World’s largest oil firm Aramco plans to invest in India
Saudi Oil giant Aramco, the world’s largest oil firm with crude reserves of about 265 billion barrels, plans to make major investment in India’s petroleum sector as it considers India the most preferred destination to invest at a time when the global economy is in a crisis. Head of Aramco Khalid A Al Falih called on Prime Minister Narendra Modi during which he conveyed that the state-owned company was eyeing India as the most preferred investment destination. “Minister Al Falih to PM: Aramco looks to India as its No 1 target for investmen,” External Affairs Ministry Spokesperson Vikas Swarup tweeted. Aramco is Saudi Arabia’s national oil company with crude reserves of about 265 billion barrels which is over 15 per cent of all global oil deposits. The Saudi government plans to sell shares in Aramco and transform the oil giant into an industrial conglomerate. Energy-powerhouse Saudi Arabia is India’s largest crude oil supplier, accounting for about one-fifth of total imports and both sides were of the view that cooperation in the sector should expand. India is specifically looking at Saudi investment in “high temperature deep sea off shore exploration” and has opened up the sector for FDI. India’s ties with Saudi Arabia, one of the world’s leading oil producers, have been on an upswing over the last two decades based on burgeoning energy ties. The two countries are keen to move beyond buyer-seller relationship in the sector and go for joint ventures and investment in refineries and oil fields.
The Harmful Impact Of Subsidies On The Oil Industry
Energy subsidies combined with price control can reduce supply when producers do not have a profit incentive to increase supply. Fuel subsidies and price controls can reduce supply Venezuela has a nationalized oil company that is legally required to supply gasoline priced at extremely low levels but despite abundant crude oil reservescannot profitably refine and distribute sufficient gasoline to meet domestic demand. Chinese price controls have caused fuel rationing and shortages in the past. The United States created the Federal Energy Administration in 1974 after the OPEC oil embargo to implement federal oil allocation and pricing regulations. The unhappy result was long lines at gasoline stations and limited supply throughout most of the United States. India’s oil demand increases after fuel subsidies were eliminated Oil demand in India has expanded sharply in the last several years despite the removal of oil product subsidies. The increased demand surprised analysts because excise duties were simultaneously imposed on product sales which did not allow as great a price decline as had been anticipated by the drop in the global price oil that began in late 2014. Fuel Subsidies may hinder low income families climbing the energy ladder While not precisely and directly correlated, rising income levels generally allow households to climb the energy ladder by increasing use of energy generally, and cleaner energy specifically. However, fuel subsidies as described by the International Institute for Sustainable Development (IISD) Global Subsidies Initiative, exhibit what economist Gordon Tullock has called the “transitional gains trap” which can lock consumers into a particular spot on the energy ladder that limits opportunities for advancement to a healthier lifestyle. The IISD describes the related political phenomenon that parallels the lock in: “Subsidies themselves create a pool of money out of which recipients can influence the very political process than channels money to them in the first place. In many instances subsidies redistribute wealth from a large number of unknowing contributors to a smaller number of beneficiaries. The latter lobby vigorously to defend their handouts; the former seldom bother, or are empowered, to prevent them.” In their paper “Energy Subsidies in the Arab World” published by the United Nations Development Programme in 2012, Bassam Fattough & Laura El-Katiri argue that “Energy subsidies distort price signals, with serious implications on efficiency and the optimal allocation of resources. Energy subsidies also tend to be regressive, with high-income households and industries benefiting proportionately most from low energy prices.” Conclusion – fuel subsidies and price controls can hurt the people most meant to help According to the International Monetary Fund, energy subsidies cost the world almost a half a trillion U.S. dollars in 2011. The IMF noted that these subsidies “aggravate fiscal imbalances, crowd-out priority public spending, and depress private investment”. Inevitably these market distortions create disincentive for producing energy that cannot be profitably sold while redirecting previous resources away from households who need to move from using dung and biomass for cooking and heating to cleaner hydrocarbon fuels while also robbing the free market transportation sector from the fuel needed to create and sustain global economic growth.
Government may impose anti-dumping duty on drilling pipes from China
India is likely to impose anti-dumping duty on import of certain types of iron and steel pipes from China used in drilling for oil and gas exploration to protect domestic manufacturers. The Directorate General of Anti-Dumping and Allied Duties (DGAD) has recommended to the revenue department to impose provisional levy ranging between USD 961.33 and USD 1,610.67 per tonne. ISMT Ltd and Maharashtra Seamless had moved the DGAD for imposition of the duty on “seamless tubes, pipes and hollow profiles of iron, alloy or non-alloy steel (other than cast iron and stainless steel), whether hot finished or cold drawn or cold rolled of an external diameter not exceeding 355.6 mm or 14.” They had alleged dumping of the products, originating in or exported from China, and consequent injury to them. In its preliminary findings, the DGAD said it was of the view that imposition of “provisional duty is required” to offset dumping and injury, pending completion of the investigation. Therefore, Authority (DGAD) considers it necessary and recommends imposition of provisional anti-dumping duty on imports of subject goods from the subject country…,” it said in a notification. In July last year, the DGAD had initiated a probe into the alleged dumping, and injury to the domestic industry. The product being considered by the DGAD includes boiler pipes or line pipes used in hydrocarbon industry and casing and tubing of a kind used in drilling for oil and gas exploration. The purpose of anti-dumping duties, in general, is to eliminate injury caused to the domestic industry by the unfair trade practices of dumping so as to re-establish a situation of open and fair competition in the market, which is in the general interest of the country. Imposition of the duties might affect price levels of the downstream products and consequently might have some influence on relative competitiveness of these prod
Essar Oil turns around loss-making Stanlow refinery
Nearly five-years after acquiring the strategic Stanlow refinery from Shell, Essar Oil UK has turned around the loss making unit with a record net profit of USD 187 million in 2015-16 as it optimised processes, diversified crude basket and invested in margin improvement programmes. Essar Oil UK, controlled by Mumbai-based Ruia family, reported highest ever EBITDA of USD 340 million in the financial year ended March 31, 2016 as compared to an EBITDA of USD 177 million in the previous fiscal. “EBITDA was negative USD 17 million in FY12 ,” said Naresh Nayyar, Executive Chairman, Essar Oil UK. “Net profit in FY16 is about USD 187 million as compared to USD 70 million in the previous fiscal.” Stanlow today produces over 16 per cent of UK’s transport fuels, serving north-west part of UK
Cairn asks government to walk the talk on retro tax
Weeks after being slapped with a Rs 29,000 crore ‘retrospective tax demand’, British oil explorer Cairn Energy today said international investors want the Modi government to walk the talk on resolving retrospective tax issues and send a clear signal that things are changing. Cairn, which gave India its biggest onland oil discovery that now accounts for a fifth of the country’s oil production, said it will continue to press ahead with the arbitration challenging use of a new legislation to tax internal business reorganisation with retrospective effect and will seek USD 1 billion in damages to its value. “The international investment community wishes to see India doing as it has stated in looking to resolve the retrospective tax issue with actions which would send a positive signal to global investors that things are changing under this current government,” Cairn Energy CEO Simon Thomson told PTI in an interview here. The Income Tax Department in February slapped on Cairn Energy a tax demand notice of over Rs 29,000 crore, including Rs 18,800 crore in back dated interest. The Department had on January 22, 2014, issued a draft assessment order of Rs 10,247 crore on alleged capital gains the company made in a 2006 reorganisation of its India business. Two years later, it issued a final assessment order. The actions of the Income Tax Department have been hugely detrimental to Cairn’s business and its UK and international shareholders, Thomson said. “The issuing of a retrospective tax assessment is very disappointing and follows a long period of engagement with the Government of India which has repeatedly given public assurances that it would not resort to retrospective tax measures, introduced by the previous government, given the negative message it sends to the international investment community,” he said. Thomson said Prime Minister Narendra Modi had earlier this year stated that retrospective tax is a matter of the past and he was ensuring that this government and future governments cannot open this chapter. Modi, he said, had stated that “We have clearly articulated that we will not resort to retrospective taxation and demonstrated this position in a number of ways.” “However, Cairn Energy’s outstanding retrospective tax case is yet to be resolved and the matter has been ongoing for more than two years and is having a major detrimental impact on our business and to our UK and international shareholders,” Thomson said. He said the tax issue was a very unfortunate conclusion to a 20 year investment in India where “Cairn Energy has been a model corporate citizen and created a legacy asset which is seen as an example of what can be achieved through India and UK cooperation”. The Rajasthan discoveries generates huge value for India, with revenues of multi-billions for the government, he said. Asked about the government offer to waive interest and penalty if companies facing retrospective tax demand paid the principal tax due, he said Cairn strongly contests the basis of the tax assessment order supported by detailed legal advice on the strength of the protections available to it under international law. “As such, Cairn has a high level of confidence in its case under the UK-India Investment Treaty and is seeking to use the international arbitration process in a non-confrontational manner. “We wish to resolve the issue as swiftly and amicably as possible following a long period of engagement with the government which has repeatedly given public assurances that it would not resort to the retrospective tax measures of the previous government,” he said. Stating that the international arbitration process has begun with the arbitration panel being appointed, he said Cairn welcomes the Indian government’s positive engagement in the process. “We would hope that, like us, the Government of India wants to achieve an outcome as soon as possible in order that this issue is cleared up once and for all. “The preliminary hearings will take place shortly and the formal process will continue from there. There is no pre-set fixed timetable for the arbitration process but it is unlikely to be less than 12 months,” he said. He said the company has had robust legal advice that the action of the government in seeking to apply tax retrospectively to its internal group reorganisation in 2006 and in freezing Cairn’s assets in the country are a breach of the fundamental position of the Treaty which protects against expropriation and ensures a fair and equitable investment environment for British investors in India. “Cairn is claiming full compensation for the about USD 1 billion value of which its shareholders have been deprived,” he said. He said one major US investor in Cairn stated that “It is now time for India to send a message to all international investors that retrospective tax is dead and buried once and for all. Many investments needed to finance India’s growth will not happen if retrospective laws are possible. “Repudiating retrospective laws and adopting international norms would allow the international investment community to see that the Modi government is delivering on its pre-election promise to eradicate so called tax terrorism.”
Indian Oil pulls off record crude processing at 56 million tonnes in FY16
State-owned Indian Oil Corp (IOC) today said it has achieved a new record crude oil processing of 56.1 million tonnes in 2015-16 fiscal, with highest ever distillate production. IOC’s nine refineries operated at 103.5 per cent of the installed capacity in the fiscal, IOC Director (Refineries) Sanjiv Singh said. “IOC’s nine refineries also marked the best-ever combined distillate yield of 80.5 per cent, surpassing the previous best of 78.8 per cent during 2014-15,” a company statement quoted Singh as saying. Singh said that with focused efforts towards energy conservation, the refineries achieved lowest fuel and loss (F&L), Specific Energy Consumption (MBN) and Energy Intensity Index (EII) at 8.53 per cent, 53.8 and 101.2 respectively, as compared to the previous best of 8.77 per cent, 54.4 and 104.5 for the year 2014-15. “Individually, all refineries achieved various milestones. Many refineries achieved all time high crude processing. Almost all refineries achieved highest distillate production with lowest fuel & loss, which is really commendable,” said Singh. The commissioning of 15 million tonnes a year Paradip refinery in Odisha IOC’s refining capacity to 69.2 million tonnes per annum. The commissioning of INDMAX Unit at Paradip (4.17 MMTPA), based on the indigenous technology developed by its R&D Centre was another golden milestone of global recognition as a technology supplier. Continuing with indigenous technologies, IOC on March 6 laid the foundation stone of the ambitious OCTAMAX project at Mathura Refinery. The refinery also commissioned New Propylene Recovery Unit (NPRU) in May 2015, to produce polymer-grade propylene with high purity. Another upcoming project is INDMAX at Bongaigaon, which coupled with Indmax Gasoline Hydrodesulphurization (IGHDS) unit and associated facilities will increase distillate yield of the refinery while also helping it produce Euro-VI fuel. Several new projects have been approved during 2015-16. To meet Euro-VI fuel supply requirement by 2020, various revamps and installation of new units are envisaged at Gujarat, Panipat, Mathura, Haldia, Digboi and Bongaigaon refineries?. In Guwahati, Euro-VI petrol compliance will be achieved with the commissioning of INDAdept-G & Catalyst replacement of HDT unit. Paradip Refinery is ready for supply of Euro-VI grade diesel, it said. “Past several years have witnessed extreme volatility in global oil markets, riding the tide of rise and subsequent fall in the world crude oil and petroleum product prices. In this context, year 2015-16 was an eventful year for all stakeholders,” IOC said.
CNG, piped cooking gas become cheaper in Delhi
CNG price in the national capital was today cut by Rs 0.60 per kg and piped cooking gas by Rs 0.65 per standard cubic meters following a 20 per cent slashing in natural gas rates. Consequent upon notification of government reducing the prices of domestically produced natural gas, Indraprastha Gas Ltd announced revision in the selling prices of Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) in NCT of Delhi, Noida, Greater Noida and Ghaziabad with effect from April 1. IGL said CNG price in Delhi has been cut by Rs 0.60 per kg and by Rs 0.70 per kg in Noida, Greater Noida and Ghaziabad. “The new consumer price of Rs 36.60 per kg in Delhi and Rs 41.90 per kg in Noida, Greater Noida & Ghaziabad would be effective from midnight of 1st/2nd April 2016,” IGL said in a statement. “The price of CNG in Delhi remains lowest in the entire country.” With the objective to boost CNG refueling during non-peak hours, IGL will continue to offer a discount of Rs 1.50 per kg in the selling prices of CNG for filling between 12 am to 5 am at select outlets. The consumer price of CNG would be Rs 35.10 per kg in Delhi and Rs 40.40 per kg in Noida, Greater Noida & Ghaziabad during 12 am to 5 am at 230 CNG stations across the region. GL has also announced reduction in its domestic PNG prices from tomorrow. The consumer price of PNG to the households in Delhi has been reduced by Rs 0.65 per standard cubic meter from Rs 24.65 to Rs 24 per scm. Due to differential tax structure in the state of Uttar Pradesh, the applicable price of domestic PNG to households in Noida, Greater Noida and Ghaziabad would be Rs 25.50 per scm, which has been reduced by Rs 0.65 per scm from existing Rs 26.15 per scm. IGL is supplying PNG to over 6,30,000 households in the region. Government had yesterday cut natural gas price by 20 per cent to USD 3.06 per million British thermal unit.
Reforms to boost gas output 22 per cent to 110 mmscmd by FY21
Recent reforms in the oil and gas sector involving market-linked pricing will help the country drill out 22 per cent more gas at 110 mmscmd by 2020-21, a report said today. Early this month, the government unveiled a slew of reforms to attract investments into the domestic oil and gas sector by nearly doubling gas prices to over $7 a unit, apart from liberalising pricing. “The pricing formula along with marketing freedom will improve viability of gas discoveries in challenging fields and can lead to higher domestic gas production over the longer term,” rating agency Icra said in a note. It expects domestic gas production to rise to around 110 million metric standard cubic metre per day (mmscmd) by FY21 and 130 mmscmd by FY25 from 90 mmscmd in FY16. Similarly, demand for gas will be rising to 250 mmscmd by FY20 and 290 mmscmd by FY25 from the current demand of 230 mmscmd. But this projected demand is lower than what the agency had earlier projected at 275 mmscmd by FY20 and 330 mmscmd by FY25, saying gas demand will fall due to stiff competition from liquid fuels. Significantly, the peak levels of actual consumption in the past were 170 mmscmd in FY12 and 177 mmscmd in FY11. But actual consumption has declined consistently since to around 140 mmscmd in FY15 and FY16. Domestic gas prices have seen two downward revisions, in April 2015 and October 2015, following which the prices declined by 24 per cent to $3.88/mmbtu in second half of FY16 from $5.05/mmbtu in November 2014 – March 2015. The prices are expected to decline further from April 2016 in line with the decline in global gas prices, the report said, adding the fall in domestic gas prices had made future development of many gas fields unviable. Following this, the government recently provided marketing and pricing freedom to deep water, ultra-deepwater and high pressure-high temperature areas that are yet to begin production as of January 1, 2016.
Chandigarh becomes first kerosene-free city
For the first time, a city has been declared kerosene free with sale of subsidised cooking and lighting fuel being stopped in Chandigarh from today completely. Households have been shifted to LPG to help declare Chandigarh kerosene free. “Thus, no further distribution of subsidised kerosene will be done in Chandigarh from the month of April, 2016 onwards,” the Petroleum Ministry said in a statement. The Petroleum Ministry with the help of Chandigarh Administration has been working for the last few months to make Chandigarh ‘a Kerosene Free City’. The Ministry “decided to facilitate the households presently using kerosene oil by facilitating switchover to LPG,” it said. To facilitate the kerosene beneficiaries getting LPG connections, enrolment camps were organised by state-owned fuel retailers to provide hassle-free LPG connections. Also, deposit-free LPG connections were provided to BPL households and interest free loan scheme was launched for APL households. “During this campaign, a total of 15,249 LPG connections were provided in Chandigarh city, including 1574 for BPL households,” the statement said.
GAIL starts drilling exploration well at Cambay basin in Gujarat
State-run gas utility GAIL India has started drilling its first exploration well in an onland oil and gas block in Cambay basin in Gujarat. First exploratory well on NELP-IX Block CB-ONN-2010/11 was spudded on March 27, 2016, the company said in a statement here. The well is situated in Dugari village at Tarapur Tehsil of Anand District of Gujarat. GAIL is the lead operator of the block with 25 per cent participating interest in it. Other partners in this block are Bharat Petro Resources Ltd, Engineers India Ltd, Monnet Ispat Energy Ltd and Bharat Forge Infrastructure Ltd. “Drilling of target depth of 2,500 meters of this well is scheduled to be completed in 40 to 45 days followed by testing for another 10 to 15 days. This will target Cambay Shale and Olpad formations,” it said. GAIL and its partners plan to drill eight exploratory wells in the initial phase as per minimum work commitment of Production Sharing Contract (PSC). While this phase will continue till March 2017, acquisition, processing and interpretation (API) of 2D and 3D Seismic Data have already been completed, GAIL added.