Petronet LNG seeking 9 cargoes for 2019: document
India’s Petronet LNG Ltd is looking to buy 9 cargoes of liquefied natural gas (LNG) for delivery in 2019, according to a company document reviewed by Reuters on Thursday. The firm is looking for the cargoes on a cost-and-freight (CFR) or delivered ex-ship (DES) basis to be unloaded at Dahej, Gujarat or Kochi, and Kerala, according to the document. The cargoes are to be delivered in January, February, April, June, July, August, October, November and December. Offers are due by Thursday.
Rising crude in poll time to further erode PE of OMCs
Higher oil prices are not only pinching the average Indian. Investors in motor-fuel retailers aren’t happy either, and should brace for more pain as the Street believes politics could overshadow the cold logic of economy in the run-up to state and national polls. Oil marketing companies (OMC) such as Indian Oil (IOC), Hindustan Petroleum Corp. (HPCL), or Bharat Petroleum Corp. (BPCL) could face marketing margin compression as the political calendar over the next six-nine months gets poll heavy. These stocks have shed 22-41 per cent since the beginning of the year, while the benchmark index Nifty rose 4 per cent in the same period. Marketing margin is the money earned from the retailing of motor fuels, and it contributed nearly 40-60 per cent of the total operating profit of OMCs. Stocks have largely been victims of derating as earnings contribution of the marketing operations has remained hitherto unhurt, with OMCs passing on higher crude prices to consumers. In the run-up to polls, the Street believes, state-run OMCs may not have the luxury to pass the increase in input prices on to retail consumers. HPCL, BPCL and IOCL are trading at 6.03, 7.5, and 7.3 times, respectively, based on their 12-month projected earnings, 19-34 per cent lower than their 10-year average PE. Firming crude oil prices could further depress marketing margin, and several factors indicate that global oil prices are likely to remain elevated in the medium term. The Indian crude basket rose 29.6 per cent to $80.74 so far in 2018, according to Petroleum Planning and Analysis Cell (PPAC). Indian crude basket comprises of sour-grade Oman and Dubai sweetgrade Brent processed in Indian refineries in the ratio of 75:25. Rising crude in poll time to further erode PE of OMCs Historically, OMCs have not been able to pass on higher crude oil prices to consumers ahead of state elections. For instance, in the past four big state elections of Bihar (November 2015), UP (April 2017), Gujarat (December 2017) and Karnataka (May 2018), OMCs kept their prices frozen for about a couple of weeks, and this depressed their marketing margins. Due to the price freeze before the Karnataka election, OMC lost nearly Rs 400 crore of revenues, and marketing margins reduced from an estimated Rs 3.4 per litre to Rs 0.6 per litre for petrol and from Rs 3.8 per litre to Rs 0.8 per litre for diesel. With five critical state elections in the next two months and impending general elections next year, higher crude prices could impact the OMCs’ ability to maintain their normative marketing margins. OMC are currently making a marketing margin of Rs 1.63 and Rs 2.68 per litre on petrol and diesel, respectively. The Street is currently pricing in blended marketing margin of Rs 1.6-1.8 on auto fuel for the current fiscal year.
Will lose Rs 2,200 crore a year if fuel prices cut by Rs 1/litre: Maharashtra govt
On a day when diesel prices crossed the Rs 80-mark in Nanded, the BJP-led state government said the state would lose revenue of Rs 2,200 crore per year if it slashes the petrol and diesel prices by Re 1 per litre. Will lose Rs 2,200 crore a year if fuel prices cut by Rs 1/litre: Maharashtra govt Finance minister Sudhir Mungantiwar said the government had already slashed taxes on petrol and diesel to check the surging prices at the state level. He said the government was in the favour of bringing petrol and diesel under the ambit of the GST, “but the Congress-led governments were against such move”. The next meeting of the GST council meeting is scheduled on Friday. If the fuel prices is brought under GST, the rates could fall drastically. “Maharashtra brought down taxes on petrol by Rs 2 per litre and on diesel by Re 1 in October last year, whereas states like Rajasthan, Karnataka and AP have cut their taxes recently,” said Mungantiwar, while speaking to reporters on the sidelines of a BJP meeting on Wednesday. He blamed the “global forces” for unabated surge in fuel price in India. Petrol price has already crossed the Rs 90-mark in more than 30 cities/towns in Maharashtra, while diesel is also at an all-time high at many places. In Mumbai, petrol price remained unchanged on Wednesday at Rs 90.22 per litre, the same as on Tuesday, while diesel price was Rs 78.69. In the state, diesel rate was highest in Nanded at Rs 80.13 per litre. Nationally, the other city that had crossed the Rs 80-mark a few days back was Hyderabad; it was priced at Rs 80.62 per litre on Wednesday. Sources said if diesel price shoots over Rs 80 in Mumbai, tourist bus operators and transporters are likely to protest. Tourist bus operators are unable to hike their rates due to a cap by the government. “We want the state to intervene and reduce VAT, taxes on diesel or bring it under GST,” said a transporter.
India looking for investors to back strategic oil reserves: executive
India will start international road shows next month seeking potential investors for the second phase of its strategic oil reserves estimated to cost nearly $2 billion, the head of the operator of country’s reserves said on Wednesday. India Strategic Petroleum Reserves Ltd (ISPRL) will hold the road shows in the last week of October in Singapore, London and New Delhi, Chief Executive H.P.S. Ahuja said on the sidelines of the Tank Storage Asia Conference. India’s government approved the two strategic petroleum reserve (SPR) sites with a total capacity of 6.5 million tons in June. One site will be located in Chandikhol in the eastern state of Odisha with a capacity of 4 million tons at an estimated cost of about $941 million, Ahuja said. The second site will expand an existing SPR at Padur in the southwestern state of Karnataka by adding 2.5 million tons of storage at a cost about $662 million with construction and filling planned through a public-private partnership model, Ahuja said. The existing Phase 1 of the Padur storage site, with a capacity of 2.5 million tons was commissioned last week, he said. “During the Phase 2 constructions, we also plan to take up the filling of Padur Phase 1. So any player who is interested should submit their interests during the road shows,” said Ahuja. The two sites will add to India’s other two SPR sites at Vishakhapatnam and Mangalore, which hold a combined 2.8 million tons. ISPRL, a wholly-owned subsidiary of India’s Oil Industry Development Board, in an agreement with Abu Dhabi National Oil Company (ADNOC) received its first consignment of 2 million barrels of oil in May to fill one of the compartments at Mangalore. The current capacity of India’s SPR can meet about ten days of the country’s requirements and together with the two additional reserves, which will be finished in another six to seven years, would be able to meet about 22 days of the country’s needs, Ahuja said. The country currently imports 82 percent of its crude requirements, he added. India’s stockpiling of crude should not be affected by the loss of Iranian oil imports because of sanctions by the United States. “We’re not dependent on state oil companies to get the reserves. It’s the government of India, who decides when to fill it up. It’s a call by the government and can be done from anywhere in the world,” Ahuja said.
More deals like ONGC-HPCL? Govt mulling mega PSU mergers to met divestment targets
Faced with the uphill task of mobilising disinvestment revenue in excess of the target of Rs 800 billion in volatile market conditions, the Centre may sell its majority stakes in one or two PSUs to other PSUs, in what could be a repeat of last year’s ONGC-Hindustan Petroleum Corporation deal. The companies the Centre could divest its stakes in include NHPC (which may be sold to NTPC), SJVN (to NTPC) and GAIL India (Indian Oil/Bharat Petroleum). Consolidation of power financing firms PFC and REC is also under consideration, though it is not immediately clear which one will be the acquirer (net worth and market caps of these firms are similar). The Centre’s 73.64% stake in NHPC is worth about Rs 175.65 billon now while its 65.61% equity in PFC is valued at Rs 137.18 billion and 73.64% in hydropower producer SJVN at Rs 69.04 billion at current market prices. The value of the government’s 53.34% stake in gas marketer and transporter GAIL is about Rs 459.67 billion. In the case of GAIL, however, the realisation to the government could be substantially lower as the company’s pipeline business would be separated before the sale. ONGC had bought the Centre’s 51.11% stake in HPCL for Rs 369.15 billion or about 37% of the government’s record Rs 1000 billion disinvestment revenue last year. In a presentation to Prime Minister Narendra Modi in April, PSU chiefs had proposed the creation of public sector behemoths by consolidating firms based on commonalities of functions to benefit from economies of scale, global competitiveness and access to cheaper capital. Given the volatile market conditions and few big stocks being available for offer for sale (OFS) of minority stakes, deals similar to ONGC-HPCL are being considered by the government, an official said. The country’s largest oil retailer IOC as well as BPCL have shown interest in the government’s stake in GAIL (India), the dominant gas marketer. NTPC, the largest thermal power producer in India, has also ventured into the hydropower generation business and a merger with hydropower firm NHPC would be synergistic. Similarly, an amalgamation of power financing firms PFC and REC could allow leveraging of common resources. The pipeline of probable deals would depend on the cash position of the acquiring PSUs, which are also undertaking huge capex to expand their businesses organically. NTPC has capex plans of Rs 22,300 while that of IOC’s is over Rs 200 billion in FY19. Recently, finance minister Arun Jaitley expressed confidence that the tax collection target for FY19 would be met, if not exceeded, and disinvestment receipts too would be in excess of the target of Rs 800 billion. However, the shortfall in goods and services tax collections and the fact that disinvestment receipts so far have been below Rs 100 billion are causes for concern. ONGC seeks lower royalty outgo to boost coffers Given the newfound stress on its books due to two mega expenditures incurred during the last financial year, state-run ONGC is looking at all possible ways to boost its coffers, including seeking an upward revision of the post-wellhead cost to reduce its royalty outgo on crude oil produced from nomination blocks. In 2007, the ministry of petroleum and natural gas through a gazette notification said that the wellhead price —on which royalty payment to the government will be calculated — of crude oil for nominated blocks of ONGC and Oil India shall be ascertained by deducting Rs 1,250 per ton of oil for onshore blocks and Rs 947 for offshore blocks as operational expenditure. “The amounts specified…shall be the post-wellhead cost which shall be valid for a period of three years with effect from 1st April, 2007 or such period till the revised rates are notified,” said the notification. These operational expenditures haven’t been revised since. In contrast, however, for all blocks offered after the nomination era, actual cost of production is allowed to be set off before calculating royalty payment to the government. ONGC has sought a revision with effect from April 1, 2010. Fields nominated to ONGC and Oil India account for 70% of domestic oil output. But production from these fields have stagnated around 25 million ton per annum for years. ONGC produces almost 87% of its crude oil production from nominated blocks. An ONGC source told FE that royalty should be calculated after deducting the actual operational cost as the firm is at present paying royalty on even the cost. “The operational expenditure are around four times the amount fixed,” said the source, adding that the ministry is still to respond on the issue. ONGC did not respond to an email seeking comments on the issue till the time of going to press. As reported by FE earlier, ONGC has also sought reimbursement for royalty and cess paid by it on behalf of its exploration partners for the pre-New Hydrocarbon Licensing Policy, soon after the Union Cabinet in July decided that these taxes will now be paid by all contractors as per their participating interests in blocks signed before 1999. In the 1990s, the government awarded some discovered oil and gas fields to private companies in order to attract investments in the hydrocarbon sector. As an incentive, however, the liability of payment of royalty and cess was put on state-run explorers (ONGC and Oil India) and they were made the licensees of the blocks. While ONGC and Oil India had the option to take PIs of 30-40% in the blocks or just remain the licensees without any stake, they were required to pay 100% of the statutory levies. An official from the ministry of petroleum and natural gas, confirming the development, said that though the government is still to deliberate on the issue, the company should limit its production costs as it reduces the government’s share. For oil explorers, production costs include pre-wellhead and post-wellhead expenses such as applicable operating costs of support equipment and facilities, apart from depreciation. A zero-debt firm till late last year, ONGC had to borrow Rs.250 billion
SCI eyes stake in Swan Energy’s Jafrabad LNG port project
Shipping Corporation of India Ltd (SCI) is weighing a plan to buy stake in a 10 million tonnes (mt) a year capacity floating storage and regasification unit (FSRU)-based new LNG port being constructed by Swan LNG Private Ltd off the Jafrabad coast in Gujarat’s Amreli district with an investment of ?40 billion, a least two officials at the Mumbai-based firm said. “We are evaluating a proposal to invest in the Jafrabad LNG port project,” a director-level official at the company said, asking not to be named. Japan’s Mitsui O.S.K Lines Ltd, the long-standing partner of state-run SCI in four LNG tankers leased to Petronet LNG Ltd, has an 11 percent stake in Swan LNG Pvt Ltd. Swan Energy Ltd, a textiles and real estate group, has a 63 percent stake in Swan LNG Pvt Ltd. MOL is one of the world’s largest LNG carrier operators and Japan’s only FSRU owner and operator. The project involves building LNG port facilities utilizing a new build FSRU along with a floating storage unit (FSU) for receiving, storing and regasifying LNG with an initial capacity of 5 mt. The FSRU and FSU will be leased on a long-term bareboat charter basis and connected by ship-to-ship transfer equipment. The 180,000 cubic meter storage capacity FSRU serving the project is being constructed at South Korea’s Hyundai Heavy Industries Co Ltd. It will be owned by Swan Energy through its subsidiary Triumph Offshore Pvt Ltd and MOL has an option to participate in the FSRU joint ownership. The FSU will have a capacity of as much as 145,000 cubic meters. Besides, MOL will participate in many facets of the project—billed as India’s first new building FSRU project—as technical partner including operation and maintenance of the FSRU and FSU. The terminal is slated to start operation in early 2020. FSRUs are drawing attention as a solution for flexibility and mobility in the LNG supply chain. In October 2017, Swan Energy Pvt Ltd was awarded the rights by the Gujarat government to develop and operate the LNG port for an initial period of thirty years which can be extended by another 20 years. By participating in the Jafrabad LNG project, SCI is looking to strengthen its presence in the LNG shipping business. It is the only Indian shipping company with experience in LNG transportation. The company, in partnership with Japan’s Mitsui O.S.K Lines, NYK Line, and K-Line, has leased four LNG tankers to Petronet LNG Ltd to transport LNG to its facilities located at Dahej in Gujarat and Kochi in Kerala. It holds a 29.08 percent stake each in two LNG ships and a 26 percent stake each in the other two LNG carriers. It is also the technical and commercial manager of two of the four LNG ships.“We are definitely going to manage that project (the FSRU and FSU). We are the only ones in India capable of doing that. We are open to picking up a stake in the Jafrabad LNG port project,” the SCI official mentioned earlier said without giving details on the quantum of the stake and the investment. Terrell McClain Jersey
Increased gas use could reduce diesel demand, says Indian Oil executive
India’s biggest state-owned refiner Indian Oil Corp said on Wednesday that a gradual rise in India’s natural gas consumption could reduce local diesel demand. “Rising use of gas to begin denting diesel demand in five to seven years,” said B V Ramagopal, the director of refineries at Indian Oil. Keeping in mind the increasing demand of natural gas in the country, the company is currently in the process of expanding its natural gas business, said Ramagopal. Indian Oil is building up a liquefied natural gas terminal in the eastern coast of India and has been aggressively bidding for city gas distribution projects in the last few months. Kam Chancellor Womens Jersey
Indian govt did not tell refiners to halt Iranian oil imports: Source
India’s government has not told the country’s oil refiners to halt their imports of Iranian crude, a government source said on Wednesday, even as most Indian refiners have cut down their imports ahead of U.S. sanctions on Iran. “We have good relations with Iran and the U.S. and our decision is not hinged on energy,” said the government source. India has close diplomatic ties with Iran and is also building the strategic Chabahar port in the Middle Eastern country. It is expected to be operational by 2019. However, at the same time, India is closely working with U.S. to further its strategic interests and recently signed a military communications agreement with the United States. Paul Martin Jersey
Will Ennore LNG Terminal should go the same way as Kochi LNG Terminal in India?
Indian Oil Corporation (IOC) has announced that the LNG ( liquefied natural gas) import terminal project in Ennore near Chennai in Tamil Nadu with the investment of over Rs.6000 crore would be commissioned by end 2018. This project has already been much delayed and as per original schedule, it should have been ready at least 3 years earlier. This LNG terminal of the capacity of 5 million tonnes per annum can be fully utilized, only if the pipeline would be laid for evacuation of. regasified natural gas, which should be ready by the end of 2018. This is unlikely to happen. At present, Indian Oil Corporation is laying pipeline from Ennore terminal to Manali Industrial belt for the distance of around 23 kilometer, as the first phase of the natural gas pipeline project,, where the companies like Madras Fertilisers Limited, Chennai Petroleum Corporation, Tamil Nadu Petroproducts and others would be utilizing the natural gas as feedstock and fuel to the extent of around 1.5 million tonnes per annum, against the Ennore LNG terminal’s installed capacity of 5 million tonnes per annum . The requirement of natural gas of Manali industrial belt would not be adequate to utilize the entire capacity of the Ennore LNG terminal. In all, Indian Oil Corporation has to lay 1,385 Kilometer natural gas pipeline, originating from the Ennore terminal to Nagapattinam in Tamil Nadu via Puducherry with branch pipelines to Madurai, Tuticorin, Trichy and Bengaluru. For laying these pipeline across Tamil Nadu, geographical locations in districts in Tamil Nadu including Salem, Kanchipuram, Tiruvallur, Cuddalore, and Nagapattinam have been identified by the Petroleum and Natural Gas Regulatory Board. These pipelines have to be divided into primary, secondary and tertiary network and the pipeline has to necessarily pass along roads including village road and state highway across Tamil Nadu. However, necessary infrastructure facilities are not there at present. While IOC says that it would lay pipeline of around 1385 kilometer length in phases, full capacity utilization of Ennore LNG terminal cannot be achieved, until the entire 1385 kilometer length of the pipeline would be laid for full evacuation of the imported natural gas. Protest even against first phase pipeline project : While it would be so, it is causing concern that even the first phase of pipeline laying project from Ennore terminal to Manali industrial belt of distance 23 kilometers is now facing opposition from the local people and the activists. The pipeline between Ennore terminal and Manali industrial belt runs on a large stretch of Ennore creek wetland. The local fishermen are protesting against laying of the pipeline across the wetland of Ennore creek, that is said to have been ordered by National Green Tribunal to be cleared of fly ash and intermediates. Activists say that there is no permission to lay pipeline in this environmentally sensitive zone. However, IOC says that it is not carrying out any work in the 600 meter stretch in the Kosathaliyar river, where the CRZ clearance is yet to be obtained. IOC further says that it is using the sophisticated trench line technology under the river to lay the pipeline. It further says that utmost safety precautions have been taken and pipelines are designed as per stringent norms. The thickness of the pipeline would be increased depending upon the density of population in the area. While IOC is providing the necessary clarifications and explanations, it is doubtful whether the protestors and activists would relent and they may continue the protest to prevent laying of the pipeline. What fate awaits further pipeline project? When IOC is facing so much problem in laying a pipeline of even 23-kilometer length due to the protest by the activists, one wonders whether IOC would be able to lay down the pipeline to the length of around 1385 kilometers across Tamil Nadu that has to pass through village roads and highways. Fate of pipeline project in Tamil Nadu from Kochi LNG terminal : In the recent past, the proposed natural gas pipeline from Kochi LNG terminal to Tamil Nadu to a length of around 300 kilometer have been suspended due to protest from agriculturists and activists in Tamil Nadu. They have refused to listen to the explanation given by GAIL authorities who are the pipeline contractors and it appears that this natural gas pipeline project in Tamil Nadu has virtually been given up. In the process, Tamil Nadu has lost investment opportunity of around Rs. 15,000 crores that would have been possible by utilizing the natural gas from Kochi terminal as feedstock for setting up several petrochemical projects and ancillary industries in Tamil Nadu. Because of this protest in Tamil Nadu, Kochi LNG terminal with an investment of around Rs. 4000 crores is unable to evacuate the imported natural gas and has been operating at around 5% of capacity and is incurring huge losses. Pipeline project from Kochi terminal to Karnataka forging ahead : While the gas pipeline from Kochi LNG terminal through Tamil Nadu have been stranded, the pipeline is now being laid from Kochi LNG terminal to Karnataka state and is now fast nearing completion. Due to the availability of gas from Kochi LNG terminal, several thousand crore rupees of investment based on natural gas would happen in Karnataka in the near future. Concern about the future of Ennore LNG terminal : In the circumstances, one cannot but be concerned that Ennore LNG terminal project should not meet the same fate as that of Kochi LNG terminal, which happened due to the protest from the activists against laying a gas pipeline in Tamil Nadu. In all probability, the politicians and media in Tamil Nadu will jump into the fray and the protestors and activists would intensify the protests against laying gas pipeline from Ennore LNG terminal, that may threaten the future of this Rs. 6000 crore invested vital project. 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India’s oil demand growth to slow down over next decades: Reliance
India will continue to depend on oil as a mainstay of its energy but its oil demand growth will likely slow as the government pushes for cleaner energy and renewables, Harish Mehta, president, refining & marketing at Reliance Industries said on Tuesday. India is pushing for intervention to support renewables, grid electrification, and the government is trying popularize natural gas and shared mobility, said Mehta said during the Asia Pacific Petroleum Conference (APPEC) in Singapore. “This will lower down the growth of oil consumption (in India) over the next decades,” he said. However, oil consumption will still increase to 480 million tonnes by 2040 as the renewable push will not completely halt oil demand growth, he said, citing official statistics. To meet that consumption, India has been boosting its overall refining capacity with first production from its upcoming West Coast refinery expected in 2022. India has plans to add 190 million tonnes per year of refining capacity over the next 10 years to its existing 228 million tonnes per years, he said. “Over a period of time, some additional refining capacity would also come and some of the exports which are happening through the private sector will probably get curtailed and would get consumed in the country itself,” he said. Mehta said he is optimistic about the possibilities in the Indian retail fuel sector because of a conducive regulatory environment in the country at the moment. Cam Neely Womens Jersey