Rising Petrol Prices: Reforms At Cross Roads
Petrol price has reached an all-time high in mid-September and do not show any sign of reduction in future. It is an essential consumer and producer good. Its rising price has worried people. The present government is at the center of criticism as the domestic price is historically high when crude oil price in the international market is relatively low. It is true that petrol price is driven by international market prices of crude oil, as 85 percent of our consumption demand is met through imports. Before 2002, the government used to intervene in the domestic market through Administrative Price Mechanism (APM). Under this mechanism, the government was in control of the petroleum sector in all four stages i.e. production, refining, distribution and marketing and thus could be able to influence domestic price through indirect subsidies particularly during high fluctuations in both international market prices of crude oil and domestic currency rates. Post APM, the government has started withdrawing its interventions from the domestic market for petroleum products. Deregulation of domestic petrol price started in 2010 which is followed by subsequent withdrawal of government intervention in diesel pricing in 2014. With the deregulation of these two important commodities, the petroleum sector became completely open to the international market. The Oil Marketing Companies (OMCs) continue to change the domestic prices from time to time looking at the variation in international market prices. However, from 2017, the prices continue to follow the international market prices on a daily basis and change accordingly. With various reform measures taken by various governments as discussed above, the post-2014 period seems to be a more liberal regime in the petroleum sector and domestic prices look to be more sync with the international market prices. However, information obtained from the Petroleum Planning and Analysis Cell (PPAC), MoPNG tells a different story. Example of petrol prices in the domestic market and crude oil prices in the international market could be used to explain the possible link between the two. The figure below provides an annual trend of petrol prices and crude oil prices since 2002-03. An analysis is made about the existing link between the two variables for two regimes, i.e. pre-2014 and post-2014. The pre-2014 period starting from 2002-03, witnessed a smooth ride of the domestic prices of petrol. But, the annual fluctuation of international market prices was not so smooth. In the year 2008-09, when the international market price of crude oil reached a maximum of $ 138 per barrel (bbl, 1 bbl= 159 liters) the domestic petrol price was allowed to crawl in a specific range of Rs.48 to Rs.52 per liter. From the year 2010, the domestic price witnessed a rising trend following more closely with the international market prices. The Co-efficient of correlation (R) of the two variables was 0.82 during 2002-03 and 2013-14. The value is positive and found to be highly significant for being closer to 1. The result shows that the two variables followed a close relationship during a regime when the petroleum sector was relatively less liberal. The years following 2014 witnessed a declining trend in international market prices for crude oil. The price came down from $109 a barrel in 2014-15 to $55 a barrel in 2016-17. But, the prices scaled up by a small margin i.e. $67 a barrel in 2017-18 to $75 a barrel by August 2018. However, domestic prices of petrol did not follow the similar trend during these years. When the international market price fell by 50 percent during the 2014-15 and 2016-17, the domestic prices showed a reduction of only 4 percent. This asymmetry in a relationship is too observed during 2017-18 and 2018-19. In this period the international market price rose by 12 percent (by August 2018), but domestic prices jumped up by 27 percent. The Co-efficient of correlation (R) of the two variables is estimated to be 0.25 during 2014-15 and present. The value is positive and less significant for being distant from 1 and closer to 0. This shows a weak relation between international market price and domestic price during the period when the petroleum sector is completely deregulated. The weak correlation questions the policy of regulatory reforms undertaken by the government during post-2014. It seems that there is a proxy regulatory mechanism working in behind which delinks the two variables. Some of the government interventions though are not part of reforms in the petroleum sector but act as shadow regulatory mechanism to influence domestic prices and delinks its association with international market prices. A few of them can be discussed in the following. First, taxing power of the union and state governments on petroleum products work as a regulatory mechanism for domestic prices. The Union Government collects central excise duty levied on petroleum products. It is one of its important sources of revenue. In 2014-15, central excise collected from petroleum products was Rs. 1.08 lakh crore. In 2018-19, the government has projected to collect Rs. 2.57 lakh crore as central excise duty, which is more than 200 percent of the revenue collected from the same levy in 2014-15. Higher growth in central excise revenue is possible through levy of higher tariff rates on petroleum products. In 2014-15, central-excise tariff rate on petrol was Rs. 9 a litre and it increased to Rs. 19 a litre in 2018-19. In addition to central excise duty, the state governments collect Value Added Tax (VAT) on sale of petrol. VAT rates differ from states to states. That is the reason petrol prices are not uniform across states. For example, in Delhi, VAT rate on petrol is Rs. 21 a litre, while in Maharashtra it is Rs.33 a litre. VAT on petrol constitutes a major source of states’ tax revenue. Both central excise and state VAT constitute approximately 50 percent of petrol prices and thus contributes to a weak link with international market prices. Second, some of the factual evidences show that in few instances, the Union Government used its disguised autonomy power
Refiners look at cutting inventory as oil prices rise
Private and state-run refiners are jointly considering cutting their inventory and increasing their collaboration in finding and sharing cheaper sources of crude, in a strong signal to key producers that high prices could hurt global demand. Oil prices have climbed above $80 a barrel, rising about a third in a year. Oil traders have begun talking about $100 a barrel now after the producers’ cartel OPEC and allies led by Russia decided over the weekend not to raise output to plug the supply gap that might arise due to sanctions on Iran. India, the third-biggest importer of oil in the world, has for years resented the higher prices or the so-called Asian premium it and other Asian buyers pay for the Middle-East oil. Now with soaring oil prices, falling rupee and heavy taxes sending domestic fuel rates to record highs, oil companies are looking for ways to influence international oil prices. Indian government officials and company executives believe a joint action by all Indian refiners may send a strong signal to the oil producers who have been controlling output to support prices for more than a year, people familiar with the matter said. Executives of state and private refiners met recently to discuss the possibility of reducing their inventory levels significantly, and increasing their collaboration in finding and sharing cheaper sources of crude, IndianOil chairman Sanjiv Singh told ET, without elaborating. Indian state refiners use spot purchases to source about 30 percent of their crude and therefore, can begin cutting their inventory immediately by halting some of their spot purchases. Company executives didn’t give inventory reduction targets or a time frame for achieving those. A smaller refiner planned to cut its inventory by about a fifth. Refiners also planned to draw from the strategic petroleum reserve if the need arose, executives said. Cutting inventory wouldn’t expose Indian refiners to supply risks because there was no global supply crunch in the offing, and refiners could share crude with each other in the event of any company getting short on supplies temporarily, an executive said. Current inventory levels at refineries were ‘safe’ and not necessarily ‘optimal’, leaving scope for reduction, executives said. Jointly sourcing crude from beyond the usual suppliers would also give refiners some scope on keeping domestic fuel prices low, executives said. India imports about 83 percent of its supplies and takes about a tenth from Iran. Refiners are also preparing themselves to deal with the US sanctions on Iran. The sanctions related to the petroleum sector are set to take effect from November 4. Hunter Henry Authentic Jersey
India enters new deep-water era
Sparked into action by prime minister Narendra Modi’s grand plan for India’s manufacturing industry, the oil and gas industry has embarked on an era of deep-water exploration. To date, the Satellite field lying at 1,700m is where the main action is, but there’s more on the way. In late April, BP and India’s Reliance Industries sanctioned the second phase of development of this cluster of deep-water gas fields on the east coast. The first phase, the “R-Series” field, went ahead in mid-2017. When the third phase starts up, the result of a $6bn investment, the field is slated to deliver a total of about one billion cubic feet a day of gas by 2022. In another sign of confidence in deep-water India, in June Reliance invited bids for the construction of a floating production storage and offloading (FPSO) for its so-called MJ gas and condensate field. As Rystad Energy’s oil field service research analyst Jo Friedmann reports, India’s deep-water exploration sector is driving industry. “Activity in shallow water and onshore sectors is expected to continue to represent the largest markets in terms of oil field service spending in India, but large new field developments in deeper waters are emerging as the key driver for growth and recovery in the market.” According to Rystad’s forecasts, future greenfield spending will be almost entirely down to deep-water projects – that is, at depths of 125m or more. The consultancy expects compound annual growth rate of 24% in greenfield capex right through to 2021. Big ambitions Right on cue, state-owned Oil and Gas Corporation (ONGC) drilled 503 wells during the 2017-18 financial year-the highest in 27 years. The group has big ambitions in deep-water drilling. “There is a significant upside in the number of deep-water development wells planned by the company,” says chairman and managing director Shashi Shankar. In the new financial year, ONGC plans to drill 24 deep-water wells in its Cluster 2 development off the east coast. The issue is whether oil companies can bring up enough oil to meet Modi’s grand vision for the energy sector to support for his ambitious manufacturing industry plan, Make in India. By 2022, domestic manufacturers are to contribute 22% to the country’s overall gross domestic product, a rise of 15% today. That is to happen in tandem with a 10% cut in oil imports by the same year. The goal has put a lot of pressure on the domestic oil and gas industry—and the plundering of ONGC by the government hasn’t helped. As reported by Bloomberg in June, the $4.3bn in cash that the group held in reserves last year had shrunk by more than 90% to $148m in March after the government ordered it to buy the state’s stake in a refiner. “ONGC is heavily leveraged now”, former chief financial officer Aloke Kumar Banerjee, told Bloomberg. The numbers are moving too slowly in the intended direction, however. According to BP’s latest statistical review, India’s gas production rose 4.5% in 2017, reversing a six-year trend of decline. But that only restores gas production to its 2006 level. The next couple of years should reveal how successful the new fiscal regime designed to revive investments in the upstream sector really is. As an early 2018 study by the Oxford Institute for Energy Studies points out, the Hydrocarbon Exploration Licensing Policy (HELP), “changed the regime from a profit-sharing to a revenue-sharing model”. But as the OIES points out, citing a study by Platts, the latest round of bids for both shallow and deep-water fields won’t produce the required results: “Although a second [round] is proposed, these quantities are unlikely to make more than a dent in India’s oil import requirements.” The government is examining a range of other options, but the targets still look too ambitious, especially for imports. Andrus Peat Authentic Jersey
Piped gas to fuel kitchens in 44 lakh Chennai homes soon
Chennaiites have something to look forward to in these days of high fuel prices. They will get more than 44 lakh piped natural gas connections and 333 Compressed Natural Gas (CNG) pump stations over the next few years under the Centre’s city gas distribution (CGD) project. The Petroleum & Natural Gas Regulatory Board recently finalized the ninth round of bids under the project and Torrent Gas Private Limited and AG&P LNG Marketing Pvt Ltd will set up the facilities in Chennai, including the pipeline for uninterrupted supply of natural gas. Adani Gas Limited, Indian Oil Corporation, and a few other private players have won the tender to set up similar pump stations and PNG connections in other parts of Tamil Nadu. These projects aim at making Indian cities greener by putting up a gas grid by 2020. Like in Delhi and Mumbai, people in Chennai would be able to use CNG, which costs Rs 40 a kg, instead of petrol and diesel to run their vehicles. The average mileage for Compressed Natural Gas is also high: around 20-25km per kg. Piped natural gas too works out cheaper than liquefied petroleum gas. “At present, users in Delhi pay Rs 5,000 as a one-time-installation fee and are charged on a monthly basis based on their consumption level or usage. Taps with meters will be fitted to the pipelines for supplying gas,” a senior PNGRB official told TOI. Another PNGRB official said that since it would take time for the entities to set up infrastructure, they can rent pipelines already laid by GAIL, the state-owned natural gas processing, and distribution company, on an hourly basis. “As far as Tamil Nadu is concerned, natural gas supply might be routed through GAIL pipelines, which run from Kochi through the western districts,” he added. Another possible route is Ennore-Tuticorin line. An LNG terminal is under construction at Ennore. Bids were floated in 86 geographical areas (GAs) including seven in Tamil Nadu and each area requires an investment of Rupees 300-500 crore over an eight-year period. Derek Wolfe Jersey
Domestic Crude Oil Production Down 3.70% In August 2018
India’s Crude oil production during August, 2018 was 2908.12 TMT which is 6.47% lower than target and 3.70% lower when compared with August, 2017. Cumulative crude oil production during April-August, 2018 was 14611.53 TMT which is 3.55% lower than target for the period and 3.27% lower than production during corresponding period of last year. Natural gas production during August, 2018 was 2789.34 MMSCM which is 8.10% lower than the target for the month but 0.59% higher when compared with August, 2017. Cumulative natural gas production during April-August, 2018 was 13571.68 MMSCM which is 7.77% lower than target for the period and 0.86% lower than the production during corresponding period of last year. Steve McLendon Authentic Jersey
Oil prices could rise to $100 a barrel by 2019, warn merchants
Oil prices could rise towards $100 per barrel by 2019 as US sanctions against Iran tighten markets, commodity merchants Trafigura and Mercuria said on Monday at the annual Asia Pacific Petroleum Conference (APPEC) in Singapore. Almost 2 million barrels per day (bpd) of crude could be taken out of the market as a result of the US sanctions against Iran by the end of the fourth quarter this year, said Daniel Jaeggi, president of commodity merchant Mercuria Energy Trading, making a crude price spike to $100 a barrel possible. Ben Luckock, co-head of oil trading at fellow merchant Trafigura said crude oil prices could rise to $90 per barrel by Christmas and to $100 by the New Year as markets tighten. Yasmani Grandal Jersey
World oil demand, refining growth to peak in 2035: Unipec
World oil demand will peak at 104.4 million barrels per day (bpd) in the mid-2030s, up from just below 100 million bpd currently, as new technologies gradually eat into oil use, China’s Unipec said on Monday. Improved energy efficiency and technological changes, including the rise of renewables, meant global oil demand growth would slow in coming years before peaking in 2035, Unipec President Chen Bo told the annual Asia Pacific Petroleum Conference (APPEC). This in turn will slow growth in global oil refining capacity, which is set to hit 5.6 billion tonnes per year in 2035, he said. “We believe 2018-2035 will be the last cycle of global refining capacity expansion. After 2035, it is difficult to see large-scale refining projects in construction, except for some small upgrade projects and petrochemical projects,” said Chen. Unipec is the trading arm of Asia’s largest refiner Sinopec . The switch to cleaner fuels will also boost global demand for liquefied natural gas (LNG), particularly in the Asia Pacific, after 2025, he added. CHINA CRUDE SUPPLIES An escalating trade war between China, the largest energy importer, and the United States has dampened the Asian nation’s demand for U.S. crude oil and LNG. The United States exported 300,000 barrels per day (bpd) of crude oil to China in the first half of 2018, and 56 cargoes of LNG through July, or roughly 10 percent of its total LNG exports, according to official data. Despite the trade dispute, Chen said U.S. crude supply was an important new source for Chinese refiners as it allowed diversification from Middle East and African crudes. Trade war tensions between the two countries would last “for the time being, and in the future we’ll be active in this area,” he added. Beijing has excluded U.S. crude imports from its tariffs list so far, but most Chinese buyers are staying away from U.S. oil as the trade war shows no signs of cooling. Unipec resumed loading U.S. crude in September after a two-month hiatus. IRAN China is also under pressure from the United States to reduce its Iranian oil imports as Washington aims to cut exports from OPEC’s third-largest exporter to zero to force Tehran to negotiate a nuclear treaty. Buyers in Europe, Japan, South Korea and India have either stopped or are reducing Iranian oil imports sharply ahead of the introduction of sanctions in November. “I expect we’ll cut a little but the volume has not been finalised,” Chen said, without giving a timeframe for the cuts. He added that Unipec has resumed normal loadings of Saudi oil after it cut imports in May-July. Given the current supply and demand dynamic in global markets, Chen said, crude oil prices between at $60 and $80 per barrel were normal.
Vijayawada: Illegal use of LPG rampant in city, puts public safety at risk
Unauthorised gas filling stations are posing threat to the public safety in the city. Despite clear guidelines prohibiting the illegal usage of subsidized LPG cylinders, it is still used for filling vehicles in areas like Jawahar Autonagar, Ajith Singh Nagar, Benz Circle and other busy areas in city posing threat to the locals. Consumption of LPG for vehicles has increased in recent time due to the scorching fuel prices while the usage of household LPG cylinders has been going on secretly. A few garages in Jawahar Autonagar and Ajith Singh Nagar are have been flouting this particular rule in the absence of proper monitoring from civil supplies, fire and police departments. “It is almost three years that garages are refilling cars with LPG cylinders and garage owners have continued refilling of cars on the main road near Benz Circle. Frequent gas leaks have become a worrying factor for us and no officials have responded to our complaints,” M Naga Vamshi Krishna, a resident of Darsipeta said. While the residents are worried about the illegal trade, garage owners, on the other hand, say that they are doing this on demand of consumers. They even say that a few consumers bring their own gas cylinders to refill. “LPG bunks usually fill gas in litres and consumers get more quantity in kilograms with household subsidy cylinders. We are just providing the filling devices, guns and charging nominal fees,” a motor mechanic on condition of anonymity said. Officials of legal metrology say that it is against the law and one cannot take up such practices. “Using domestic gas cylinders for motor vehicles is an offence and refilling cylinders with unprotected devices is not at all safe. We conducted inspections earlier along with civil supplies department and oil companies and this trade has come down after the government reduced the subsidy on LPG,” PSRNT Swamy, deputy controller of legal metrology Department said. We will soon initiate stringent action on the garages continuing this illegal trade, he further added. Ethan Westbrooks Jersey
Rising fuel prices forces Delhi Gurdwaras to switch to biogas
Delhi’s Gurdwara management committee has planned to switch from piped natural gas to biogas to run its langar kitchen in ten shrines here, including Bangla Sahib and Rakab Ganj Gurdwara. The move is aimed at reducing carbon footprint, cut fuel cost and making the shrines environment friendly, said Manjeet Singh GK, the president of Delhi Sikh Gurdwara Management Committee (DSGMC). Initially, the bio gas plants would be set up at Rakab Ganj and Bangla Sahib that generate largest quantity of biodegradable waste, Singh said. The community kitchen in these Gurdwaras serves food to around 30,000 visiting devotees every day. Each plant would have the capacity to manage four quintal of kitchen waste per day, he said. “The biogas plant would be set up in collaboration with an internationally reputed organic waste convertor company and is likely to be funded by a multinational corporation under its corporate social responsibility,” Singh said. The community kitchens of remaining eight Gurdwaras will switch to bio fuel by the end of 2019 in a phased manner, said Harjit Singh, who heads renewable energy wing of DSGMC. The operating cost of the plant is low and there is no need for maintenance for initial two years. It is very easy to operate once installed, he said. Trevor Williams Jersey
Oil minister Pradhan to review progress of Nepal petro pipeline
Oil ministerDharmendra Pradhan will visit Nepal in the last week of September, an official of the Indian Embassy said. “Indian Minister for Petroleum and Natural Gas Dharmendra Pradhan will be visiting Nepal in the last week of this month (September) to observe the progress made over the Raxaul-Amlekhganj petroleum pipeline,” a high-level official inside from the Indian Embassy in Kathmandu said. The Raxaul-Amlekhganj pipeline is currently under construction as a joint investment project between India and Nepal with an investment of Rs 3.2 billion by the Indian Government and Rs 1.2 billion by the Nepal Government. The Nepal and Indian governments had signed the agreement for the construction of the pipeline on August 24, 2015, in Kathmandu, during Pradhan’s earlier visit. “As of now, he (Pradhan) is scheduled to come to Nepal on September 28 evening, after which he will be meeting Nepal Prime Minister KP Oli, cabinet ministers and other political figures in the capital. The following morning on September 29, he will be visiting the Amlekhganj as well as Janakpur and assess the progress being made over there,” the source added. The pipeline spans across over 69 kilometres, covering 32.7 kilometres of the Indian territory and 36.2 kilometres of the Nepal territory. The pipe being laid has the capacity of supplying 200,000 litres of fuel on an hourly basis, with a fuel pumping facility in Motihari. Magic Johnson Authentic Jersey