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BPCL AIMS TO DOUBLE REFINING MARGINS WITH REFINERY EXPANSION

egSINGAPORE: India’s state-owned Bharat Petroleum Corp Ltd aims to double its refining margins once it completes the expansion and upgrade of its Kochi refinery in southern India to process high sulphur crudes by 2016, a senior company official said.

 

The refiner’s margins dropped to $3 a barrel this year, from $4.50 to $5 a barrel last year, but levels will increase by a about $3 to $4 a barrel by mid-2016, said Neeraj Shukla, a chief manager at BPCL’s refineries division.

 

Asian diesel margins have been lower this year compared with previous years due to an economic slowdown in China, the world’s No. 2 oil consumer, and new refining capacity. Naphtha margins have been weaker due to an influx of the light fuel from western countries, mainly Europe and the Mediterranean.

 

“We want to process only high sulphur crude at Kochi refinery, which is why we’re setting up this plant,” he said, speaking on Thursday on the sidelines of an industry conference in Singapore.

 

Crude grades with a high sulphur content are cheaper, and refineries that have installed speciality secondary units to process them can lower feed costs and increase their margins.

 

BPCL aims to raise the capacity of the Kochi refinery in southern India to 310,000 bpd from the current 190,000 bpd by May 2016. Besides boosting margins with the upgrade and expansion, the refinery will also be able to produce fully Euro IV compatible gasoline and diesel, Shukla said.

 

This will meet tentative plans by the Indian government to mandate the use of Euro IV oil products throughout the country by August 1, 2017, and euro V in some cities by 2020, he said.

 

Once the refinery expansion is complete, BPCL also expects to lift lower volumes of oil products from private refiners such as Reliance Industries and Essar Oil.

 

“I think this is a step to self-sufficiency in our marketing network and we will not be depending on others,” he said. BPCL now markets about 12 per cent more fuel than it refines on its own, he said.

 

There are no immediate plans to export any oil products once its refining capacity is increased, Shukla said.

 

BPCL also operates a 240,000 bpd refinery at Mumbai in western India, and has majority stakes in the 60,000 bpd Numaligarh refinery in northeast India and the 120,000 bpd Bina refinery in central India.

 

It plans to double capacity of the Bina refinery in about two years and increase the capacity at Numaligarh in 4 to 5 years, he said.

(Source: The Economic Times, October 31, 2014)

 

 

INDIA RANKS FOURTH IN CLEAN ENERGY INVESTMENT

 

WASHINGTON: India ranks fourth among 55 developing nations in clean energy investment, according to a new country-by-country study which is topped by China.

 

Released by Inter-American Development Bank, the results of the new study Climatescope 2014 suggest renewable technologies can be just as cost-competitive in emerging parts of the world as they are in richer nations.

 

The study offers the clearest picture yet of clean energy in 55 emerging markets in Africa, Asia and Latin America and the Caribbean.

 

According to the report, China ranks number one followed by Brazil. China received the highest ranking as the largest manufacturer of wind and solar equipment in the world and the largest demand market for said equipment.

 

India has a score of 1.85 points against China’s 2.23. “Climatescope is a critical resource for the Power Africa initiative and our partners, providing an in-depth and objective evaluation of low-carbon energy opportunities in emerging markets, including Africa,” said Dr Rajiv Shah of the US Agency for International Development Administrator

 

India also had its best performance on Low Carbon, the report said adding that business and Clean Energy Value Chain Parameter III developed clean energy value chains and service providers.

 

Steadily rising power demand, good-to-excellent renewable resources and often-impaired fossil fuel supply chains make India a growth market for clean energy.

 

The country received USD 6bn in clean energy investment in 2013, out of a total of USD 62bn from 2006 to 2013.

 

Wind is the largest renewable energy sector, with 60 per cent of capacity and 53 per cent of all investment from 2006 to 2013.

 

The report said Coal is still the backbone of the country’s power system, providing 71 per cent of its 1,088 TWh of total generation in 2013.

 

However, renewable power is an important and growing part of the country’s energy matrix at 33GW. It comprised 14 per cent of installed capacity but only 5.5 per cent of generation in 2013.

 

South Africa, Kenya and Uganda were among the top scorers, it said.

 

All have significant clean energy projects and programs; South Africa has surged ahead with nearly USD 10bn of clean energy investment undertaken in the last two years, said the report.

 

A country’s ranking depends upon various factors like clean energy investment policy, its market conditions, the structure of its power sector, the number and makeup of local companies operating in clean energy, and efforts toward reduction of greenhouse gas emissions, the report said.

(Source: The Economic Times, October 31, 2014)

 

PETROL AND DIESEL PRICE COULD BE CUT BY RS 2.50 PER LITRE ON FRIDAY

 

NEW DELHI: Come Friday, the prices of petrol and diesel could be down by as much as Rs 2.50 a litre.

 

Falling prices of crude oil have driven down the cost of products, prompting oil marketing companies (OMCs) to contemplate reducing the prices. This will be the sixth consecutive price cut for petrol since August. Diesel prices will be cut for the first time since these were decontrolled on October 18, leading to a drop of Rs 3.27 a litre.

 

Petrol is currently Rs 66.65 a litre in Delhi and Rs 74.46 a litre in Mumbai. Prices have come down by eight per cent from Rs 72.51 a litre in the beginning of August. Before October 18, diesel rates were previously cut in 2009, when they were reduced by Rs 2 a litre to Rs  30.86.

 

The latest price cut will come ahead of the Assembly elections in Jharkhand and Jammu and Kashmir, beginning November 25. However, the price cut might not violate the election code of conduct as both the automobile fuels are now deregulated.

 

State oil marketing firms review retail prices of the two petroleum products every fortnight. The next pricing review is expected on Friday, where decision of exact quantum would be taken after consultations with the petroleum ministry, asenior executive from an OMC said.

 

European benchmark for crude oil Brent crude has dropped to a four-year low of $82.60 per barrels two weeks ago from above $115 in June this year. Brent traded at less than $87 per barrel on Thursday.

(Source: Business Standard, October 31, 2014)

 

GAS PRICING LACKS FIZZ

 

After months of dither and delay , the Centre has worked out a price formula for domestic natural gas. The new gas price reportedly works out to about $5.60 per mmBtu, which is significantly lower than the Rangarajan committee price notified by the previous government. However, the new formula, which is benchmarked to prices in the mature markets, seems very much a work-in-progress in that it completely ignores prices in the region and, in fact, the entire Asia-Pacific.

 

In working out a reasonable arm’s length competitive price for gas nationally , it appears entirely questionable that regional gas prices -say , those prevailing in the Arabian Gulf -have simply not been taken into account. In the next few years, regassified liquefied natural gas (R-LNG) imported from Qatar and elsewhere is projected to add up to well over half of the total domestic gas consumption.

 

Hence, going forward, we do need to factor in regional prices of gas, less liquefaction, shipping and pipeline transportation, so as to work out netback prices, as is the standard practice. The point remains that in the medium-term and beyond, we not only need to take into account regional gas prices in the domestic gas price formula, but also will have to provide due weight for them to determine reasonably scarcity value of gas. Otherwise, we won’t be able to work out a credible arm’s-length price as required in production-sharing contracts.

 

Now, the new gas price formula seems an acceptable improvement on the Rangarajan formula for a few reasons. The decision to drop LNG price quotes from Japan, even on a netback basis, is sensible. If the idea is to provide a yardstick to measure domestic gas prices by taking into account those prevailing in the main gas-producing centres, LNG prices in Japan are clearly not comparable. Note that LNG prices there tend to be heavily linked to Japanese Custom-Cleared (JCC) crude oil, a separate product.

 

For natural gas, we surely need a more appropriate gauging mechanism. Incidentally , the JCC benchmark is also the broad formula used to price the bulk of LNG imports into India (from RasGas, Qatar), with the price duly revised each month. It is true that R-LNG imports now add up to a considerable part of total domestic gas consumption, what with output steeply declining in D1 and D3 blocks in the Krishna-Godavari basin.

 

The two RasGas contracts in operation are for 7.5 mmtpa, or 28 mmscmd, and the total domestic natural gas output is now down to about 80 mmscmd. Yet, R-LNG usage remains a small fraction of total domestic gas consumption for most sectors, and most of it is anyway separately priced as per the JCC formula.

 

However, this is set to change, with R-LNG likely to make up the bulk of domestic gas supply . In such a scenario, we need to go beyond the JCC price formula for LNG, and track netback prices of RasGas and others in the Persian Gulf and factor those into the domestic price formula for gas.

 

Note also that the Rangarajan panel report did concur that “high prices prevalent in LNG trade in the Asia Pacific region can potentially `kill the goose that lays the golden eggs’“. Given the investment requirement for a gas grid, it is neither in the producer’s interest nor in the national interest to take natural gas to unviable levels by linking it to crude prices.

 

So, while the decision not to take into account prices of LNG imports can be seen as acceptable for now, we do need to factor in regional netback prices of gas exports in the foreseeable future. Further, the move to benchmark prices in Russia, the world’s largest gas exporter, in the new price formula makes sense as well. Yet, the revised formula seems no more than incremental improvement, and would call for much fine-tuning ahead.

 

There are huge shortages and a growing demand-supply gap for gas pan-India. The new price, effective from November, would be higher than the earlier approved $4.20 per mmBtu so as to incentivise higher output. There is further encouragement on offer in the form of additional incentives for production in the deeper offshore and other geologically complex structures, which would be announced later.

 

In parallel, we need far greater domestic gas price discovery via regular buy-sell quotes and follow-through on plans to have a more complete gas pipeline network and hubs. Gas is the cleanest fossil fuel and the most efficient one in many ways. We need not remain a laggard nation in its usage.

(Source: The Economic Times, October 31, 2014)

 

 

OMCs’ UNDER-RECOVERIES DIPPED 16% IN FIRST HALF CURRENT FISCAL

 

New Delhi: Under recoveries of oil marketing companies (OMCs) on subsidised sale of diesel, liquefied petroleum gas (LPG) and kerosene declined 16 per cent in the first half of the current financial year. The total underrecoveries would have been lower, had it not been for the 32 per cent jump in losses on LPG sales.

 

The three OMCs — Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation — registered losses of Rs 51,110 crore between April and September against Rs 60,656 crore in the year-ago period. While LPG losses increased to Rs 24,597 crore from Rs 18,585 crore, diesel underrecoveries dipped about 60 per cent to Rs 11,656 crore from Rs 28,014 crore. Losses on kerosene sales remained flat at Rs 14,857 crore.

 

The worrisome increase in LPG losses was because of two factors — an 11 per cent rise in consumption (80 per cent of which is subsidised) coupled with near-stagnant retail prices. At the current rate of reduction, OMCs’ gross underrecoveries are seen coming down from Rs 1,39,869 crore in FY14 to Rs 1.17 lakh-crore in FY15 — much higher than the government’s estimate of Rs 75,000 crore.

 

The three sensitive products account for 60 per cent of the total consumption of petroleum products. Consumption of these grew three per cent to 46.4 million tonnes (mt) in the first half of the current financial year from 45.1 mt in the corresponding period in FY14. LPG consumption grew 11 per cent to 8.56 mt between April and September this year and 16 per cent in September alone.

 

The prices of subsidised LPG have been revised only twice in two years, that too on account of an increase in dealer commission. The twin revisions have led to a mere 3.7 per cent rise in the price from Rs 399 a cylinder in July 2012 to Rs 414 a cylinder at present. This has led to ballooning of underrecoveries, despite the overall decline in global crude oil prices.

 

Subsidised LPG accounted for 24 per cent, or Rs 39,558 crore, of total underrecoveries of Rs 1.61 lakh-crore of OMCs on the sale of three sensitive products in FY13. The share rose to 33 per cent in FY14 and further to 47 per cent of the total underrecoveries in the first half of the current financial year. Unlike LPG, diesel’s share in total losses has witnessed a sharp decline from 57 per cent in 2012-13 to 44 per cent in FY14 thanks to a monthly price hike of 50 paise a litre since January 2010. The share dropped to 23 per cent in the first half of the current financial year.

 

With global crude prices having declined from a peak of $116 per barrel in June to less than $87 per barrel now, analysts estimate gross under-recoveries of OMCs to land between Rs 70,000 crore and Rs 80,000 crore in the current financial year. This would translate into a more than 26% reduction in the government’s petroleum subsidy burden that stood at Rs 65,000 crore last fiscal.

(Source: Business Standard October 31, 2014)

 

PIRAMAL GLASS, OTHERS SHUT UNITS AFTER GAIL CUTS GAS SUPPLIES

 

New Delhi: State-owned GAIL’s drastic cut in natural gas supplies to small industries in South Gujarat has led to few gas units like Piramal Glass shutting down part of their operations.

 

GAIL last month selectively slashed gas supplies to small industries to meet fuel requirement of CNG and piped cooking gas supplies in cities. The company on September 27 cut supplies to 30 industries in South Gujarat but did not touch small users in other states.

 

To meet city gas requirement, GAIL was to pro-rata cut gas of non-priority sectors like steel and refineries but ended up snapping nearly 60 per cent supplied to small industries, which as per a June 2005 order of oil ministry were clubbed with priority users in power and fertilizer for fuel supplies. No subsequent order has defined non-priority users.

 

Piramal Enterprises vice chairperson Swati A Piramal last week wrote to Gujarat Chief Minister Anandiben Patel against the “discriminatory” action of GAIL that has led to her firm and others like Pragati Glass, Haldyn Glass, Gujarat Borosil and Orient & Savana Ceramic shutting down few lines in their plants.

 

“This action by GAIL works a little contrary to the ‘Make in India’ program recently launched by Prime Minister Narendra Modi.

 

“While on the one hand the Government of India is committed to increase job opportunities and get foreign investment by transforming India into a manufacturing hub, on the other hand the decision to cut gas impacts the viability of operating units that have been contributing to the nation for decades,” she wrote on October 23.

 

The total allocation to 30 small consumers in South Gujarat is a mere 0.6 million standard cubic metres per day. The cut has made available only 0.35 mmscmd available for PNG/CNG use. In absence of domestic gas, the small units have to buy imported LNG which costs four times the domestic rate.

 

“Reducing the gas from small consumers singularly from with the state (of Gujarat) and diverting it to city gas is discriminatory especially when the priority of both sectors were equal,” she wrote. “We earnestly urge that small gas consumers should be treated as priority (user).”

 

She asked Patel to impress upon Union Petroleum Ministry to not apply a unilateral cut on the small consumers of south Gujarat, who individually have allocation of no more than 50,000 cubic meters per day, but impose an “equal and pro-rata cut across all APM (or administered price gas) users in the country to fulfil the shortfall to the city gas.”

 

“By doing this, the impact on small gas consumers would be minimal (may be 1 per cent compared to present 58 per cent cut). This would ensure the future viability of the industry and revenues for state of Gujarat and the needs of city gas will also be fulfilled,” Piramal added.

(Source: Business Standard October 31, 2014)

 

 

CASTROL SEES BENEFIT OF FALLING CRUDE FROM NEXT YEAR

 

New Delhi: Falling crude oil prices are likely to bring down costs of automobile lubricant makers only next year though some impact may be visible in the quarter ending on December. Castrol India, that holds less than a quarter of India’s lubricant market share, sees a continued surge in personal mobility segment of its business.

 

According to Ravi Kirpalani, managing director, Castrol India Limited, both base oil used in lubricants and crude oil price tend to move in the same direction after a lag.

 

“We expect to see some impact in October-December quarter and then some benefit in January-March 2015,” he told Business Standard.

 

A more stable cost of goods is expected in the near future. However, the Rupee continues to remain volatile and despite positive market sentiment, the commercial vehicle business continues to remain challenging. The continued momentum in the personal mobility segment drove sales of the company to an 11 per cent increase at Rs 799.5 crore during July-September 2014 quarter, while pushing up its profit by 13 per cent to Rs 117.9 crore.

 

“This is a strong performance driven by the continued momentum in the personal mobility segment where we have been showing good growth over the last several quarters, driven primarily by our key brands – Castrol Activ in the two-wheeler segment and Castrol MAGNATEC in the passenger car segment.”

 

Our Personal mobility business continues to show good momentum. In this quarter the growth in the personal mobility business  has offset decline in the commercial mobility segment.

 

In terms of profitability, contribution of personal mobility is now half. The ratio is, however, changing, he said.

 

Despite sluggish growth in manufacturing and industrial production in the country during the first three quarters of the year, Castrol’s industrial business has shown both volume and gross margin growth.

 

With private sector fuel retailers expected to reenter the market, Castrol is looking at tying up again with Reliance Industries Ltd and Essar. “As and when private fuel retailers like RIL and Essar revive their outlets, we will work with them,” said Kirpalani though he said the contribution of sales through retail outlets has declined over the years with the market moving to workshops and high street. A large part of demand would also come from rural areas and small towns.

 

“For us growth will continue to come from personal mobility segment and high quality products. We weigh our performance on how our brand is viewed, customer satisfaction and our reach through distributor network,” he said.

(Source: Business Standard October 31, 2014)

 

BP TO WORK WITH GOVERNMENT ON ‘PREMIUM’ PRICES FOR NATURAL GAS

 

CHENNAI: British oil major BP has said it would “work with the new Indian Government” on the ‘premium’ prices that the Government has promised for natural gas produced from future discoveries in tough areas.

 

On October 18, the Government of India came up with a new formula for gas pricing, effectively raising the price at which gas could be sold by about $2 per MMBTU.

 

In a statement, it said, “For all discoveries after this decision, in Ultra Deep Water Areas, Deep Water Areas and High Pressure-High Temperature  areas, a premium would be given on the gas price to be determined as per the prescribed procedure.”  In a conference call with investors, BP’s Chief Financial Officer, Brian Gilvary, said on Wednesday that there is “uncertainty around what those premiums would look like”.

 

BP is a partner of Reliance Industries in the D6 gas field in the Krishna-Godavari basin of Bay of Bengal.

 

“The question is more around actually understanding what the various statements meant around premiums associated with new discoveries and how they will actually pan out,” he said, answering an analyst’s question.

 

“We’ve taken some pretty conservative assumptions around what we believe the premium would look like but there is so much uncertainty around that it’s impossible to say at this point,” he said, citing the uncertainty as the backdrop to the write-off of $770 million from the value of its investments in the D6 block.

 

In the earnings press release the company issued on Wednesday, it said that the $770 million “arises as a result of uncertainty in the future long-term gas price outlook, following the introduction of a new formula, although we do see the commencement of a transition to market-based pricing as a step in the right direction.Going by the formula, BP has assumed it would get a price of $ 6.7 MMBTU, compared with $4.2 earlier.

(Source: Business Line, October 31, 2014)

 

BP’S KG-D6 DILEMMA

 

New Delhi: Apropos the report “BP writes down $770-mn of KG block value” (October 29), it seems that BP has related the write-down of its 30 per cent stake in Reliance Industries’ (RIL) KG-D6 block to the new gas price formula announced by the government. One wonders if this is a full disclosure of reasons for this write-down, particularly in the context of the shale-based oil and gas boom and a steep fall in oil prices.

 

When BP invested in RIL’s assets, there was no Rangarajan Committee recommendation. On the other hand, there was already a dispute about both the declining potential of the fields and the gold-plating allegations, the government’s share and applicability of a revised price based on fulfilment of initial commitment or expiry of time. On the contrary, there was an expectation that BP’s expertise in complex deep-sea fields would improve recovery from and enhance the value of these fields. One wonders if this could be the situation where BP had made over-optimistic projections when they agreed on the transaction.

(Source: Business Standard October 31, 2014)

 

 

ENERGY AWARD FOR HPCL

 

HPCL has been adjudged 16th fastest growing energy company in Asia, and now ranks 48 in the overall ranking of energy companies in Asia, as per The Platts 2014 Top 250 Global Energy Company Rankings. According to a release in Visakhapatnam, the coveted award was received by Director-Finance, of HPCL K.V. Rao at the awards ceremony in Singapore recently.

(Source: Hindu October 31, 2014)

 

 

OIL PRICES DROP DESPITE STRONG US GROWTH DATA

 

NEW YORK: World oil prices fell back Thursday after two days of modest gains, as the market was not encouraged by a stronger-than-expected estimate of US economic growth in the third quarter.

 

US benchmark West Texas Intermediate for December delivery lost $1.08 to $81.12 a barrel.

 

In London trading, Brent North Sea crude for delivery in December shed 88 cents to $86.24 a barrel.

 

Prices remained slightly above the multi-year lows struck in mid-October.

 

The market received no boost from the first official estimate of US economic growth in the July-September quarter, which came in at a peppy 3.5 percent, compared with expectations of only 3.0 percent.

 

But that helped the dollar, which when stronger can make crude more expensive for other currencies.

 

And some analysts said they did not expect that pace to be sustained through the current quarter.

 

“This growth will be moderated by a rising US dollar and poor economic growth outside of the US,” said Doug Handler, the chief US economist at IHS.

 

Daniel Ang, investment analyst at Phillip Futures in Singapore, said investors also had an eye on the latest US supply report Wednesday, which showed crude reserves rose 2.1 million barrels in the week ended October 24.

 

While the inventories rise was smaller than expected, it still highlights the oversupply situation in the United States, Ang said.

(Source: The Economic Times, October 31, 2014)

 

CORRECTIVE RALLY LIKELY IN MCX-CRUDE OIL

 

The crude oil futures contract traded on the Multi Commodity Exchange (MCX) is witnessing buying interest every time it dips below Rs. 5,000/barrel. The contract recorded a low of Rs. 4,898 on Monday and has reversed higher above the psychological Rs. 5,000 levels immediately.

 

The price action this week denotes the possibility of a near-term corrective rally. Immediate support is at Rs. 5,000 and while above this level, a rise to Rs. 5,130 is possible in the coming days.

 

A strong breach above Rs. 5,130 can see this corrective rally extending further to Rs. 5,200 and Rs. 5,275.

 

Traders with high risk appetite can go long at current levels with a tight stop-loss at Rs. 4,980 for the target of Rs. 5,090.

 

MCX-Natural gas: The MCX-natural gas futures contract has risen sharply after recording a low of Rs. 217.2 per mmBtu on Tuesday. The contract is now hovering below a key 50 per cent Fibonacci retracement resistance at Rs. 238.

 

A strong break above Rs. 238 can take the contract higher to Rs. 243 and even Rs. 250. On the other hand, a reversal from Rs. 238 can drag the contract lower to Rs. 229.

 

Traders can stay out of the market at the moment. Wait for a clear trade signal to emerge and take positions accordingly.

 

Note: The recommendations are based on technical analysis. There is a risk of loss in trading.

(Source: Business Line October 31, 2014)

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