NEW DELHI: In an attempt to force local consumers such as power projects and fertilizer plants to finalize their purchase plans, state-owned gas supplier GAIL (India) Ltd is set to increase the domestic price of liquefied natural gas (LNG) by 10 cents per unit.
Of the total 5.8 million tonnes (mt) of LNG it contracted with US suppliers, GAIL has found Indian buyers for only 2.5 mt.
Major domestic consumers have refused to buy the rest 3.3 mt at current prices, which they perceive to be high. GAIL plans to sell at around $12-13 per million metric British thermal unit (mmBtu) in the domestic market.
The planned ultimatum by GAIL, India’s largest gas transmission and marketing company, stems from the fact that its LNG deals are take-or-pay contracts, which means it has to pay the supplier even if it doesn’t take the supply. Natural gas is shipped in its liquid form and reconverted to gas at LNG terminals. India imported 13.43 mt of LNG in 2012-13, compared with 13.39 mt in the previous year.
“While all contracts are getting signed, for the ones remaining, we plan to increase the gas price by 10 cents per mmBtu. The earlier plan was to increase the price by October end. We now plan to do it by middle of November or latest by 1 December. We want to tell the market that this is the cheapest price available and if one doesn’t buy by then, one stands to lose,” said a senior GAIL executive requesting anonymity.
GAIL’s move comes in the backdrop of the National Democratic Alliance government revising the current price of natural gas to $5.6 per mmBtu from $4.2 mmBtu. The prices will be revised every six months.
GAIL stands to gain better margins by selling overseas.
“To sell in the Indian market is our first choice. While we have been trying, we also have a take-or-pay situation. We have reached a conclusion. While we get a premium of around 20 cent per mmBtu in the domestic market, overseas customers are willing to pay us a premium of around $1.5-2 per mmBtu,” added the GAIL executive.
Queries emailed to a GAIL spokesperson on Thursday evening remained unanswered at press time.
Mint reported on 17 June about GAIL’s inability to find domestic buyers and its ultimatum to domestic consumers to finalize their purchases by June-end, failing which it would sign deals with global buyers willing to pay a premium.
“India may lose sizeable volumes of potential gas supply from RIL’s (Reliance Industries Ltd) KG-D6 and ONGC’s (Oil and Natural Gas Corp. Ltd) KG-DWN-98/2 blocks in case the companies find the resultant IRRs (internal rate of return) unattractive. This will result in higher LNG imports at global prices, about 2X the price set for domestic companies initially. India would be better off offering a higher price to its ‘own’ companies rather than to overseas companies for gas imports,” said a 22 October Kotak Institutional Equities report.
India has also revived a plan for pooling of gas prices to bail out power projects starved of the cleaner fuel as compared to coal. Gas-fuelled power projects with an aggregate capacity of around 16,000 megawatts (MW) are operating at a low PLF (plant load factor). Also, around 7,815MW under construction or ready for commissioning have been stranded in the absence of gas allocation.
“An innovative gas pooling mechanism would be good for stranded gas power projects, particularly in the (natural gas) deficit southern region. With increased gas price, hopefully, domestic gas production will increase, and this can be leveraged with imported R-LNG to achieve a 40-50% utilisation of power plants,” said Debasish Mishra, senior director, consulting, at Deloitte Touche Tohmatsu India Pvt. Ltd.
“However, the catch will be to keep the blended gas price landed at the power plant around $10/mmbtu. If implemented, it will be positive for GAIL, both in terms of supplying contracted LNG and improvement in pipeline utilization,” added Mishra.
Meanwhile, GAIL’s net profit for the second quarter rose 42%. The state-owned firm posted a net profit of `1,303 crore for the quarter ended 30 September, compared with `916 crore a year earlier.
Domestic gas sales have been sliding for GAIL.
“During the second quarter of the current financial year, natural gas sales were 68.95 mmscmd (million metric standard cubic metres a day) against 78.58 mscmd during the corresponding period of previous year,” GAIL said.
GAIL has entered a 20-year gas sales and purchase agreement with Sabine Pass Liquefaction Llc, a unit of Cheniere Energy Partners in the US, for 3.5 million tonnes per annum (mtpa) of LNG. It also has a terminal service agreement for 2.3 mtpa LNG liquefaction capacity with Dominion Cove Point LNG in the US. In addition, it has a 20-year LNG supply contract for 2.5 mtpa with Gazprom Marketing and Trading Ltd.
In another development, GAIL on Monday announced signing a memorandum of understanding with state oil company of Republic of Azerbaijan (SOCAR) to jointly pursue LNG opportunities.
(Source: Mint, November 4, 2014)
PMO WILL DISCUSS RBI’S PROPOSAL TO HEDGE CRUDE IMPORT RISKS
NEW DELHI: The government is actively considering a Reserve Bank of India’s (RBI) proposal to hedge crude oil import risks at a time when international crude prices have slumped close to the lowest in nearly four years, which could significantly reduce country’s over $155 billion petroleum import bill.
The Prime Minister’s Office has called a meeting on this matter this week, which will be attended by top government officials, official sources said. Globally, energy firms resort to hedging to shield themselves from highly volatile international crude oil market.
Crude oil prices have dropped by over 20 per cent since June this year. Brent crude, which fell to $82.60 per barrel on Oct 16 has risen to around $85. But, state refiners are skeptical. Global oil markets are highly volatile and no one can predict that rates have bottomed out. They are concerned about big losses if prices fall again after they lock supplies at the current rate. India imports about 80 per cent of crude oil it processes.”
How can you take any definitive position in highly volatile commodity like crude? Similar situation took place about five years ago when its price dropped to below $40 per barrel by in January 2009 from a peak of about $140 in June 2008,” an IOC executive said requesting anonymity.
Earlier, the parliamentary standing committee on petroleum and natural gas had rebuked state oil refiners for not hedging. It said questioned Indian Oil Corp (IOC), Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) for shying away from hedging volatility risks when they purchase over 20 per cent of their requirements from the spot market.
“We usually hedge for refining margins, which is difference between crude price and product price. Hedging crude prices in large quantity is not often prudent. Delivery of crude to our refineries takes about 40 days, which makes hedging more risky.
At best, we can take options with floor and ceiling. But, that will attract huge premium. I believe, government and companies are in best position to take a view on this matter,” former IOC Chairman RS Butola said.
Chief executive officer of a private-sector refiner said “hedging is dynamic and it is a function of perception and timeframe.
It may or may not give desired results. Public sector companies will opt for hedging only if the government will give definitive instructions as they are subject to tough audits.”
India’s current refining capacity is 215 million tonnes, including 89 MT private refining capacity.
State oil firms undergo stringent audit by CAG.
“If a private refiner hedge and lose heavily, nobody would blame its management, but if we make losses, we will be hounded even post-retirement,” a director in a state oil firm said.
RBI permits oil companies to hedge price risks on crude and petroleum products on overseas exchanges and markets.
But, Indian firms prefer long-term contracts while purchasing crude oil.
They, however, meet about 20 per cent their crude oil requirements through spot markets.
(Source: The Economic Times, November 4, 2014)
INDIA TO LET OUT STORAGE FACILITIES TO OIL PRODUCING NATIONS
NEW DELHI: India is in talks with West Asian crude oil producers such as Kuwait, Saudi Arabia and Abu Dhabi to allow them to book capacities in the crude oil storage facilities coming up on the East and West coasts.
The initial filling of the storage capacity at Visakhapatnam will be done by the Government. But, to ensure that supplies continue, various permutations and combinations are being worked out.
“We are talking to crude oil producing countries. We have to see how it works out,” Saurabh Chandra, Secretary, Ministry for Petroleum & Natural Gas, told BusinessLine .
An option under consideration is to offer capacities to crude oil producers, with India retaining the first right of refusal. India could offer 20 per cent of the capacity at the facility to the selected producer. But, it will retain the first right of refusal on the crude stored to protect itself from geopolitical oil shocks and ensure energy security.
Rajan K Pillai, CEO and Managing Director, Indian Strategic Petroleum Reserves Ltd (ISPRL), said the Visakhapatnam facility will be the first facility to be operationalised. It is expected to be ready by February. “The second quarter of the next fiscal is when the facilities at Mangalore and Padur are expected to be ready,” he added.
The facility at Visakhapatnam will have storage capacity of 1.33 million tonnes or 9.75 million barrels, Mangalore will have a capacity of 1.5 million tonnes or 11 million barrels, and Padur 2.5 million tonnes or 18.37 million barrels. At Visakhapatnam facility, Hindustan Petroleum Corporation Ltd has already got capacity of 0.30 million tonnes.
But pricing does have an element of risk, another official said. The Government may decide to subsidise it, but generally it is based on the actual price — the rate prevailing on that day.
India imports more than 80 per cent of its crude oil requirements, and the Government wants to avoid interruptions in supply caused by calamities or political crises abroad. At present, the oil refiners store their own crude. Indian Oil Corporation, the largest public sector refiner with eight standalone refineries, has supplies stored for 30 days (14 days transit and 16 days in tanks). Private refiners like Essar also keep supplies for 30-34 days (about 15-18 days in tanks). According to industry estimates, India’s current crude reserves can support around 74 days of consumption.
Recently, Minister of State for Petroleum & Natural Gas (Independent Charge) Dharmendra Pradhan, during his visit to Saudi Arabia for bilateral energy consultations, had invited Saudi Aramco to invest in India’s crude oil storage facilities and downstream industries.
With the increase in crude oil demand, the Government is also realising the need for setting up additional storage facilities. ISPRL was asked to prepare a detailed feasibility report for 12.5 million tonnes of such facilities in Rajasthan, Odisha, Gujarat, and Karnataka.
(Source: Business Line, November 4, 2014)
GIVE PETROL PRICE CUT BENEFITS TO PUBLIC: GOVT TO WRITE TO CMs
Patna: The Centre will soon write to the states to bring uniformity in the value added tax (VAT) on oil products so that benefits of price cuts filter down to the masses, Union Petroleum and Natural Gas Minister Dharmendra Pradhan said on Monday.
‘We have cut down the prices of petrol and diesel by around Rs 5 to Rs 5.50 since Narendra Modi became the Prime Minister. It has a straight impact on inflation, but whether the benefits filter down to the public or not depends on the taxes imposed on petroleum products by the state governments,’ Pradhan told reporters.
‘I am going to write to all chief ministers to bring uniformity in VAT on petroleum products and keep it under a bandwidth so that benefits of price cuts go down to the public,’ he said.
The union minister was in the state to attend the second death anniversary of veteran BJP leader Kailashpati Mishra.
Pradhan, who is a Rajya Sabha member from Bihar, said states impose varied taxes on petroleum products to shore up their revenues and it depends on their market wisdom to decide whether they keep taxes lower and sell more, or let the prices remain high and sell less.
Subsidy on Liquefied Petroleum Gas (LPG) would stay and it would be transferred to bank accounts of consumers throughout the country from 1 January, 2015, he said.
‘Right now a subsidy of Rs 426 is being given on cooking gas cylinders. We are launching the scheme of transferring it directly to the bank accounts of consumers in 54 districts of the country from 15 November. The system will be made operational across the country from 1 January next year,’ he said.
Pradhan said Saudi Arabia, which supplies 20 per cent of crude oil imports of India, wants to invest in the petroleum sector in the country.
‘I visited Saudi Arabia recently and witnessed positive sentiments about India. It earlier used to provide only oil to us, but now it is strongly requesting to go beyond buyer-seller relations and invest in our country,’ he said.
The leading oil producing West Asian country would be opening a business development office in India in the coming days, an outcome of the prime minister’s efforts to check the economic slowdown, as well as, remove indecisiveness in decision making, the minister said.
‘I have also told Saudi Arabia that there is no need to hold minister-level consultations at a gap of two years. We will now hold the next consultation in early 2015,’ he said.
Pradhan said the Centre has fixed the new gas price in the country at $5.6 per MMBTU (million metric British thermal units).
(Source: Millennium Post November 4, 2014)
GOVT MULLS CUTTING FARES AFTER DIESEL PRICE CUT
Bengaluru: The state government is considering to reduce the fares of road transport corporations following reduction in diesel price. “We will be convening a meeting to decide whether to reduce fares of the state road transport corporations following the reduction of diesel price,” Transport Minister Ramalinga Reddy told reporters here.
The Karnataka State Road Transport Corporation, the North-West Karnataka Road Transport Corporation and North-East Karnataka Road Transport Corporation had raised the fares by 7.96 per cent from May 4. The Bangalore Metropolitan Transport Corporation, on the other hand, had increased the fares by an average of 15 per cent from April. Meanwhile, Bharatiya Janata Party (BJP) youth activists demanded reduction in the bus fare as the diesel price has come down by Rs 6 a litre.
They said despite the NDA government reducing diesel price, the fares of the state road transport corporations and even private buses had not been reduced. Students were feeling the pinch due to high bus fares, they said.
(Source: Business Standard November 4, 2014)
ONGC TO DRILL 103 WELLS IN CAMBAY BASIN IN GUJARAT
AHMEDABAD: The Oil and Natural Gas Corporation Limited (ONGC) will be drilling a phenomenal 100-plus exploratory wells in the Cambay Basin in Gujarat which seems to have suddenly become an epicenter of oil & gas discoveries.
The company recently received environment clearance from the Ministry of Environment and Forests (MoEF) to drill 103 wells in 30 blocks in the districts of Mehsana and Patan districts which are the upper reaches of the Cambay basin. The company will be spending over Rs 670 crore in drilling these wells that will have a depth varying between 1000-3500 meters.
These 30 blocks are spread over an 1116 square kilometers. Interestingly, the proposed area for drilling these wells is known to have hydrocarbon reserves. About 1500 wells have already been drilled in the proposed area and the oil production is approximately 40,000 MTPD (Metric Tonnes Per Day).
According to officials of the company, ONGC plans to drill these 100-odd exploratory wells in the next five years. “Easy oil in the Cambay basin is over. Most of the oil in the basin is tertiary oil which lie deep or are difficult to extract. However, we are continuing to find more zones and explore newer areas that may have hydrocarbon reserves that can be commercially viable. The technological advancement in drilling is helping us find new reserves,” said a senior official of ONGC.
Exploratory drilling is a temporary activity and the company will be temporarily acquiring land (150 meter X 150 meter) for each well drilling. The wells will be drilled in blocks near Kadi, Linch, Nandasan, Sobhasan, Mehsana, Mansa, Langhnaj, Jotana, Charada, Sangapur, Jakasana and Patan.
Hydrocarbon exploration in Cambay Basin goes back to 1958, when ONGC drilled its first exploratory well on Lunej structure near Cambay. This turned out to be a discovery well, which produced oil and gas. The discovery of oil in Ankleshwar structure in 1960 gave further boost to the exploration in the Cambay Basin.
So far, ONGC has drilled more than 7000 wells in Cambay basin since inception, from around 94 established (small, medium and big) oil and gas fields. These efforts have led to a total of 117 hydrocarbon discoveries from this basin till date, officials added.
In spite of the dipping hydrocarbon reserves in Cambay, oil companies including ONGC have continue to strike oil. Recently, a New Delhi, based firm, Jay Polychem (India) Pvt Ltd made an oil discovery that is touted as the biggest onland find this year. In the last few years, companies like Reliance Industries, GSPC, Hindustan Oil Exploration Company, Niko Resources, Jubliant Oil & Gas Pvt Ltd, Cairn Energy India, Pty, Ltd, Essar Oil and others have made new oil discoveries in the Cambay basin.
This basin has been the most productive for ONGC in terms of oil and gas production after Mumbai offshore basin. During the year 2012-13. ONGC produced over 5.18 MMT of oil and 1845 MMSCM (million metric standard cubic meters) of gas.
(Source: The Financial Express, November 4, 2014)
GAIL INKS PACT WITH AZERBAIJAN’S STATE OIL FIRM
NEW DELHI: State gas utility GAIL India Ltd on Monday said it has signed an initial agreement with State Oil Company of Republic of Azerbaijan (SOCAR) for jointly pursuing LNG opportunities.
The company in a statement here said that under the memorandum of understanding (MoU), “GAIL and SOCAR intend to jointly pursue LNG opportunities through capacity booking, LNG procurement and promotion of LNG projects globally”.
Both companies shall also cooperate in optimization of liquefied natural gas (LNG) marketing, sourcing and shipping requirements. In addition, GAIL and SOCAR will pursue business opportunities in upstream assets across the world and joint investment in petrochemical projects.
“Skills and strengths of both the parties would be leveraged to explore business opportunities jointly in natural gas and LNG business including new business developments across the gas value chain,” GAIL chairman and managing director B C Tripathi said.
(Source: The Economic Times, November 4, 2014)
ONGC ADOPTS JANTAR MANTAR AS PART OF SWACHH ABHIYAN
NEW DELHI: State-owned Oil and Natural Gas Corp (ONGC) has adopted the historic monument ‘Jantar Mantar’ as part of Prime Minister Narendra Modi’s cleanliness drive, Swachh Bharat Abhiyan.
With this initiative, ONGC and its employees will maintain cleanliness in and around the heritage monument, the company said in a press statement here.
ONGC Chairman and Managing Director D K Sarraf kicked off the programme today from the historic moon dial of Jantar Mantar. Director (Technical) Shashi Shanker, Director (Offshore) T K Sengupta and Director (HR) Desh Deepak Misra along with senior executives were also present on this occasion.
Archana Mathur, Economic Advisor to the Ministry of Petroleum and Natural Gas, also joined the cleanliness drive.
With Sarraf himself picking up a broom, the ONGC team cleaned the total periphery of the monument as well as the molasses that had accumulated in the moon dial structure.
“More than 100 ONGCians took part in the cleanliness drive,” it said.
Taking forward Modi’s cleanliness drive, Sarraf had on October 2 exhorted the employees to participate in the mission wholeheartedly and said: “External cleanliness is not sufficient. One should be clean from within.”
ONGC had recently signed a tripartite MoU with Archaeological Survey of India and the Ministry of Tourism for cleanliness and conservation of the various iconic historical monument of India.
It has already committed to provide Rs 20.75 crore for conservation and cleanliness of Taj Mahal, one of he seven wonders of the world.
Under the Swachh Bharat Abhiyan, ONGC will build toilet blocks in more than 2,500 government schools in 26 districts spread over 13 states during the current financial year at a cost of Rs 100 crore, the statement added.
(Source: The Times of India, November 4, 2014)
OMCs’ LOSSES WIDEN ON SUBSIDISED LPG, KEROSENE
New Delhi: Daily underrecoveries of oil marketing companies (OMCs) on subsidised sales of domestic cooking gas or liquefied petroleum gas (LPG) and kerosene have jumped 33 per cent to Rs 188 crore in the current fortnight that began on November 1, against the previous fortnight.
The three OMCs — Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd — are now losing Rs 27.60 on sale of every litre of kerosene and Rs 393.50 on each 14.2-kg LPG cylinder, a petroleum ministry statement said. The statement said the losses were lower than the Rs 31.22 a litre loss the oil firms incurred on sale of kerosene and Rs 404.64 a cylinder in the second half of October.
The ministry did not explain how the combined underrecoveries on the two fuels were rising even as daily losses have come down. The OMCs registered overall underrecoveries of Rs 51,110 crore in the first half of current financial year against Rs 139,869 crore in 2013-14.
(Source: Business Standard November 4, 2014)
OIL FIRMS NOT PASSING ON ENTIRE BENEFIT OF PRICE DIP, SAY AIRLINES
New Delhi: The domestic airline industry has alleged that the oil companies are not passing on the entire benefit of the decline in prices of aviation turbine fuel (ATF) to the airlines.
From November 1, aviation turbine fuel prices were reduced by 7.3 per cent.
This was the fourth reduction in prices since August and comes immediately after ATF prices were reduced by 3 per cent on October 1.
The decline in prices reflects the global decline in the prices of crude which made imports cheaper.
A senior airline official told BusinessLine that while in the last few months the price of Brent crude had decreased more than 20 per cent to $85 a barrel of crude now from $110 per barrel in July, the oil companies’ decreased ATF prices by about 11 per cent during this period.
What is upsetting the domestic aviation industry is that the 11-per-cent decline has come despite the forex rate being almost unchanged.
At the heart of the problem is the airlines’ complaint that oil marketing firms are not being transparent about fuel pricing.
ATF constitutes nearly 40 to 50 per cent of the operating cost of an airline since bonded fuel (exempt from sales tax) is not available to airlines predominantly operating on domestic sectors.
“The annual fuel bill of the industry is around Rs. 20,000 crore. Any significant cut in ATF prices will go a long way in reviving the financial fortunes of the industry,” a domestic airline official said.
(Source: Business Line November 4, 2014)
BRENT CRUDE DIPS FURTHER AWAY FROM $86 ON STRONG DOLLAR, CHINA DATA
Singapore: Brent crude inched down on Monday, moving further away from $86 a barrel as mixed Chinese data and a strong dollar pressured prices.
Although growth in China’s vast factory sector rose to a three-month high in October as smaller firms saw more orders, the numbers still pointed to a sluggish economy that is losing momentum.
The US dollar touched seven-year peaks versus the yen on Monday, dragging on oil prices as it makes the commodity more expensive for buyers holding other currencies.
Brent crude for December delivery slipped one cent to $85.85 a barrel by 0244 GMT. The oil benchmark has fallen more than nine per cent in October. US crude fell 18 cents to $80.36 a barrel after losing 11 per cent last month.
“We are just seeing a little bit of a bounce in prices after some softness over the weekend. But the big driver that we are seeing is the strength of the US dollar. That is something that would weigh on the potential upside of the oil price,” said Ben Le Brun at OptionsXpress.
The final HSBC/Markit Manufacturing Purchasing Managers’ Index (PMI) edged up to 50.4 in October, up from the September’s reading of 50.2, but unchanged from a preliminary reading.
While the headline number looked slightly better, growth rates slowed in several key areas heading into the fourth quarter, putting the government’s full-year growth target of 7.5 per cent further in doubt.
(Source: Business Standard November 4, 2014)
THE PRICING SOLUTION: SUBSIDISED ENERGY CONTRIBUTES TO GLOBAL WARMING
Given the scepticism over previous IPCC reports and how global warming has been lower than what has been predicted, it is not certain if the latest report will be taken any more seriously. More so since, at a time when large parts of the world are still wallowing in slow growth/recession, any solutions will require a considerable amount of spending on new technologies. The latest report calls for a 40-70% cut in emission levels by 2050 and to near-zero or below in 2100 if the increase in global temperatures is to be kept below 2 degrees Celsius over pre-industrial times. Expectedly, the debate in countries such as India remains stuck on the issue of who will bear the cost—the rich countries caused the problem, the argument goes, so why should poor countries such as India bear the expensive climate-mitigation costs? Whatever the validity of the question, the reason why countries such as India need to do something is simple, they will be the most vulnerable, whether in terms of floods and cyclones or in terms of the impact of rising temperatures on yields of crops such as wheat and maize. The impact of extreme weather events, in fact, is evident even today when, according to the climate-change sceptics, the earth is not heating up as fast as the IPCC scientists project.
While it is a good thing countries such as India are trying to increase the pressure on the OECD nations in order to get technical and financial help, there is a lot that can be done—indeed, that must be done—even given the resources India has. Encouraging more research on genetically-modified seeds, to get flood- and heat-resistant varieties, for instance, is hardly a costly solution. Similarly, increasing the use of natural gas to world levels—Prime Minister Modi is a great proponent of gas grids—will reduce emission levels while, it so happens, not increasing costs (natural gas is, for instance, cheaper than the oil-based LPG India currently uses for cooking). And though it is true that India cannot afford costly carbon capture and sequestration at the moment, just pricing fuels right will be an important first step. Not pricing electricity right, for instance, means that little attention is paid to using energy-efficient pumpsets in rural areas; not pricing energy right also means the adoption of non-conventional energy sources such as solar power look unattractive. Equally important, if India does not adopt solutions to lower energy intensity, as its growth picks up, it will find that it simply does not have the energy resources to fund the growth. Slice it anyway you like, there’s no getting away from the fact that India needs to get its global warming act together, regardless of whether it were the OECD countries that originally caused the problem.
(Source: The Financial Express, November 4, 2014)
