Indian Institute of Petroleum and Energy likely to function at Andhra University from this year
The Central government is making arrangements to operationalise Indian Institute of Petroleum and Energy (IIPE) from this year itself and as a part of it, the official visit of Joint Secretary of Ministry of Petroleum and Chemicals Sushmarath to Andhra University on Tuesday assumed significance. It is learnt that efforts are on to introduce first year B Tech and M Tech courses in Petroleum and Chemical Engineering from this July temporarily at the AU College of Engineering. About the admission process, the authorities would allow 60 seats each in two B Tech courses while 18 seats each in the two M Tech courses for which the Andhra University authorities have to make arrangements for class rooms, laboratories, library, seminar halls and other facilities. Joint Secretary from the Ministry of Petroleum and Chemicals Sushmarath initially held a meeting with Collector N Yuvaraj, In-charge Vice Chancellor Prof E A Narayana, Registrar Prof V Umamaheswara Rao and Principal of AU College of Engineering (A) Prof Ch V Ramachandra Murty at the In-charge Vice-Chancellor Chambers before leaving for a field visit. Later, they visited three buildings on the engineering college campus-including New Classroom Complex and Delta Studies Institute. HPCL Executive Director G Sriganesh, General Manager (HR) A S V Ramanan, Chief Manager K Nagesh and Deputy Manager G Sasibhushana Rao also accompanied the Joint Secretary in her field visit.
GAIL seeks interest in swapping out U.S. LNG supplies
GAIL (India) Ltd has been seeking to swap some of its contracted gas supplies from Sabine Pass Liquefaction in the United States to reduce shipping costs. GAIL has a contract to buy 3.5 million ton a year of liquefied natural gas from Sabine Pass on a FOB basis for 20 years. The supplies are expected to begin from the first quarter of 2018, a document posted on the company’s website showed. The Indian firm wants to swap LNG on a FOB basis with firms that have customers in countries in which LNG trade is not prohibited by US law and sanctions. In exchange GAIL is seeking equivalent supplies on a delivered basis at Indian regasification terminals at Dahej and Dabhol in western India. Trade sources last year told Reuters that GAIL has sold at least 0.5 million tons a year of LNG to Royal Dutch Shell.
Indian refiner BPCL to set up Singapore trading unit
Bharat Petroleum Corp plans to become the first Indian state refiner to open a trading unit in Singapore to take advantage of new crude import rules to buy cheaper oil and get better terms from producers. The move also underscores the growing clout of the world’s third-largest oil-consuming country and its desire to diversify import streams. BPCL, India’s No.2 state refiner, wants to exploit the shifting dynamics of the international oil trade caused by a supply glut to boost its margins. India this month began allowing state refiners – which control two-thirds of the country’s 4.6 million barrels per day (bpd) in refining capacity – to set their own crude import policy, freeing them from the grip of decades-old regulations. This has put state firms on par with private refiners Reliance Industries and Essar Oil that have global trading arms and achieve better margins. “Very shortly we will be opening … we will do it as fast as possible and scale up thereafter,” B. K. Datta, head of refineries at BPCL, told Reuters in an interview. He declined to say exactly when BPCL would be opening a Singapore office. Setting up shop in Singapore would give BPCL access to international trading talent and market intelligence, but the unit is expected to be headed by a company insider. It will initially procure spot crude for BPCL, which along with its subsidiary, Bharat Oman Refineries Ltd (BORL), controls 550,000 bpd in refining capacity. “Slowly we will try to shift all major activities there,” Datta said, handling products and crude trading and shipping. BPCL on average buys 100,000-120,000 bpd of crude oil from spot markets. The state refiner also handles about 240 vessels for crude imports, including some for its subsidiary BORL, according to data compiled by Reuters. “In an over-supplied market it is better to buy spot crude and if you have a trading firm you will have access to first hand information. This will help in getting feed stock at cheaper rates,” said Ehasan Ul-Haq, senior consultant at UK-based consultancy KBC Energy Economics. The trading arm will also give BPCL more flexibility in its operations, giving it the option to resell crude to other refiners or supply its own refineries to boost profitability, Haq said. BPCL is aiming to set up its Singapore trading operation just ahead of refinery capacity expansions. The company will by October complete the expansion of its Kochi refinery in southern India to about 300,000 bpd from 190,000 bpd. BPCL also wants to increase the capacity of its 120,000 bpd Bina plant in central India to 156,000 bpd by 2018. “This is an ideal time to enter into the trading business as crude prices are low and you can test the waters without spending money for leasing the storage. You can trade through floating vessels,” Haq said. In addition to its refinery expansions, BPCL will invest 40 billion rupees ($600 million) to upgrade the quality of fuels produced at its Mumbai and Kochi refineries to Euro VI norms by September 2019 – ahead of a government deadline of April 1, 2020.
After 3 years of trying, India to achieve 5% ethanol blending
After over three years of making 5% of ethanol blending with petrol mandatory, India is set to achieve this target for the first time during the current sugarcane crushing season, that is, by the end of September 2016. To achieve this target, the blenders, or oil marketing companies (OMCs), require 1335 million litres of ethanol every sugarcane crushing season (October-September). Since grains-based ethanol is not allowed to be produced in India, OMCs remained fully dependent for its procurement from sugar mills for which the green fuel is a by-product. “The PM’s personal commitment to renewables and the petroleum ministry’s focus on solving price and implementation hurdles have made a huge difference on the ground. Ethanol in fact, became a key part of the solution for the crisis in the sugarcane sector,” said Narendra Murkumbi, MD, Shree Renuka Sugars Ltd, India’s largest producer of ethanol. The development is likely to transform the fortunes of sugar mills that have been under pressure for the past several years due to falling sugar prices. Until last year, lower price offer and slow pick-up to the contracted quantity of ethanol by OMCs deterred viability of its supply from sugar mills. “OMCs have finalised contracts to procure ethanol to the tune of 1340 million litres for the current year which works out to exactly five percent blending requirement. For ethanol now there is an assured buyer at confirmed price. So, lots of sugar mills prefer to supply ethanol to OMCs rather than to industrial or potable alcohol users,” said Abinash Verma, Director General, Indian Sugar Mills Association (ISMA). In November 2012, the Cabinet Committee on Economic Affairs (CCEA) approved five percent mandatory blending of ethanol with petrol which was notified by the Centre under the Motor Spirits Act on January 2, 2013. According to the Act, OMCs have to record five percent ethanol content in petrol by June 30, 2013. However, considering weak supply orders on un-remunerative price offer, OMCs managed to achieve to a maximum 3.5 per cent so far. While sugar mills blamed lower price for inadequate supply offer of ethanol, OMCs accused falling crude oil price for the low price quotes as blending of ethanol could be a loss making proposition. As against a maximum price fixed for ethanol supply at Rs 43 till the contracts finalised till December 2014, the government in January 2015 raised its prices to Rs 48.5 – 49.5 a litre depending upon the proximity of the delivery station from the distillery units. Interestingly, OMCs had floated tenders for the requirement of 2660 million litres equivalent to 10 per cent of blending target. But, the target of 10 per cent ethanol blending with petrol looks unachievable in near future. Sanjay Tapriya, CFO, Simbhaoli Sugars Ltd said, “attractive price and assured pick up is also helping to achieve 5 per cent blinding target.” The demand of rectified spirit (a pre-from of ethanol) has shifted from domestic sugar mills to overseas markets including the United States and Brazil as its landed cost on Indian ports works out to nearly 25 per cent cheaper. As against the price quote of Rs 40-42 a litre from domestic sugar mills, the imported alcohol for industrial consumption costs Rs 30 a litre now. “As a consequence, around 700 million litres of demand for industrial application has moved to overseas markets. Indian chemical industry has imported an estimated 200-210 million litres so far this crushing season,” said Rakesh Bharatia, Chief Executive Officer, India Glycols Ltd. Meanwhile, OMCs have floated tenders for ethanol procurement of 2660 million litres, equivalent to 10 per cent of blending target which seems achievable gradually in five years. But, sugar mills are required to invest immensely in expansion in the distillation and storage facilities. According to Deepak Desai, Principal Consultant of ethanolindia.com, new investment has started coming in into expansion in distillation capacity or storage facilities. Through B-heavy molasses, supply of ethanol can be increased to 5300 million litres gradually in the next few years from the existing 2800-3000 million litres now to meet demand from all the three segments including potable alcohol, fuel ethanol and industrial alcohol.
Dharmendra Pradhan eyes India’s participation in hydro-carbon sector in Bangladesh
After looking at the West where he was on a three-nation tour to Iran and Gulf last week, Oil Minister Dharmendra Pradhan looked East when he explored India’s participation in oil and gas infrastructure projects in Bangladesh, Indo-Bangla oil and gas pipeline and finalised India’s participation in the two downstream projects in the neighbouring country during a three-day visit there. Hoping to enter Bangladesh’s largely unexplored hydro-carbon sector where India’s entry was once barred by the erstwhile BNP-Jamaat regime in Dhaka, Pradhan explored opportunities during his meeting with Prime Minister Sheikh Hasinaand her senior advisers. His visit marked the signing of an MoU on the broad aspects of cooperation in downstream oil and gas sector opportunities in Bangladesh between Indian Oil Corporation Ltd (IOCL) and BPC. Pradhan visited the port city of Chittagong on Tuesday where a contract was signed for the installation of second unit of Eastern Refinery Ltd. between Bangladesh Petroleum Corporation (BPC) and Engineers India Ltd. (EIL). What was unthinkable few years back is slowly becoming a reality with Indo-Bangla energy partnership gaining momentum. Companies from both countries are collaborating in the hydrocarbon sector ranging from trade in petroleum products, exploration work and consultancy services. India also supplies 2200 MT High Speed Diesel (HSD) to Bangladesh from Siliguri Marketing Terminal of Numaligarh Refinery Ltd (NRL) to Parbatipur Depot of Bangladesh Petroleum Corporation (BPC). India is planning to continue with the supply of HSD in a sustainable manner, Pradhan assured Bangla leadership during this visit. Indian Oil Corporation Ltd wants to build an LPG bottling plant jointly with Bangladesh Petroleum Corporation. After meeting domestic demand in Bangladesh, the rest of the produced gas will be exported to Tripura. Bangladesh is the seventh largest producer of natural gas in Asia. Geologists believe the country’s maritime exclusive economic zone holds one of the largest oil and gas reserves in the Asia-Pacific. Bangladesh has 27 exploratory hydro-carbon blocks in its Exclusive Economic Zone. During his meeting with Hasina, Pradhan shared details of Indian hydrocarbon infrastructure project proposals in Bangladesh, including setting up of LPG import terminal at Chittagong by IOCL and sought favourable consideration for creating win-win situation for both sides. Pradhan also discussed with Hasina the ‘Indo-Bangla Friendship Pipeline’ and called it as an important project for both countries. The Bangla PM sought Indianinvestments in the Special Economic Zones.
PSU oil firms to spend Rs 25 billion to open 3,100 fuel stations
According to officials at oil marketing firms, full impact of diesel price deregulation introduced in October 2014 will be seen this fiscal year. State-owned oil companies will spend Rs. 25 billion to open close to 3,100 fuel stations this financial year as rivals from the private sector step on the gas, multiple company officials said. According to officials at oil marketing companies (OMCs), the full impact of diesel price deregulation, which was introduced in October 2014, will be seen this fiscal year, and they have already introduced measures to take on competition. India’s three OMCs—Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—together sell over 95% of all petrol and diesel consumed in India. Historically, diesel was sold at subsidised prices in India, with the government compensating the OMCs later. Private fuel marketers received no such subsidy, and were edged out of the market. However, with subsidies now phased out, companies such as Reliance Industries Ltd (RIL) and Essar Oil are finding the market attractive. Cheaper crude oil, stable fuel prices and rise in fuel demand also have sparked optimism. India’s fuel demand jumped 11% in 2015-16, the fastest in two decades, according to data from the Petroleum Planning and Analysis Cell. Demand for diesel, which accounts for roughly 40% of India’s total oil products demand, rose 15.12% over the previous year to a record high of 6.78 million metric tons (mmt). Petrol consumption was up 14.5% to 21.8 mmt. “Budget 2016 has given a big impetus to infrastructure spending. This will further fuel demand and give a huge fillip to transportation. We see this change in demand after a long time and this will push growth for oil companies,” an RIL official said on condition of anonymity. RIL has already re-opened 90% or 405 of its existing 450 outlets in Gujarat. As of December 2015, it had 750 out of its total 1400. retail outlets open. Till last April, RIL had over 320 operational fuel outlets. The company, which had around 14% market share in fuel retailing in 2005-06, closed its outlets in 2008 as crude oil at $150 a barrel and lack of subsidies made the business unviable. Since then, it has built a 3.5% market share. “Sales at our outlets are robust now after RIL introduced Rs.1 discount on both petrol and diesel this February. Volumes have begun picking up,” said Sunil Golwala, an RIL fuel retailer from Rajkot, Gujarat. An RIL spokesperson declined to comment. Essar Oil which has 1,500 fuel outlets and is building another 1,400, is planning 2,100 more, which will take its tally to 5,000. This will make it the largest private fuel retailer in India. Essar Oil did not reply to an email. “We are expecting that as all RIL fuel retail stations will be operational this year and Essar Oil too expands, there is a need for us to expand as well. We have introduced automation, better customer interface and a transparent mechanism in place in terms of billing. Though the market will get tough, it won’t be easy for RIL or Essar to win customers,” said a BPCL official, requesting anonymity. BPCL plans to open around 800 outlets this fiscal year at a cost of Rs.6-7 billion. It opened 630 outlets last year. It has automated 8,000 of its 13,000 odd retail outlets so far. This includes providing printed bills and transaction details. HPCL, the second largest fuel retailer which opened 590 outlets last year, plans to open 800 outlets this fiscal year at Rs.9 billion. “We have a 26% market share in the fuel retailing segment. But with the measures that we are putting in place, we would continue to grow,” said an HPCL official, who did not wish to be identified. HPCL dealers will shortlist top 20-30 customers and visit them regularly to maintain relationships. Around 15% of HPCL’s business comes from the loyalty programmes. “We are positive on our non-fuel revenue segment. We have tied up with 30 banks to have 1700 automated teller machines across our retail outlets. This is the highest among all oil marketing companies, an HPCL official said. IOCL, India’s largest fuel retailer, will open around 1,500 fuel retail outlets this fiscal year against around 1,100 last fiscal. “Only 20% of the 1,500 outlets would be in metro areas. We see more growth on the highways and rural areas,” said Indrajit Bose, executive director, branding and communications IOCL.
No Respite for ONGC, OIL
The outlook for crude oil prices has darkened once again after a meeting of Organisation of Petroleum Exporting Countries (Opec) and non-Opec members failed to reach an agreement on production freeze. Even if some agreement had been reached, it is debatable whether a mere freeze at current levels of production would have dramatically altered the fortunes of global oil markets. “Still, a production freeze would have brought some discipline in the markets, which would have ensured that the demand supply rebalancing expected by second half 2016 (mainly as US production declines) would have happened,” said Nitin Tiwari, analyst at Antique Stock Broking Ltd. The uncertainty regarding the rebalancing of oil markets would now increase. That’s obviously bad news for state-run upstream oil companies—Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd. As expected, shares of these companies have underperformed the S&P BSE Oil & Gas index in the last one year. Data from Bloomberg shows that ONGC’s and Oil India’s one-year forward price-to-earnings ratio stands at about 10 times and 8.4 times, respectively. Sure, Oil India’s valuations seem relatively attractive. But then, as the chart alongside shows, Oil India has traded at lower valuations than ONGC. According to analysts, lower liquidity in the Oil India stock is one reason for investors ascribing comparatively lower valuations. Also, Oil India’s production is concentrated in the North-East where blockades and political disturbances have often adversely affected production. In a note to clients in February, Arya Sen, analyst at Jefferies India Pvt. Ltd, pointed out that the management commentary seems to suggest that natural decline in many of its mature fields is not being compensated by workovers, EORs (enhanced oil recoveries) and contribution from new and marginal fields. Workover refers to techniques used to improve the productivity of oil wells that have produced for some time. For the nine-month period ended December, Oil India’s crude production declined 5% year-on-year. “While the management expects production to stabilize around the current level of 3.2 million ton in FY17, we remain concerned about medium to long-term prospects given the natural decline in its core asset,” added Sen. So it all boils down to higher prices. Opec will meet again in June. But for now, in the near-term, there is little to suggest a stronger crude environment.
HPCL plans $3.8 billion refinery investment to lift capacity by two-thirds
Hindustan PetroleumBSE 2.19 % Corp plans to invest around $3.8 billion to ramp up its refining capacity by two-thirds this decade, as the country’s oil demand soars and to meet cleaner fuel standards, a company official told Reuters. Fuel demand in India – the world’s third-biggest oil consumer – is rising at its fastest clip in more than a decade, buoyed by Prime Minister Narendra Modi’s manufacturing push and as an expanding middle class buys more cars. State-run Hindustan Petroleum (HPCL) aims to raise its capacity to process about 500,000 barrels per day (bpd) of crude by investing around 250 billion rupees ($3.76 billion), refineries head, B. K. Namdeo, said in an interview. HPCLBSE 2.19 % aims to boost the capacity of its Mumbai refinery to 190,000 bpd by July 2019 from 130,000 bpd, while the Vizag refinery in India’s south will ramp up to 300,000 bpd from 166,000 bpd by July 2020, he said. “We will de-bottleneck the capacity of the two CDUs (crude distillation units) at Mumbai and replace a 46,000 bpd CDU at Vizag with a new 180,000 bpd crude units,” Namdeo said. Alongside the expansion, HPCL will also revamp its gasoline and diesel production units to meet rules on producing cleaner fuels from 2020. NEW SUPPLIES Namdeo said HPCL, which traditionally relies on Middle Eastern crude, had for the first time signed a term contract with Nigeria’s national oil company, NNPC, to buy 32,000 bpd of oil this fiscal year ending March 31. Since HPCL does not process all the grades offered by NNPC, it has entered into a swap agreement with trader Vitol, he said, without specifying the terms. HPCL, which had halted Iranian oil imports in 2012 after western sanctions, is now looking to buy 20,000 bpd from the Middle East country. But Namdeo said obstacles remained even after sanctions targeting Iran’s nuclear programme were lifted in January. “Insurance and banking issues have to be resolved still and there is no clarity on them (yet),” he said. HPCL was considering using Iranian oil to replace some of the Basra crude it buys under an optional contract with Iraq’s oil marketing firm, SOMO, and Total, he said. HPCL has an annual deal to buy 65,000 bpd of Basra from SOMO and about 25,000 bpd of Basra and UAE’s Murban oil from Total with an option to raise the quantities. “We are maximising bitumen production and cutting fuel oil so for that we need heavy oil,” he said. HPCL has renewed its contract to buy 50,000 bpd from Saudi Arabia and 20,000 bpd from Abu Dhabi National Oil Co (ADNOC), he said, adding it also has an optional contract to buy 20,000 bpd from Kuwait. ($1 = 66.4240 Indian rupees)
Collapse in crude price making it difficult for ONGC Videsh to keep positive cash flow
The crude oil price collapse has made the job of ONGC Videsh executives in dealing with partners across several countries harder as the firm strains to keep costs lower and cash flow positive. ONGC Videsh, the overseas arm of state-run Oil and Natural Gas Corporation, has stakes in 36 oil and gas assets in 17 countries, requiring it to deal with a diverse range of partners with interests that may not always converge. ONGC is mostly a junior partner in its overseas fields, with national oil companies of the respective countries or large private companies mostly in the lead. This further necessitates a pro-active role for the firm to make sure its views are heard and accepted. “We need to balance multiple interests,” said PK Rao, director (operations) at ONGC Videsh. The partners’ interests vary on several issues ranging from investment to production plan and to whom the service contracts are awarded. “When oil prices are high, it doesn’t matter. But with low oil prices, it is important to convince partners on many things,” said Rao. As the operations chief, Rao travels the world through the year, figuring out the dynamics of the global oil and gas market, comprehending the nuances of specific countries in which the company’s blocks are located and persistently negotiating with partners for better terms. “That courage we should have to tell them what’s wrong. If we don’t agree with the budget, we tell them and they would revise it,” said Rao. With low oil prices, every penny counts and all decisions must be closely watched, he said. Oil and gas prices have plunged to about a third in the past two years. The Brent crude was trading at about $41 a barrel on Monday. In 2015-16, ONGC Videsh produced 8.9 million metric tonne of oil equivalent (mmtoe), compared to 8.87 mmtoe in the previous year. The output is expected to marginally slip to 8.4 mmtoe in 2016-17 on falling production at ageing fields. This, however, doesn’t include the acquisitions such as Vankor fields, whose contribution can dramatically boost the company’s total output. “The company’s cash flow should not go negative. Rs 100-crore loss is always more visible than Rs 2,000-crore profit,” said Rao. ONGC Videsh continues to invest in projects where cash flow can be maintained, he said.
Reliance Industries looks to shut crude distillation unit in May
Reliance Industries (RIL) said the SEZ refinery of the company is planning to shut down one crude distillation unit for routine maintenance and inspection for about 3 weeks from May 1. “The SEZ refinery of the company is planning to shut down one crude distillation unit for routine maintenance and inspection (M&l) activities from May 1, 2016, for about 3 weeks,”. “The other three crude distillation units, including all secondary processing units, are expected to operate at normal throughput at Jamnagar refinery complex. The company does not anticipate any impact on its commercial commitments.”