected to rise further after November 4, when US energy sector sanctions on Iran takes effect. It’s not that OMCs are the only gainers when global oil prices are higher. The centre has also more than doubled its excise revenue to over Rs 2240 billion in FY 18 from just about Rs 990 billion in FY 15 through nine increases in duty between November 2014 and January 2016. But with expectation of higher expenditure on populist schemes ahead of general elections in 2019, the Centre is not willing to cut excise duty further. This could bring pressure on OMCs who could see their margins erode faster than expected in coming quarters
Japan’s Osaka Gas begins marketing gas in Indonesia with Pertamina
Japan’s Osaka Gas Co said it has launched a natural gas joint marketing business in Indonesia with a gas trading unit of Indonesia’s state-owned Pertamina * This is the third Southeast Asian country into which Osaka Gas has expanded its energy business, following Singapore and Thailand, the company said in a statement * Under the agreement with Pertamina, Osaka Gas aims to promote efficient energy use and work to get consumers to switch to natural gas from other fuels, it said * Osaka Gas is also preparing to launch a service business in Indonesia that supports industrial customers in switching to natural gas at their plants with financing schemes, it said
Saudi to sign $50 billion in oil, gas, infrastructure deals: Source
Saudi Arabia plans to sign deals worth more than $50 billion in the oil, gas, industries and infrastructure sectors at an investment conference in Riyadh on Tuesday, a source familiar with the matter said. The deals will be signed with companies including Trafigura, Total, Hyundai, Norinco, Schlumberger, Halliburton and Baker Hughes, the source said. The deals will include the establishment of a copper, zinc and lead smelter with Trafigura Group; a joint agreement to build an integrated petrochemical complex and downstream park in the second phase of the SATORP refinery, jointly held by Saudi Arabia’s Aramco and Total; and investments in retail gas stations also by Aramco and Total.
HPCL appoints Ghassan Aboud as distributor
UAE-based multi-business conglomerate Ghassan Aboud Group was appointed as a distributor for export markets by Indian public sector petroleum giant Hindustan Petroleum Corporation Limited (HPCL) through its 100 per cent subsidiary in the UAE, HPCL Middle East FZCO. As part of the collaboration with HPCL, the Ghassan Aboud Group will market an impressive range of products including auto lubricants, industrial lubricants, asphalt, solvents and others, it said. Ghassan Aboud, chairman of the group, said: “This is the beginning of important relationship for the group with such a preeminent giant in the lubricant industry.” “We are committed to deliver HPCL products across our extensive market network and achieve a progressive long-term partnership,” he added. Subhendu Mohanty, chief executive officer and director, HPCL Middle East, said: “Being a market leader in the huge and highly competitive Indian Lubricants Market, HP Lubricants is effectively poised to offer its products and services in the Middle East, Africa and CIS.” “The partnership with the Ghassan Aboud group provides the ideal synergy to cater to the requirements of lubricants and other petroleum products in the assigned regions,” he said. “Both HPCL Middle East FZCO, HPCL’s 100 per cent subsidiary in the UAE and the Ghassan Aboud Group are proud to partner together in this journey of mutual progress,” he added. R Sudheendranath, executive director Lubes & Lubes SBU Head HPCL India, said: “This partnership holds enormous potential for HP Lubricants and the Ghassan Aboud group to expand and reach out to several countries in their network with the high quality offerings of an established brand like HP Lubricants and other petroleum products from HPCL.” HPCL is a Global Fortune 500 company with $35 billion in revenues that owns and operates the largest lube refinery in India producing lube base oils of international standards. A vital part of HPCL, HP Lubricants is India’s largest lubricant marketer, which markets more than 450 grades of lubricants, specialties and greases manufactured in state-of-the-art blending plants spread across India, said a statement. The grades manufactured by HP Lubricants find applications in automotive, industrial, mining and construction, agriculture, fishing, defence and railways among others, it said. The Ghassan Aboud Group is engaged in the automotive, retail, media, real estate, hospitality, pastoral, catering sectors with presence in the UAE, Belgium, Australia, Jordan and Turkey, it added. Most notably, the Ghassan Aboud Group is an established player in the automotive supply-chain for 25 years, with a market reach of over 100 countries. Furthermore, the group is major enabler of automotive trade with its global hub in the UAE and complementary operations in Belgium and Jordan. It has an impressive infrastructure that includes sales, storage, logistics and transportation facilities.