Mumbai: It’s exactly 125 years since the first oil deposits were discovered in India. The big push to India’s oil and gas sector came after the early 1990s, when it was opened up to private players. Yet, the sector is still dominated by public sector undertakings (PSUs) such as Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) in oil and gas exploration and production; Indian Oil Corporation Ltd, Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd (BPCL) in fuel retailing; and GAIL in gas transmission and distribution. There is a conspicuous absence of the big global oil companies.
Domestic entities have obviously not been able to bridge the ever-widening demand-supply shortfall. The two key reasons for this state of affairs are lack of clear policies and incentives and the absence of a level playing field — something experts believe could change soon.
The real push for the sector came after the New Exploration and Licensing Policy (Nelp) was launched in 1998. Under it, hydrocarbon blocks were allocated based on competitive bidding. To incentivise companies, the government allowed market-linked prices (for crude oil) and introduced a revenue-share policy.
The move brought in majors like Reliance Industries (RIL), British Gas and Shell Inc. However, only a few of the 302 blocks awarded in nine Nelp auctions have seen major discoveries. Of these, while Cairn’s prolific Rajasthan block is seeing increasing oil production (about 30 per cent of India’s current oil output), Reliance’s KG-D6 basin has witnessed a steady decline in gas output and discoveries by GSPC and ONGC are yet to start production.
Though many of the Nelp blocks are in exploration and development stages, the writing on the wall is clear.
“The government has done a good job by opening the sector to private players, which has brought in technology and investments. However, compared to what was initially expected, the final results haven’t been all that inspiring. If you look at the post-Nelp period, we have not seen significant ramp-up in production, as expected. A key disincentive was the highly subsidised regime,” says Sumit Pokharna, deputy vice-president, Kotak Securities. “The subsidies resulted in lower cash generation for upstream PSU oil companies (like ONGC and OIL), which impacted their investment in exploration activities. However, given the diesel deregulation and efforts to reduce subsidy in other regulated fuels, the subsidy burden will come down, leaving more money in the hands of these companies for investment purposes.”
It is not that ONGC and OIL haven’t done anything but perhaps not to the extent of their potential, say experts.
“I wouldn’t like to take away the credit from these companies but would say they could have done better,” says Mehraboon Irani, principal & head, Pvt Client Group Business, Nirmal Bang Securities. “They are among the best in terms of minting cash and growth potential. But the disappointment is the slow pace of exploration, execution as well as decision-making.”
For now, ONGC, which discovered India’s largest hydrocarbon reserves (Mumbai High) in 1974, remains a dominant player in India, both in oil and gas production.
One area where it has done well is its foray into global markets through its subsidiary, ONGC Videsh (OVL). OVL has acquired participating interests in 33 blocks in 16 countries, with cumulative investments at $22 billion. Of these, 13 are producing assets and produced 8.36 mt (million tonnes) of oil and oil equivalent gas in 2013-14 — it contributes to 14.5 per cent and eight per cent of India’s oil and natural gas production, respectively. Had it not been for the subsidies (lower cash generation to that extent) they have been burdened with, the financial position of oil PSUs would have been better.
There have been other hindering factors. Experts say issues relating to royalties, costs, gas and gaps in the existing regulations have hurt sentiment and led to disputes.
“The current issues and litigation highlight there were not enough checks and balances in the policies to avoid possible disputes. However, we now believe the policies being framed now, will take care of such issues,” says Pokharna.
Irani, too, is optimistic and hopes the situation will improve in the next six to nine months.
Within days of coming to power, the government announced a new gas pricing formula and de-regulated pricing of diesel. The latter is a big relief for incumbent public sector oil marketing companies (OMCs) which are under pressure.
While there are gains for OMCs in the form of higher profitability and significant reduction in working capital requirements, it should also help bring back private companies into the fuel retailing business and increase competition. Reliance and the Essar group are already said to be working on plans to revive their fuel retailing operations.
Pokharna says, “The government is also taking steps to curb kerosene consumption by providing PNG (piped natural gas) pipelines. Measures to curb leakage in (LPG) liquefied petroleum gas are also being taken. For instance, Delhi’s kerosene consumption is now zero. With lower consumption and volumes (of regulated products), overall subsidy will also go down.”
While competition for OMCs is set to rise, it is to be seen how they will protect their turf. Irani says it will take time for private players to make a difference in fuel retailing. In fact, competition will help improve efficiency of oil PSUs, he adds.
The companies are aware of the threat and have already started taking steps to improve service quality, expand offerings and introduce loyalty programmes.
Overall, though, an analyst with a domestic brokerage says, “Considering their restraints and the balance-sheet side, the PSUs have done very well and have also expanded their refining capacities. BPCL, especially, has done wonders in term of acquiring global offshore blocks.”
So has GAIL. It has set up a high-margin petrochemicals business, though the pace of expansion was slower than growth in demand. GAIL’s core business of gas transmission and distribution, though, is enviable. Its investments in pipelines should start yielding good results once gas volumes rise.
Going ahead, in all the three segments — upstream, mid-stream and downstream — competition is bound to increase.
Experts say PSU companies are strong with valuable assets and can withstand competition from private players. However, the government and its policies will play a critical role. “The buck still stops at the government’s door. What if oil prices go up, will the de-regulation continue, how will the subsidy sharing work?” asks Irani.
(Source: Business Standard November 5, 2014)
OWNERSHIP POLICY FOR PSEs
Public sector enterprises will require a new set of reforms to bring excellence in governance, in tune with the global trends. Clarity on state ownership and board policy should be the first steps towards evaluating accountability.
The Organisation for Economic Cooperation and Development (OECD), a developed world think-tank, says the government should form an ownership policy that defines the objectives of state ownership, and the state’s role in corporate governance at PSEs.
The ownership policy should specify the role and responsibilities that the government seeks in corporate governance, including mandatory compliance on policy, law and regulations. It should also provide for operational autonomy, by not involving itself in the day-to-day working of PSE boards.
Over the years, the government has invested R8.50 lakh crore in 277 PSEs, while the return on it in the last 15 years alone was R23.5 lakh crore, which is inclusive of dividend (R2.2 lakh crore), taxes/duties (R13.8 lakh crore), subsidy (R6.27 lakh crore) and disinvestment proceeds (R1.19 lakh crore).
The government is in a unique position to nominate and select the board members without the consent of other stakeholders. This puts a higher responsibility on the government to ensure that their appointment does not cause conflicts of interest and overcrowd the boards.
The government’s ownership should come through a single sovereign holding structure for PSEs. This will avoid complex and heterogeneous control through several ministries. Ownership through a sovereign committee will obviate the need for ministerial controls. Till the time a sovereign department comes into effect, there should be a strong coordination entity for inter- and intra-administrative ministries.
A prime task under the ownership policy should be to set lucrative remuneration schemes to attract the best talents to manage the boards at par with the best in similar industries. Setting up financial targets, capital structure objectives, and risk tolerance level must also form part of ownership policy.
The ownership policy must include monitoring and assessing the board, with scope for continuous dialogue with external auditors. The legal and regulatory framework for PSEs must ensure level playing with private entities.
A clear separation of ownership functions with day-to-day board level decision-making and commercial and social objectives is necessary. A strong arbitration system for unbiased grievance redressal is also required.
Subsidies running through PSEs must be identified, disclosed and funded by the government to prevent market distortion. So should be the dividend policy. The ownership policy should hold chairman of the enterprise responsible for board room efficiency and he should act as a liaison between the sovereign department and the enterprise.
A well documented ownership policy will allow evaluation of the owner’s performance and eliminate the scope for passive ownership.
International developments
The Swedish government’s ownership policy has the overall objective to create value for the owners. So has France’s. In the UK, the overall objective of the ‘shareholder executive’ is to ensure that government’s shareholdings deliver sustained, positive returns. The cost of capital is returned over time within the policy, regulatory and customer parameters.
In Finland, the core purpose of state ownership is to achieve an economic and social result. In New Zealand, the long-term ownership policy has four overarching goals, namely; (i) to be clearer with PSE boards about shareholding expectations; (ii) to provide stakeholders with enhanced value performance through benchmarking; (iii) to develop appropriate capital structures which impose financial disciplines to make operational investment decisions without any recourse; and (iv) to ensure that requests for capital are considered in line with the business needs of the PSEs.
In Norway, the policy includes; national ownership, control, securing important political goals, sector-independent considerations that companies must take into account, objectives for ownership of individual companies, their commercial objectives and required rate of return, the capital asset pricing model, companies with sectoral policy goals, etc.
How to develop ownership policy
Ownership policy is often arrived through an interactive process, involving several parties. The first step for developing an ownership policy is to survey existing documents, including legal or regulatory texts. Based on this, the ownership entity could develop a draft document for discussion, summarising the key elements of existing policies and identifying potential elements to be included in the new policy.
A specific working group comprising representatives from the ownership entity, parliamentary committees, ministries, the state audit institution and regulators may be required to formulate the policy. The objective is to ensure broad understanding and support by all concerned entities on the state ownership policy on the functions and responsibilities of the owner. A public discourse is also needed through various means, including a dedicated website.
Developing an ownership policy and a sovereign holding structure is a massive exercise and would require a serious approach and wide consultations.
The author is director general, Scope.
(Source: The Financial Express, November 5, 2014)
IOC PARADIP REFINERY COST REVISED BY 16 PER CENT
NEW DELHI: Indian Oil Corporation (IOC), the largest refiner in the country, has seen the cost of its to-be-commissioned 15 million tonne per annum (mtpa) greenfield refinery at Paradip, in Odisha, going up by nearly 16% after it got delayed by a year to FY16.
The refinery, which was to be commissioned during June-December 2014, will now be fully ready in FY16 with a revised cost of R34,500 crore against the initial estimate of R29,777 crore.
The revised cost has been approved by the Board of the PSU firm.
“We target to start putting crude to the main crude oil distillation unit (CDU), which would be the biggest in India, by March. Once it is done, the downstream facilities have to be in place. Every unit in the refinery takes around two months to stabilise. We expect the entire refinery to stabilise in six months and we expect the throughput to be accounted for the complete year,” Sanjiv Singh, director (refineries) at IOC, told FE.
Previously, analysts expected the throughput of IOC to increase to about 60 million tonne (mt) in the current fiscal against 54 mt in FY14.
This was because the Paradip refinery was scheduled for commissioning in FY15. However, IOC is likely to process similar volumes of crude oil as last year owing to delay in putting the Paradip refinery on stream.
Now, the new refinery may add 5-6 mt to throughput in FY16.
In the current fiscal, IOC’s Ebitda (earnings before interest, taxes, depreciation, and amortization) is expected in the range of R15,000-17,000 crore as against R15,792 crore in FY14.
This is because though there is an improvement in marketing margins, the refining margins are under pressure because of rapidly falling crude oil prices and inventories burden.
Deutsche Bank in a October 19 report recommended ‘buy’ for downstream oil refiners on expectations of diesel marketing margin expansion. BofA Merrill Lynch in its October 20 report said direct gainers of lower crude prices are likely to be oil marketing companies like BPCL, HPCL and IOC, while Edelweiss Research expects these companies’ profits to rise by 20-30% following a dip in working capital requirements.
The Paradip refinery has already achieved 97.2% of mechanical completion. Most utilities such as power and water plants have already been commissioned, Singh explained.
The Paradip refinery, which would have capacity to produce nearly 3.6 mt of petrol and 6.3 mt of diesel every year, would start processing low-sulphur crude in the beginning.
Though Paradip is IOC’s most complex refinery and is capable of converting cheaper and dirty crude oil into products, it would begin with cleaner grades of raw material to meet the green norms, Singh said.
IOC would currently flow in crude oil delivered at the Paradip port into the new refinery. It will mull making long-term contracts in the next few months to feed the 300,000 barrels per day coastal refinery.
Singh explained that IOC doesn’t source crude oil on a refinery-to-refinery basis, but buys taking into account the entire demand of the refiner.
“Not all suppliers renew contract as per the calendar or fiscal year,” he said.
Globally, performance of refiners has been lacklustre because of overcapacity and sluggish demand.
Most of the recent refining capacity addition has taken place in Asia-Pacific and West Asia, said an article in Forbes.
On September 4, Reuters reported that Kuwait Petroleum aims to pick up a significant stake in the Paradip refinery and supply about 60% of the oil needs of the plant.
However, there has been no official confirmation on the stake sale.
(Source: The Financial Express, November 5, 2014)
IOC, BPCL AND OTHERS RELUCTANT TO HEDGE OIL PURCHASES: SOURCES
NEW DELHI: Risk-averse state refiners are reluctant to follow central bank advice to hedge part of the country’s $165 billion annual oil import bill, fearing administrative action if they suffer losses, refinery sources said.
Officials in Prime Minister Narendra Modi’s government on Monday discussed the idea, which is part of a push by Reserve Bank of India Governor Raghuram Rajan to make Asia’s No.3 economy less vulnerable to external shocks.
India is the world’s fourth-largest oil consumer and imports 3.8 million barrels per day of crude. Any spike in oil prices can drive up the current-account deficit and inflation – both chronic ills that have long hobbled India’s development.
The idea of buying insurance against a possible oil price rally comes onto the agenda as oil prices touch four-year lows. But India’s dominant state refiners are reluctant to hedge due to the political fallout that any wrong-way bets could trigger.
“The RBI has suggested that we should hedge our crude purchases … I doubt state refiners will be doing it. It is very risky for them,” said one source with direct knowledge of the meeting.
Further discussions could follow Monday’s get-together between oil secretary Saurabh Chandra, officials from the finance ministry and Modi’s cabinet secretary, the country’s most senior bureaucrat, this source said.
Officials at the oil ministry, finance ministry and RBI could not be reached for comment because of a public holiday in India.
State-owned Indian Oil Corp, Bharat Petroleum Corp , Hindustan Petroleum Corp and Mangalore Refinery and Petrochemicals Ltd together control about 60 percent of India’s 4.3 million bpd in refining capacity.
Privately owned competitors Reliance Industries and Essar Oil both use hedging tools to lock in costs, as and when the opportunity arises on the international market.
India wants state refiners to capitalise on falling oil prices, which at $82 a barrel for Brent crude are at their lowest since October 2010, to lock in their supply costs. Some already hedge their refining margins.
Only last month, Modi deregulated diesel prices that the prior government had subjected to state controls to blunt the impact of a previous oil rally on Indian drivers and truckers.
The policy will reduce costly fuel subsidies but also expose India’s state-owned refiners to greater market risks on the refined products they sell in addition to the cost of the crude they process.
A parliamentary panel last year had raised questions over state refiners’ reluctance to hedge imports.
“It is a risky affair. So, at times it can work in your favour, but many times it can work against you. If it goes against you, then you are answerable to all kinds of queries,” R.K. Singh, the then-chairman of Bharat Petroleum, said at the time.
Sources at refining companies said they can hedge oil purchases to the extent of their physical transactions, but unlike private refiners, they lack the flexibility and appetite to absorb losses if their bets go wrong.
“My finances will be immediately affected if we make losses in hedging … I am already depending on government subsidies for my operations,” an executive at IOC said.
Indian state refiners on average buy 80 percent of their oil import needs through term contracts and the balance through spot purchases.
Traders and private companies can absorb some of the losses and they adequately reward their staff if they make a profit, said a source at one of the state refiners.
“But for us we have two sides of the transaction — a minus and a plus. Plus is your duty and minus is a penalty,” he said.
(Source: The Economic Times, November 5, 2014)
CPCL POSTS RS. 233-CR LOSS
Chennai: Chennai Petroleum Corporation Ltd has reported a loss for the second quarter of the current year following a steep drop in gross refining margins compared with the corresponding quarter previously when it reported a profit.
For the quarter ended September 30, the company has reported a net loss of Rs. 233.14 crore (net profit: Rs. 120.33 crore) on a total income of Rs. 10,616.32 crore ( Rs. 13,111.95 crore).
Gross refining margins dropped by over two-thirds to $2.37/bbl ($ 7.07). On the BSE, the company’s shares closed marginally higher at Rs. 103.15 against the previous close of Rs. 102.25.
(Source: Business Line November 5, 2014)
RELIANCE INDUSTRIES, PARTNERS TO GET $40 MILLION THIS FISCAL FROM GAS PRICE HIKE
NEW DELHI: Reliance Industries and its partners will get about USD 40 million in additional revenue this fiscal for gas they produce from eastern offshore KG-D6 block after the government raised prices by 33 per cent.
Niko Resources, which holds 10 per cent stake in the RIL-operated KG-D6 block, said partners will get increased rate of USD 5.61 per million British thermal unit for the gas they produce from MA field in the block, while old rate of USD 4.2 would continue to apply on D1&D3 fields pending resolution of a dispute regarding reasons for drastic fall in output.
“Approximately 40 per cent of the natural gas sold from the D6 Block for the period of April to September of 2014 was produced from the MA field and approximately 60 per cent was produced from the D1&D3 fields.
“Based on the company’s current projections of natural gas production from the MA field, the revised price will provide incremental revenue to Niko of approximately USD 4 million from the MA field for the period from November 1, 2014 to March 31, 2015,” the company said in a statement.
Extrapolating the earnings for other partners, RIL will get USD 24 million for its 60 per cent share in the KG-D6 block and BP Plc of UK USD 12 million for its 30 per cent interest.
Niko said the cash flow benefit of the revised price on gas sales from the D1&D3 fields is not expected to be available unless and until the cost recovery dispute is resolved in the favour of the contractors of the block.
The government has not agreed with the partner’s claim of geological reasons being responsible for D1&D4 output languishing at less than 8 million standard cubic meters per day instead of 80 mmscmd projected for this time of the year.
It has disallowed certain costs as penalty, which the partners have contested and the matter is in arbitration.
Consumers will, however, pay the revised increased price for D1&D3 gas, but RIL and its partners will get only USD 4.2 per mmBtu with the difference being deposited in an escrow account. They will get the higher rates if they win the arbitration case.
“As per the (natural gas pricing) Guidelines (that came into effect from November 1), the announcement of the gas price for the period of April 1, 2015 to September 30, 2015 is expected to occur in mid-March 2015,” Niko said.
It said while the government has stated that a premium over the USD 5.61 rate would be given to discoveries made after the issuance of guidelines in difficult areas like deepsea, the applicability of the premium to existing undeveloped finds in the D6 and NEC-25 blocks remains to be clarified.
These discoveries included in the approved plans of development for the R-Cluster and Satellite Areas in KG-D6 block.
“The development of these discoveries is dependent on the future long-term price outlook for gas sales from these projects and the uncertainty in this outlook could mean that development of these discoveries could be deferred,” it added.
(Source: The Economic Times, November 5, 2014)
CAIRN INDIA CEO MAYANK ASHAR TO GET $1.15 MILLION SALARY
NEW DELHI: Cairn India will pay Mayank Ashar, its first full-time CEO in two years, a salary of $1.15 million plus perquisites and allowances.
Cairn will pay Ashar a base salary of $1 million per annum plus $1.5 lakh in a special allowance/foreign service premium.
On top of this, he will also be entitled to other benefits, perquisites and allowances like housing, car, insurance etc, the company said in a notice to shareholders.
Besides retirement benefits and bonus of a maximum of 200 per cent of basic salary, Cairn will pay Ashar a one-time joining bonus of $1.5 lakh.
Cairn has been without a full-time CEO since its long-standing head Rahul Dhir quit in August 2012. The Vedanta Group-controlled firm first appointed P Elango as interim CEO and after he resigned in May, Sudhir Mathur, the Chief Financial Officer, was given additional charge as interim CEO.
Dhir had in 2011-12, his last full year as CEO, drawn a total salary of Rs 14.25 crore. This comprised of Rs 4.95 crore in basic salary, Rs 5.7 crore in perquisites, Rs 3.09 crore in bonus and Rs 4.22 crore in retirement benefits, says the company’s annual report.
Ashar, 59, will take over as Managing Director and Chief Executive Officer of the company with effect from November 17, 2014 for a period of five years, Cairn said in the notice through which it sought shareholders’ nod for the appointment.
“He has over 36 years of rich and exhaustive experience in international oil and gas industry through various senior management and top leadership roles in leading global companies such as British Petroleum, Petro-Canada and Suncor Energy. Ashar brings a rare mix of driving corporate strategy and on-ground execution,” Cairn said in the notice.
He also served as the Chief Executive Officer & President at Irving Oil Limited. He holds a Bachelors of Art & Science in Chemical Engineering, a BA in Philosophy and Economics, a Masters of Engineering and an MBA from the University of Toronto.
With Elango’s resignation, the entire senior team of Cairn Energy, the former parent of Cairn India, had exited since Vedanta Resources Plc took control in 2010.
Elango was the second senior executive that Vedanta lost across its Indian businesses this year. P K Mukherjee, the Executive Director of Sesa Sterlite Ltd’s iron ore business, resigned on March 28.
Cairn said the appointment of Ashar is subject to the approval of central government as he is a non-resident and has not been staying in India for a continuous period of 12 months immediately preceding the date of his appointment as provided under Part I of Schedule V to the Companies Act.
“Other than the residential status, his appointment meets all the requirements under the Companies Act,” it added.
(Source: The Economic Times, November 5, 2014)
FIRMS WITH LONG-TERM CONTRACTS WITH TRUCKERS MAY BENEFIT FROM DROP IN DIESEL PRICE
New Delhi: Companies with long-term contracts with transporters, with clauses for drop in freight in sync with the fall in fuel costs, are more likely to benefit from the recent dip in diesel prices than those who hire trucks from the open market.
Transporters in the open market are resisting a fall in prices as of now, though diesel prices have fallen by almost 10 per cent.
Research body Indian Foundation of Transport Research and Training (IFTRT) estimates that of the overall transport market, about 20-25 per cent of the trucking business is based on long-term contracts, while 75 per cent business is conducted through the open market.
Truck rentals are holding up in the open market now. “Demand for transportation is high because of the ongoing Kharif crop procurement season, higher arrivals of fruits and vegetables. Also, there was a temporary glut in truck driver availability as many of them had gone on leave for Diwali and Chhat Puja ,” SP Singh, Senior Fellow, IFTRT, said. These features, coupled with the fact that the truck sales have dropped during the last two years, have led to lower capacity addition in the market.
IFTRT, which projected a 4-5 per cent drop in rentals in the near future, said though truckers were trying to hold the current rentals from falling, it may be difficult to do so over a longer period, particularly as Kharif procurement gets over in the next two weeks. Firms in transport business have a different point view. “We were not able to increase the prices proportionately when there was a 50 per cent increase in fuel prices. Truckers are under too much pressure to be able to make rate cuts,” said Vineet Agarwal, Managing Director, Transport Corporation of India.
Rhenus Logistics (India), a joint venture company in which Western Arya Group has a 51 per cent stake, does 90 per cent of its business through long-term contracts, while only 10 per cent is done via open market. “All long-term contracts have clauses that link the freight charge to fuel price,” said Vivek Arya, Managing Director, Rhenus Logistics, India.
Industry players also point out that when diesel prices were going up, many customers did not increase freight charges even though the contract provides for such hikes.
“The part load truck firms, parcel booking, freight aggregators, are holding on to the rates. Zonal players and trucking firms are in a wait-and-watch mode. The pressure from end-customers and competition will force them to drop prices,” said Singh, adding that the next quarter would be interesting to watch.
(Source: Business Line November 5, 2014)
BRENT CRUDE HITS 4-YEAR LOW AS SAUDI CUTS PRICES
London: Brent crude oil fell more than three per cent to its lowest level in more than four years at near $82 a barrel on Tuesday, after top oil exporter, Saudi Arabia cut sales prices to the United States.
Front-month Brent touched a low of $82.08, its weakest since October 2010, and was down $2.35 at $82.43 a barrel by 1500 GMT.
US light crude was down $2.00 at $76.78 a barrel. It touched a session low of $75.84, its weakest since October 2011. Its discount to Brent hovered around $6.
Top global exporter Saudi Arabia increased its December official selling prices (OSPs), relative to benchmarks, to Asia and Europe on Monday, but lowered prices to the United States, a smaller export market.
“This is a mixed news, and the fact that the positive angle has not made an impact shows that market sentiment is very negative at the moment,” Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt, said.
A growing supply glut in the United States has led more than a dozen oil producers to create a new lobby group, Producers for American Crude Oil Exports (Pace), which seeks to end the country’s 40-year ban on crude exports.
US commercial crude stocks are likely to have risen last week, according to a survey by Reuters, which if confirmed will be the fifth consecutive weekly stock build.
Industry group, the American Petroleum Institute will release its inventory data at 2130 GMT, and the Energy Information Administration will release official figures on Wednesday.
US crude futures slipped into contango on Monday for the first time since January. A contango structure indicates that front-month prices are lower than prices further forward.
“Contango makes a structure unattractive for re-investors because they make a loss when each month rolls over,” Tamas Varga, analyst at PVM Oil in London, said.
<b>No Opec consensus</b>
The absence of clear signs that the Organization of the Petroleum Exporting Countries (Opec) could curb output at its November 27 meeting also weighed on the prices.
Less than one month before the meeting, there is no consensus among trading houses as to whether OPEC members will agree on a cut.
“I can see Opec and Saudi Arabia playing the long game. A low price for a period of time may actually play into the hands of people with a lot of reserves in the ground at cheap cost,” Pierre Lorinet, chief financial officer of Trafigura, said at the Reuters Global Commodities Summit.
Ian Taylor, chief executive of Vitol, said at the Reuters summit that Opec members would have “serious discussions” about an output cut.
“My feeling is we are underestimating now the possibility of Opec cutting,” he said.
Members Venezuela and Ecuador are working on a joint proposal to defend oil prices, but the United Arab Emirates oil minister said the country is “not panicking”.
Ali al-Naimi, the oil minister of Opec’s largest producer Saudi Arabia, has made no public comment on the oil market since September.
Naimi arrived on Tuesday in Venezuela, where he meets Venezuela’s foreign minister today, according to a person close to the Saudi delegation. Foreign Minister Rafael Ramirez is a former energy minister and remains in charge of Venezuela’s Opec delegation.
(Source: Business Standard, November 5, 2014)
SAUDI RELIANCE ON OIL ‘DANGEROUS’, SAYS BILLIONAIRE PRINCE
JEDDAH: The fall of crude oil prices below $ 80 a barrel proves that Saudi Arabia’s reliance on petroleum revenue is “dangerous”, billionaire Prince Alwaleed bin Talal said today.
“Clearly the fact that the price of oil went down to below 80 proved that we were correct by asking the government to have other sources of income”, Alwaleed told reporters in the Red Sea city of Jeddah.
“Saudi Arabia depends 90 per cent on oil, which is not right, it’s wrong and it’s dangerous, actually,” added the prince, who is a nephew of King Abdullah.
The prince, whose investments span a range of sectors including global media and hotel brands, spoke as the benchmark US crude price hit a three-year low of $ 75.84 today before recovering slightly.
Brent North Sea crude dropped to $ 82.02 at one point — its lowest level in four years.
Prices had already begun falling heavily yesterday “after it was reported that Saudi Arabia cut its selling price to the US possibly in a bid to compete with US shale oil”, Singapore’s United Overseas Bank said in a note to clients.
The kingdom is the biggest producer in the OPEC oil cartel, which is to hold a key production meeting on November 27 in Vienna.
International Monetary Fund chief Christine Lagarde has warned that oil-dependent Gulf states will face budget shortfalls if the decline in oil prices persists.
They have fallen sharply since the middle of June owing to a global supply glut.
Alwaleed said the price fall points to the need for Saudi Arabia to have “an active sovereign wealth fund and to put in it all the excess foreign exchange that you have, all the money you have, and have it earn somewhere between five to 10 per cent.”
This would be similar to the sovereign funds in Kuwait, Abu Dhabi and Norway, he said during a visit to the site of Kingdom Tower, a mixed-use facility that will rise more than one kilometre and will be the world’s tallest tower.
Alwaleed’s Kingdom Holding Co is a founder of the company developing the project.
Saudi Arabia said in June it was preparing to launch its first sovereign wealth fund.
(Source: The Economic Times, November 5, 2014)
