Petrol and diesel prices are already high, futures trading in them will only be speculative in nature
The Securities and Exchange Board of India (SEBI) is reported to be in the final stages to permit futures trading in petrol and diesel—Indian Commodity Exchange Ltd (ICX) has urged SEBI to allow it to trade in futures contracts for petrol and diesel. As it is, futures trading is allowed in crude oil. Petrol and diesel are, among others, the two major refinery products derived from crude oil. Hence, crude oil futures contract currently serves as a proxy for hedging in both petrol and diesel. This is not all. In the US, the world’s leading and most diverse derivatives marketplace, the CME Group comprising four exchanges—CME, CBOT, NYMEX and COMEX—offers the widest range of global benchmark products across all major asset classes. Its energy markets fuel almost all the world’s leading economies, and impact nearly every nation, including India, which is one of the world’s largest importers of crude oil and petroleum products. Futures and options on crude oil, refined products, natural gas, power, biofuels and coal at NYMEX help industry members and everyday investors in India to manage their price risk on imports and distribution of both crude oil and petroleum products like petrol and diesel. In the US, there are as many as 10 oil producing and distributing companies—British Petroleum, Chevron, ConocoPhillips, Exxon Mobil, Occidental Petroleum, Shell Oil, Anadarko Petroleum, Apache Corporation, XTO Energy and Amerada Hess. The price of crude oil in the US is determined by the global supply and demand. In recent years, the worldwide demand for crude oil has increased, and at times caused global oil prices to rise. Crude oil is the single-largest factor in determining the price of gasoline at the pumps in the US. In the US, at the gas stations (petrol pumps), the choices usually include the premium (most expensive) grade, the midgrade, the regular/unleaded (least expensive)—typically labelled in black—and diesel (typically labelled in green). The prices not only vary from grade to grade, but also from one producing company to another, besides from gas station to gas station. In India, private fuel retailers like Rosneft-owned Essar Oil and Reliance Industries have doubled their market share in the last three years, capturing close to 7% of petrol sales and over 8% of diesel sales. Private companies were allowed to sell petrol and diesel in March 2002. From April 2002 onwards, fuel pricing was also deregulated. Consequently, Reliance, Essar and Shell set up petrol pumps to directly compete with public-sector giants like Indian Oil (IOC). In the initial years, private firms were aggressive in setting up of petrol pumps. However, they slowed down once government control over pricing came back in vogue in 2004-05, and they couldn’t compete with subsidised fuel sold by PSUs. The government freed petrol price from its control in June 2010, and the same for diesel was done in October 2014, giving a fillip to fuel retailing by private firms. In 2017-18, private retailers commanded 6.8% market share in petrol sales and 8.2% in diesel. Private retailers sold 5.18 million tonnes of diesel in 2017-18. PSUs—IOC, Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL)—reported diesel sales of 58.29 million tonnes in 2017-18. Through the past four years, India’s fuel consumption grew by an average of 3-4% annually. In petrol, PSU sales were 21.99 million tonnes in 2017-18, against the sales of private retailers at 1.59 million tonnes in the same year. Over the past four years, private sales of petrol are rising at the cost of public sector sales. India had 61,678 petrol pumps as of January 2018. IOC operates the maximum (26,752 pumps), HPCL has 14,853 pumps and BPCL has 14,293 pumps. In the private sector, Essar has 4,275 petrol pumps, while Reliance has 1,400 retail outlets and Shell operates 100 petrol pumps. In India, the pricing of petroleum products plays a crucial role in its economy, as over 75% of consumption of crude oil is based on import, and the world market price of crude oil is highly volatile. Although the prices of petroleum have been deregulated since 2010, there has been no symmetric relationship between crude oil prices and those of petrol and diesel. Fuel prices are determined by trade pricing parity, comprising 80% import price parity and 20% export price parity. Beginning June 16, 2017, all petrol pumps across the nation have been changing their petrol and diesel prices each day, based on international market prices of crude oil and foreign exchange rates. These prices are fixed at 6:00 am in the morning every day. Prices, however, differ from city to city to make allowance for transport costs from oil refineries. Components of petrol prices Crude oil is the major raw material for both petrol and diesel. At present, 75% of India’s crude oil needs are met through imports. Therefore, international prices of crude oil and foreign exchange rates form the base components of prices of petrol and diesel in the country. Ironically, the import price of crude forms only a small portion of the retail price of diverse petroleum products. The final price is determined by a host of other factors. In fact, more than 57% of the retail price of petrol and diesel goes towards central and state taxes, duties, cess and dealer margins. While the central excise duty is a major component of taxes on petrol and diesel, state value-added taxes, which are ad valorem, vary from state to state. Nevertheless, since public-sector oil majors determine the day-to-day prices of petrol and diesel, there is obviously no case for futures trading in them. These prices are based on cost-plus basis. So, petrol pumps are not at a loss. There’s no need for them to hedge either their purchases or stocks of petrol and diesel. By and large, they live on hand-to-mouth basis. It is indeed naive to expect them to hedge their purchases and stocks in a futures market. Petrol and diesel prices are already quite high. Futures trading in them will only be speculative in nature and aggravate the
GAIL to launch portal allowing outsiders to hire its gas pipelines
State gas utility GAIL India Ltd will tomorrow launch a new portal to allow anyone to hire its vast pipeline network for transporting natural gas as it makes last-ditch attempt to ward off breaking of the company, people in the know of the development said. The oil ministry has been for last few months considering separating GAIL’s gas transportation and marketing business to resolve the conflict of the same entity doing both the jobs. One of the reasons for this was some industry players alleging that GAIL was not giving them access to its 11,000-kilometer pipeline network to transport their gas. Sources said while GAIL has maintained that it allows third-party access based on firm commitment, the company will tomorrow launch an online portal for common carrier capacity booking by marketing entities and consumers for transportation of natural gas through its pipelines. The ministry had in January stated that it is considering to split GAIL into two – one for laying pipelines and the other for marketing and petrochemicals – to encourage more transparency between the two operations and resolve the conflict of interest in it being both the transporter and marketer of natural gas. This is because it believed that all entities authorised to lay natural gas pipelines including GAIL have to “provide mandatory open access of its gas pipeline infrastructure on common carrier principle at the non-discriminatory basis, at transportation rates determined by the Petroleum and Natural Gas Regulatory Board (PNGRB)”. Citing a 2006 policy, it stated that in the long run with the maturity of gas markets, the authorised entities should have transportation of natural gas as their sole business activity and not have interest in gas marketing or city gas distribution network. GAIL is the country’s biggest gas marketing and trading firm and owns most of the country’s pipeline network. The ministry, however, seemed to have softened its stand on splitting GAIL since then. In its comments on the issue to a Parliamentary Standing Committee on Petroleum and Natural Gas, the ministry said that for unbundling “market maturity is critical”. It did not expand on market maturity. It is widely considered that the Indian gas market is far from mature. At an Open House called by the sector regulator, PNGRB on July 17 to discuss unified traffic for pipelines, global energy majors Royal Dutch Shell and BP plc sought separation of natural gas marketing and transportation business. While Shell sought “legal unbundling” of gas trading and transmission business, so that benefit goes to all shippers, BP felt unified tariff “should be done after unbundling of transmission and marketing functions of an entity”. GAIL Chairman and Managing Director B C Tripathi had on May 24 stated that unbundling of gas marketing and transportation business globally has been done only after the gas market has matured. In mature markets, monopoly gas transporting and marketing companies have been unbundled or split after the share of natural gas in energy mix has reached at least 15 per cent and a well-connected pipeline network built. Also, domestically produced natural gas forms bulk of consumption. In India, the share of natural gas in the energy mix is 6.2 per cent, its eastern and southern parts are not connected to any pipeline and domestically produced gas makes up for just 40 per cent of the consumption. GAIL also insists that it operates the two business at arm’s length principle and hasn’t ever tried to use its monopolistic situation for undue commercial gains. “Going forward, we will come up with a portal where capacity on our pipelines can be booked transparently,” he had said. The portal being launched tomorrow is a step in that direction. The company website already shows third-party access being given to all its pipelines on the common carrier principle basis. Nevin Lawson Jersey
UK’s Petrofac sells North Sea assets for $292 million
British oilfield services provider Petrofac Ltd has agreed to sell its 20 percent interest in the Greater Stella Area of the North Sea to oil and gas operator Ithaca Energy in a deal worth up to $292 million. Petrofac, which designs, builds, operates and maintains oil and gas facilities, expanded into oil and gas production during the oil price boom earlier this decade. But the strategy didn’t last and Petrofac has since been scaling back oil and gas production. It announced the sale of its oil fields in Mexico last month after a warning last year that its integrated energy services (IES) division would have lower than expected profits. “This disposal marks a further milestone in our journey back to a capital-light business… (divestiture) marks the significant progress we are making on our stated strategy,” Chief Executive Officer Ayman Asfari said in a statement. The proceeds from the sale of the North Sea assets, which also include a 24.8 percent interest in the FPF1 floating production facility, will be used to cut debt. Petrofac expects to take a post-tax impairment charge of roughly $55 million from the sale. Ithaca will pay roughly $145 million on completion of the deal, $120 million in non-contingent deferred consideration between 2020-2023 and a further $28 million of contingent consideration is payable depending on field performance, Petrofac said. Reuters reported in May that Ithaca, owned by Israel-based Delek Group, would consider making an offer for the Petrofac holdings given its existing interest in the Greater Stella Area. Andrew Shaw Womens Jersey
India’s petrochemical demand to grow at 8-9% through 2023: CRISIL
India’s domestic demand for petrochemicals is expected to grow at a compounded annual rate (CAGR) of 8-9 per cent through 2022-2023, according to ratings agency CRISIL. Demand grew 8.5 per cent year-on-year in the previous fiscal, owing to healthy offtake from end-use segments. “Domestic petrochemicals capacity, however, may not keep pace. It is expected to expand at 4-5 per cent CAGR between fiscals 2018 and 2023 as compared to 8-9 per cent demand growth,” the research agency said. Crude oil prices would flare up further in 2018 to range between $68-73 per barrel, a 25-30 per cent year-on-year increase, according to CRISIL. “Global petrochemicals prices are set to rise in 2018, following uptick in feedstock prices. In fact, in the first half of 2018, petrochemical prices (except butadiene) have already climbed, given high crude oil and naphtha prices,” the agency said. It said that ethylene prices would strengthen only 10-14 per cent and the rise in ethane capacity in the US would arrest the sharp increase in ethylene prices. “With capacity addition expanding 5 per cent year-on-year against 3-4 per cent demand growth, we expect ethylene prices to range between $1,260-1,310 per tonne in 2018. On the other hand, ethylene cash cost is expected to spurt 40-45 per cent year-on-year, on account of steeper rise in naphtha prices. Consequently, we expect cracker margins to contract in 2018 and range between $570-590 per tonne,” the agency said. Another emerging trend is the integration of refineries with downstream petrochemical units. With high severity fluid catalytic cracking (HS-FCC), refineries are increasing the proportion of propylene to address the downstream demand-supply mismatch. Derrius Guice Authentic Jersey
GAIL India & Indraprastha Gas: Mixed Q1 performance, sector positioned for growth
Strong volume growth led to a decent showing by Indraprastha Gas (IGL) and GAIL India (GAIL) during Q1 FY19. While both companies reported strong volume and topline growth, IGL saw slight margin pressure with changing product mix. After a disappointing performance in Q4 FY18, GAIL’s gas marketing and petrochemical segments reported a strong Q1, driving the 52 percent year-on-year (YoY) topline growth. The segments benefited from low-cost US LNG during Q1, improving volumes. Gas transmission revenue increased 3 percent on the back of a volume uptick. The rising trend in crude prices bodes well as it makes US LNG contracts profitable. A unified tariff system could boost gas transmission realisations for the company going forward. The city gas distribution (CGD) business is positioned for growth across regions and could drive profitability for the company. Rising PNG and industrial segment volumes aided the 13 percent volume growth for IGL, driving the 24 percent YoY growth in topline. Despite adequate price hikes, the company saw slow margin growth due to changing product mix. A major portion of the volume growth has been accruing from industrial consumers, which has altered the product mix in the last few quarters. With inherently lower margin in the industrial segment, overall margins saw some pressure. This impact was being offset by other one-off incomes in past quarters. While CNG conversion is seeing immense growth due to policy support, we see gradual slowdown in the growth rate of CNG vehicle conversion. This could slow down volume growth in the CNG segment. This would lead to a further alteration of the product mix in coming quarters. Sector trends Unified gas tariff to benefit sector companies The Petroleum and Natural Gas Regulatory Board (PNGRB) is considering a unified tariff plan for the usage of GAIL’s gas pipeline network. Implementation of the same will provide a significant improvement in performance. While it is believed that the unified gas tariff might result in a hike in the gas bill for consumers, implementation of a unified gas tariff would bring in procurement freedom for gas marketing companies and benefit the company by reducing overall gas procurement costs. It stands to be a positive for both GAIL and other downstream players. Crude oil sustaining at higher levels Global crude oil prices have more or less sustained at higher levels in the last few months. With rising crude prices, natural gas becomes a cheaper and a more attractive fuel option. This was one reason that led to a substantial uptick in volumes during the quarter gone by. The same is expected to continue in coming months. Policy support and large scale CGD expansion With growing environmental concerns, there has been immense policy support to promote use of a relatively cleaner fuel like natural gas. PNGRB, in the latest round of CGD auction, has put 86 geographical areas for bidding. This large scale expansion is expected to augment future volume growth. Price hikes to protect margin Increasing input cost, coupled with inability to undertake price hikes, ate away margin of gas marketing companies in past quarters. However, adequate price hikes have been taken by all companies in the last two quarters. This should help in protecting margin. Moreover, it reinstates our belief about the ability of companies to pass on higher costs. Outlook The sector is currently positioned for numerous macro tailwinds, which would facilitate rapid growth in the future. Swift uptick in crude prices has made gas an attractive, cheaper alternative, which brings in more conversions in commercial and domestic segments and higher volumes. Increased environmental concerns and policy support have promoted CNG (being a cleaner fuel) and we expect this trend to continue. With aggressive expansion of the city gas distribution network, we see immense volume growth. Valuation snapshot The stock prices of IGL and GAIL have corrected 18 and 36 percent, respectively, from their 52-week high and are trading at reasonable valuations. We find both stocks fundamentally sound and stay convinced with their growth story. While valuations for GAIL are attractive, we would recommend that investors keep IGL on their radar for a better entry point. Alterations in IGLs product mix would be something to watch out for. Tim Brown Authentic Jersey
Alinz, Petrocard tie up to make portable petrol pumps
Alinz Portable Petrol Pumps said it has tied up with Czech firm Petrocard to set up four manufacturing units in India to make machines for such pumps at an investment of Rs 16 billion. The concept of portable petrol pumps is new to India, which has been approved by the Ministry of Petroleum and Natural Gas, Alinz Managing Director Inderjeet Pruthi told reporters here. The approval was given by the Ministry on 10 August, he added. “We would soon be able see an unmanned fuelling station where we, on our own can refuel our vehicle making digital payment,” Pruthi said. “The market of portable pumps will grow here. We have joined hands with Czech firm Petrocard, our technology partner, and have plans and target to set up four facilities to manufacture portable petrol pump machines in India at investment amount of Rs 16 billion based on the market, states and oil marketing companies response and cooperation,” he said. A portable petrol pump is an automatic self-service machine dispensing petrol, diesel and kerosene. The payment are cashless, through facilities like e-wallets, he said. These pumps will be a boon for people living in rural areas, mountains regions and remote locations, he said, adding that they can be set up in just about 400 sq mts as against huge land requirement for normal gas stations. Besides, he said, it is a good opportunity for those also looking to start a business. To set up a new pump an amount of Rs 9 million to Rs 12 million would be required and as per communication with the banks they are ready to finance 80 per cent of the project. Brandon Shell Authentic Jersey
Golar LNG eyes more Africa FLNG projects after Hilli success
Golar hopes its pioneering floating liquefied natural gas (FLNG) project in Cameroon will lead to further schemes in West Africa after it struck a deal to use the concept at BP’s Tortue gas development, its chief executive said on Thursday. The Hilli Episeyo FLNG, a massive vessel above a subsea field that liquefies gas for further transport, was the first of its kind and is now running at commercially agreed levels, having produced its first LNG in May. Golar is now moving ahead with its portion of the BP-operated Tortue development, which straddles Mauritania and Senegal, having penned a preliminary agreement with BP in April to provide an FLNG for the project. “The FEED (front end engineering development) update is being progressed at pace — we have a couple of months to go on that and we have strong interest with lenders,” chief executive Iain Ross told investors in a call. He noted BP and partner Kosmos Energy aimed to take a final investment decision on the development by the end of the year, with first LNG due to be produced before the end of 2021. But aside from Tortue, Ross said there were two or three “strong” FLNG prospects that have emerged thanks to proving the FLNG technology and commerciality. “We’re seeing Hilli’s proof of concept triggering new interest… We think this is a truly disruptive solution in an industry not known for its disruptive solutions,” he said. Golar has in the past hit serious stumbling blocks for its vessel-based projects, including floating storage and regasification units (FSRUs) which import LNG. The Ophir Energy-operated Fortuna FLNG project in Equatorial Guinea stalled due to problems with financing, prompting a third partner to withdraw. On Thursday Ross said only that Golar had not yet given up on the project. Golar also had issues with a project in Ghana, where it had earmarked an FSRU before the initiative was disbanded. De’Vondre Campbell Authentic Jersey
Hoegh LNG backs out of Chile LNG project but buoyant on market
Hoegh LNG said on Thursday it had let agreements lapse in Chile that tied one of its floating liquefied natural gas (LNG) import vessels to a project there because approvals for the initiative were likely to be delayed again. But the company, one of the few to specialise in floating storage and regasification units (FSRUs), said LNG prices and shipping rates will continue to be strong, raising the prospects of more dealmaking for global LNG import and export projects. The Norwegian company was due to provide a floating storage and regasification unit (FSRU) to GNL Penco under a 2015 deal, with an original start date of the second quarter of 2018, but regulatory permits were slow in coming. Hoegh said it had been “made aware that the planned approval process for the GNL Penco FSRU project is likely to be further delayed, and therefore the parties have agreed to let the contract expire”. Hoegh’s newbuild FSRU called Esperanza was intended for the Chile project, but with the delays in mind the company agreed a three-year charter deal with China National Offshore Oil Corporation (CNOOC) after taking delivery earlier this year. Hoegh, privately-owned Excelerate and U.S.-listed Golar LNG dominate the FSRU business, which has existed for barely a decade with the discovery of how to fit the complex and heavy infrastructure of an onshore terminal onto a vessel. There were 29 FSRUs operating around the world by the second quarter of 2018, compared to 25 a year before, Hoegh said. Of 12 vessels on order around the world, six were looking to be employed by projects, which Chief Executive Sveinung Stohle described as “very manageable”. Global LNG demand, particularly from China, has surprised on the upside in the past year, creating opportunities to strike financing and commercial deals for new or stalled projects after a protracted period of low LNG prices. LNG carrier rates soared through the year as high as $90,000 a day, Stohle said, compared to rates as low as $25,000 a day last year. Asian spot LNG prices have almost doubled to over $11 per million British thermal units (mmBtu). This may help Hoegh, irrespective of whether FSRU rates also rally, because it would keep LNG carrier companies focused on their core business rather than branching out into the FSRU segment, Stohle told investors. “The rates for the carrier market will stay and, even increase from where they are, certainly for the next two to three years,” he said. “Competition coming from that side will focus on the shipping, not the FSRU side.” “We are not many in this market; the question is how many will remain.” Hoegh has 10 FSRUs that are employed under long-term contracts or chartered, with two newbuilds due to be delivered. Stohle told investors a deal to provide an FSRU in Australia, announced on Monday, effectively leaves just one unemployed FSRU as of now. A newbuild due in November known as “FSRU 9” already has a 15-month charter while the vessel is marketed to long-term projects, and “FSRU 10” is due next May. Stohle indicated Hoegh was not considering taking FSRU Gallant out of Egypt early, despite questions raised about demand for LNG in the country with plans to boost gas output. Jayon Brown Authentic Jersey
No impact on output at BPCL Kochi refinery
BPCL’s Kochi refinery suffered as crude supply was delayed due to the floods in the state but it ensured output would not be disrupted going ahead as it had 8-10 days of crude oil inventory available, refinery’s executive director Prasad K Panicker told ET. After being flooded for almost a fortnight, Kerala is slowly crawling back to normal life as flood water has started to recede. Reports suggest that petrol pump stations have seen spurt in vehicles coming for refill. “Petroleum product supplies have not been impacted, other than in some parts of Kerala during peak flooding. Now things are getting back to normal,” Panicker said. Kochi Refinery, located at Ambalamugal near Kochi, has a crude oil refining capacity of 15.5 million tonnes per annum (MMTPA). The refinery had to stop unloading from a crude tanker as the sea swelled and other vessels could not be brought in either. An executive from the refinery said while the main unit did not get inundated, the water pumping plant was flooded and the substation went under water. The refinery sourced water from alternate sources using dieseldriven pumps then. “There was no flood at the refinery and we are running at 100% capacity. Our operations were not impacted. Supplies were initially disrupted because road and rail movement were disrupted but it is getting back to normalcy now,” Panicker said. Kawann Short Womens Jersey
Government imposes restrictions on import of bio-fuels
The government has imposed restriction on import of bio-fuels including ethyl alcohol and other denatured spirits, bio-diesel, petroleum oils and oils obtained from bituminous minerals other than crude, through an amendment in import policy. The import of these items, which was free earlier, will now only be allowed for non-fuel purpose on actual user basis. “Import policy of bio-fuels revised from ‘free’ to ‘restricted’ and allowed for non-fuel purpose on actual user basis as per the National Bio-Fuel Policy,” the Directorate General of Foreign Trade (DGFT) said in a notification. In another notification, the government said export of beach sand minerals has been brought under state trading enterprise and shall be canalised through Indian Rare Earths Limited. Export of rare earth compounds classified as beach sand minerals, permitted anywhere in the export policy, will now be regulated. Joel Heath Jersey