When India's oil economy marked new beginning

Complete decontrol of diesel marketing, new pricing formula for domestic gas after five years and a plunge in global crude prices flagged a new beginning for country's oil economy in 2014 but there was little news on stake sale in state-run oil firms and fresh auctions for hydrocarbon assets.
After years of selling diesel below cost and of subsidising the rich consuming this key transport fuel, the government in October allowed its deregulation in the face of profits accruing on its sale from the fall of international crude prices - from around $140 per barrel to around $63.

Together with the decision on revising the price of natural gas, the decision made the industry watchers give a stable outlook for India's oil industry - as opposed to the negative outlook which they were planning for lack of reforms. But they also had their set of warnings.

"The rating outlook for Indian oil and gas entities remains stable in 2015. The benefits from oil price reforms and lower global oil prices for refining and marketing companies will be offset by their large capex needs in the medium term that will lead to negative free cash flows," Fitch Ratings said.
Earlier, prior to the Narendra Modi government taking over the reins in May, the price of diesel was being raised by oil marketing companies in marginal doses of 50 paise a litre since the previous government's decision in January 2013 to reduce subsidy load on the fiscal deficit.

At the time of deregulation in October, the oil marketing companies were making a profit of over Rs 3 a litre, of which the government took back a portion in excise duty towards compensating the states. Petrol pricing had already been deregulated since June 2010.

On India's quest for energy security by scouting for hydrocarbons assets abroad, the overseas arm of the Oil and Natural Gas Commission made some headway in 2014, acquiring new blocks in New Zealand, Myanmar, Bangladesh and Brazil, besides signing pacts with South Africa, Vietnam, Mozambique and Turkey.

There was some movement forward in pricing of gas as well. After elections forced the previous government to delay notifying a new gas price, an upward revision to $5.61 per unit was finally announced against the industry's demand for at least doubling it to a little over $8 per unit.
Accepting the recommendations of the Rangarajan panel, constituted by the previous government, would have meant a gas price of $8.4 per unit, instead of the $5.6 effective from November for five months.
But the decision was only partial. While the price of $5.61 per unit was to apply for the normal discoveries, for all new discoveries in the ultra-deep, deep-water areas and high pressure-high-temperature areas, all that the government said was that a premium will be given.
But it did not spell out further details on how it will be calculated. While shallow-water blocks are at a depth of up to 100-500 metres, deep-water blocks descend to around 1,000 metres. Those at depths beyond 1,500 metres are classified as ultra-deep-water blocks.

The main company affected by this decision was Reliance Industries, as it was not immediately entitled to avail of the new price, as it remained locked in an arbitration with the government over alleged shortfall in production from its Krishna-Godavari basin fields.

To make up for fall in taxes due to the sustained decline in international crude prices, the government hiked the excise duty twice in November-December, saying the money would fund welfare schemes. This deprived consumers lower retail price to the extent of the fall in global crude prices.
For oil companies in the downstream sector, analysts forecast that their profit after tax will increase by Rs 33-Rs 36 billion year-on-year in 2014-15 and by another Rs 7-Rs 10 billion in 2015-16, said Crisil Research in the post-reform prospects for the oil and gas sector.
"Their interest cost will decline and they wont have an under-recovery (loss) burden," Crisil Research said in the post-reform prospects for the oil and gas sector," it said.

"On the other hand, upstream companies (companies engaged in oil exploration and extraction) will see a sharper improvement of Rs105-210 billion year-on-year in profit-after-tax in 2014-15 and a further improvement of 70-75 billion in 2015-16."

Indeed, with the dramatic fall in global oil prices towards $60 a barrel at this point, its favourable impact on country's current account and fiscal deficits has quickly changed the macro-economic scenario of the country, increasing the clamour for rate cuts by the central bank.
Going forward, analysts expect the government to take a call on further sale of stake in some of the oil companies, both in the upstream and downstream sectors, notably the Oil and Natural Gas.

Highlights of country's oil economy in 2014:

- Diesel prices deregulated giving the freedom to oil firms
- New gas price announced after elections delayed its notification
- Deep water, difficult blocks to get new gas price in New Year
- Reliance denied new gas price pending arbitration decision
- Government hiked excise duty on petrol, diesel
- Plunging oil prices changed country's macro-economic scenario

Source: Business Today

Azerbaijan keen to meet India's energy needs: Envoy

Economic relations between India and Azerbaijan are on the upswing, especially with an agreement inked between state-run GAIL and a gas firm of the resource-rich south Caucasus nation which is keen to meet India's energy needs, its envoy said Tuesday.

Ambassador Ibrahim Hajiyev, speaking at a book release function, said that energy cooperation between his country and India is poised to grow and the agreement between GAIL and the State Oil Company of Republic of Azerbaijan (SOCAR) is an example.

The envoy was speaking during the release of the book "Azerbaijan" written by well-known journalist Sheikh Manzoor Ahmad, editor-in-chief of Alam Urdu service). The book is in English, Hindi and Urdu.

Hajiyev said that bilateral trade, which stands at $1.14 billion, is set to go up multifold as Azerbaijan is trying to meet the energy needs of India.

GAIL entered into an MoU with the Azerbaijan firm last month for the marketing, sourcing and shipping of LNG.

In addition, GAIL and SOCAR are to pursue business opportunities in upstream assets across the world and joint investment in petrochemical projects.

Gas production in Azerbaijan is expected to reach 30 billion cubic metres (bcm) in 2018 compared with 29.45bcm in 2013.

A major portion of Azerbaijan's natural gas is produced from the giant Shah Deniz field in the Caspian Sea. Azerbaijan's projected reserves are 2.3 trillion cubic metres (tcm), which can go up to 6tcm, according to reports.

Source: indiagazette.com

Oil prices struggle after WTI crude sinks below USD 60

Oil prices sank further in Asia today, with analysts warning of little respite from the the selling after plunging more than 40 percent since June. US benchmark West Texas Intermediate (WTI) for January deliver was down 86 cents at USD 59.09 in mid-morning trade.

The contract closed below the psychological USD 60 mark for the first time since July 2009 yesterday. Brent crude was down 52 cents at USD 63.16. "There just doesn't seem to be any relief for oil prices at the moment," Michael McCarthy, chief market strategist at CMC Markets in Sydney, told AFP. "The bearish sentiment is unlikely to change until the end of the year unless we see a significant drop in global production levels or a supply disruption," he said.

WTI and Brent prices have fallen precipitously since hitting 2014 peaks of USD 106 and USD 115 respectively in June. The drop has been attributed to slowing growth in China and emerging-market economies, a recession in Japan and a near-stall in the eurozone.

On top of that, OPEC last month said it would maintain output levels despite ample global supplies, in part due to cheaper oil extracted from North American shale rock. McCarthy said at levels below USD 60, prices falls are likely to face "more resistance than at the moment". Analysts said the crude market had largely ignored data showing a healthy rise in US retail sales in November that raised hopes about consumer demand in the world's largest economy.

Source: Moneycontrol

ONGC to use GSPC's under-sea infra to bring gas from KG basin

State-owned Oil and Natural Gas Corp (ONGC) plans to use Gujarat firm GSPC's undersea infrastructure to bring gas from its KG-basin fields in Bay of Bengal to land.

ONGC had last year signed an agreement to use Reliance Industries' under-utilised KG-D6 infrastructure to move gas from neighbouring KG-DWN-98/2, or KG-D5 block, to land.

The company has now submitted plans to the government to use infrastructure of Gujarat State Petroleum Corp, which has laid out under-sea pipelines and other systems to take gas from its block in the vicinity of Andhra Pradesh, sources said.

ONGC has made 11 discoveries in KG-D5 which it plans to develop in three clusters or groups. In the first cluster, it plans to club gas finds D and E in the northern part of KG-D5 with a discovery in its adjoining G-4 block.

These finds, sources said, are in close proximity to the pipeline system that are to take gas from GSPC's KG-OSN-2001/3 block to onland.

So, ONGC will pump 14.5 million standard cubic meters per day of peak output envisaged from Cluster-1 to the GSPC network for onward transmission to land.

Cluster-2, which is also in the northern part of KG-D5, will have two components - 91,000 barrels per day of oil which will be transported to a floating processing system from where it will be sent to refineries by tankers. About 12.5 mmscmd of gas will be transported to an onshore terminal at Odalarevu through a separate ONGC-laid sub-sea pipeline network.

The third Cluster is made up of UD-1 gas discovery in the Southern part, which lies in extremely challenging water depths of 2400-3200 meters.

Sources said ONGC is currently not pursuing development of this as it is yet to get a suitable technological solution.

The company is targeting mid-2018 for start of natural gas production from the block and mid 2019 for oil.

The block KG-D5, which sits next to RIL's KG-D6 block, is divided into the Northern Discovery Area (NDA) and Southern Discovery Area (SDA). NDA has 121 million tons of inplace oil reserves and 78 billion cubic meters of gas while SDA has an inplace reserve of 80.9 bcm.

ONGC and RIL won KG-D5 and KG-D6 block in the first round of auction under New Exploration Licensing Policy (NELP) in 2000.

RIL began production from the oil discovery in KG-D6 in September 2008 and put gas find on production in April 2009. It created capacities to carry as much as 80 mmscmd of gas but current output of less than 12 mmscmd utilises only 15 percent of this resource.

Source: First Post

Falling crude oil price: Valuation of foreign energy assets declines

Indian oil companies like Oil and Natural Gas Corporation Limited (ONGC), Bharat Petroleum (BPCL), Oil India, and Reliance Industries are seeing the value of energy assets bought overseas in the last few years eroding with the decline in crude oil prices.

India's energy asset buying spree occurred when Brent crude was hovering at above $100 a barrel but with prices falling 35 per cent to a five-year low of $65 a barrel, the valuation of these assets has fallen by as much as 25 per cent, analysts say.

Reliance Industries has put its shale gas assets on the block. The company is expecting $4.5 billion for its 45 per cent stake in a shale gas venture with Pioneer Natural Resources of the US. The problem is there are no takers. If the deal does go through, analysts say, the valuation will be far lower than what Reliance Industries expects.

"The oil assets all over the world are valued on the basis of net present value and depending on probable reserves. With the oil prices coming down so sharply, the valuation will also take a sharp fall," says Phani Sekhar, fund manager with Angel Broking.

"This (valuation) is more of a notional loss. If oil prices pick up again by 2016, the game will change for these companies," said an analyst with a foreign brokerage.

Reliance Industries is not alone. Last year, state-owned ONGC and Oil India bought a 10 per cent stake in a Mozambique gas field for $2.5 billion from Videocon. Since then, the valuation of the field is down by as much as 25 per cent, say analysts.

BPCL, Oil India and ONGC are sitting on an asset whose valuation may fall further from its dizzy height of $25 billion last year. "Oil price is just one of the reasons. The project will require investments worth $18-20 billion for setting up infrastructure," said an analyst.

With oil blocks needing big investments to keep the wells flowing, falling oil prices will lower cash flows. ONGC is particularly affected because its $2.1 billion acquisition of the Russia-focused Imperial Energy's oil reserves turned out to be way below projections made prior to the purchase.

Experts say there are other sides to the issue as well. "First, do we regard this fall in crude oil as being temporary in nature or a permanent one? Will conditions change once the world economy recovers and China starts pulling up demand? Besides, the future of shale gas is still uncertain and hence there could be reason to believe that this is temporary. Hence for these companies planning to sell assets, they have to take a medium term view. There is one theory that OPEC (Organization of the Petroleum Exporting Countries) is standing by allowing the price to fall so that it can squeeze the shale producers out of the market. Second, the lower price does provide a positive to these OMCs (oil marketing companies) in terms of savings from the subsidies and their own absorption of the same. This could counter a part of the potential downside to the asset value overseas," says D R Dogra, chief executive officer and managing director of Care Ratings.

Since most of these foreign acquisitions were done through loans taken abroad, a further fall in oil prices will make takeovers more expensive.  The rupee is expected to fall to around Rs 65 to a dollar in 2015. Indian companies will have to pay more if the loans are to be repaid from cash flows of local companies.  But if they have hedged against the currency risk, the cost may not be that high.

The last fall in oil prices in the 1990s led to consolidation in the global industry. Small oil companies will need cash to expand and the big ones will need money to prop up reserves. Indian companies can either buy out smaller firms at low valuations or wait for the tide to turn. In either case, they will need more cash.

Source: B.S

Here's What A $10 Move In Oil Does To GDP Around The World

Oil affects countries around the world differently. Generally speaking, low prices are great for net importers of oil, but bad for net exporters.

UBS's macro strategy team considered what a permanent $10 drop in a barrel of Brent crude would mean.

"Oil-producing economies such as Russia and Norway and OPEC clearly lose out when oil prices fall, with the former seeing an impairment of its GDP of over 1 percentage point," UBS analysts wrote on Thursday.

"Among large developed economies, the US and Japan are least affected. Although Japan has a relatively high dependency on imported oil the weight of energy products in its consumer price basket is quite low compared with other developed economies. That means the real income-related benefits for Japan's consumers from weaker oil prices are relatively low compared with elsewhere."

For the US, the energy dependency and sensitivity story has been evolving rapidly as more and more oil has been fracked out of America's shale basins.

"Prior to the shale revolution model simulations would have suggested a boost of 0.2 to 0.3 percentage points to US growth for every USD 10/bbl decrease in the price of oil," they write. "That estimate is now only 0.1%."

Overall, they estimate that a sustained $10 drop in prices will add around 0.2 percentage points to global GDP.

Source: UBS

India, Russia to set out energy vision, Siberian deals eyed

India and Russia will strike an energy partnership when Prime Minister Narendra Modi hosts President Vladimir Putin on Thursday to prepare the way for two Siberian oil deals and chart a route for a first pipeline between the two countries.

But a joint ‘vision’ document is likely to lack hard details, with terms still being thrashed out for India’s ONGC Videsh to acquire an interest in Rosneft’s Vankor and Yurubcheno-Tokhomskoye oilfields, officials and industry sources on both sides say.

There are doubts over the viability of proposed oil and gas pipeline routes that would either cross conflict-ridden Afghanistan and Pakistan – India’s arch enemy – or mountainous tracts of inner China.

Russia, isolated by the West over its annexation of Crimea and backing of an armed uprising in eastern Ukraine, has a friendship with India that dates back to the Soviet era. “In the present circumstances, when Europe is trying to isolate Russia, Putin wants to show that he has friends in the world,” said Gulshan Sachdeva, head of the Centre for European Studies at Jawaharlal Nehru University in New Delhi.

“Modi and Putin are similar leaders. They like to announce big schemes,” Sachdeva added. “It might make sense to do so – whether or not they come to fruition is another matter.” New Delhi explicitly rules out joining Western sanctions against Russia although Modi has struck up an increasingly warm friendship with President Barack Obama since winning power in May, and will host the U.S. leader in January.

Putin has been a regular visitor to India since becoming president in 2000 but the trip will be a one-day affair. A proposal for him to address India’s parliament was quietly dropped.
Russo-Indian trade, at $10 billion, is only one-ninth of the volume between Russia and China.

NEW TIES
Indian and Russian officials say the strategic declaration will encompass issues from defence to nuclear power and even diamonds, with state monopoly Alrosa keen to ramp up exports to India.
“The visit will solidify the political relationship; confirm Russia as India’s principal purveyor of arms; and expand ties in other areas, such as nuclear energy,” said Dmitri Trenin, director of the Carnegie Moscow Center.

State-controlled Rosneft, the world’s largest listed oil firm by output, is strapped for cash due to Western sanctions, and is showing increased willingness to offer upstream projects to India.
But wrangling continues over the interest ONGC Videsh would get in Vankor, which is expected to reach peak output of 500,000 barrels per day in 2019.

Indian government sources say that Rosneft has offered a 10 percent stake in the Vankor operating company, but that New Delhi is pushing for a 25 percent interest that would allow ONGC Videsh to book equity barrels.

India is also seeking tax breaks on a proposed 49 percent stake in Yurubcheno-Tokhomskoye, a greenfield project in eastern Siberia, because under Russia’s existing fiscal regime the field would lose money.

State oil firm Oil and Natural Gas Corp’s overseas arm partners Rosneft and U.S. ExxonMobil in the Sakhalin-1 offshore energy project. ONGC also owns struggling Siberian producer Imperial Energy.
The aspiration to build a pipeline passage to India will be “there” in the joint Indo-Russian statement, a second Indian official said, but details remain sketchy. Russia’s ambassador to India, Alexander Kadakin, told reporters that an export route via China’s westernmost province of Xinjiang was under consideration but needed to be studied further due to challenging terrain.

Indian officials have pushed the idea of a $40 billion pipeline to pump Siberian gas to India, but even if it is practicable it would struggle to compete with tanker-shipped liquefied natural gas.
India imports 80 percent of the 4 million bpd of crude that it consumes daily, making an oil link a more promising option, yet proposals have so far failed to get off the drawing board.
Russia’s Eastern Siberia-Pacific Ocean oil pipeline has a capacity of 1.6 million bpd, while state natural gas monopoly Gazprom is working to finalise a $400 billion deal to pump gas to China

Source: FE