Cheaper oil fuels India’s strategic reserves push

Seizing the opportunity provided by the global price of crude falling to less than $50 a barrel, India is planning to fill up a strategic storage facility at Visakhapatnam by the first fortnight of February. This would be the first time the country is storing crude oil and the amount will be 1.03 million tonnes.
Strategic reserves are seen as vital for countries with high energy consumption levels and more so for India, which is heavily import-dependent when it comes to meeting its energy needs.

“We are just waiting for one specific approval. Once it comes, we are technically ready to fill the tank at Visakhapatnam,” said Rajan K Pillai, CEO & MD of Indian Strategic Petroleum Reserves (ISPRL) a special purpose vehicle owned by the Oil Industry Development Board.
Pillai said that at the current crude oil prices of around $50 per barrel and the rupee’s level of 61-62 to the dollar, filling up the facility at Visakhapatnam would cost about R2,400 crore and would be fully funded by the government. “India has set up among the cheapest storage facilities, which would cost about $17-18 per barrel,” Pillai said.

India imported 189 million tonnes of crude oil last fiscal, at a cost of $143 billion. Close to four-fifths of India’s oil consumption is met by imports. The construction of the proposed strategic storage facilities is being managed by ISPRL. To ensure energy security, the government has decided to set up 5 million tonnes (mt) or about about 39 million barrels equivalent strategic crude oil storages at three locations — Visakhapatnam, Mangaluru and Padur (near Udupi).

When fully filled, these reserves would be equivalent to 13 days of oil imports. The government is targeting an increase to 90 days of imports by 2020. Globally, the US has the maximum storage facility, which can last for about 90 days. After seeing strong volatility and price falls earlier in January, oil markets moved little last week with Brent prices range-bound between $47.78 and $50.45 a barrel.
The Visakhapatnam storage unit, built at a cost of Rs 1,038 crore, is divided into two compartments of 1.03 mt and 0.3 mt. The smaller compartment of 0.3 mt would be utilised by PSU refiner Hindustan Petroleum Corporation (HPCL), while the bigger section is meant for strategic reserves. The revised costs for the Mangaluru and Padur facilities are Rs 1,227 crore and Rs 1,693 crore, respectively, taking the total cost for the three projects to Rs 3,958 crore.

Oil prices rose on Friday after the death of Saudi Arabia’s king added more uncertainty to an oil market that has more than halved over the last six months. King Abdullah bin Abdulaziz died early
on Friday and his brother Salman became king of the world’s top oil exporter. Brent crude futures were trading at $49.42 a barrel on Friday.

In 2013-14, India spent $143 billion on crude oil imports, which accounted for 32% of India’s total imports in the fiscal year. The strategic storage units are built in underground rock caverns on the east and west coasts so that they are readily accessible to the refining sector. Underground rock caverns are considered the safest means of storing hydrocarbons.

Source: FE

Radiation From Fracking? No Problem

While many environmental issues whirl around the drilling process known as hydraulic fracturing, or fracking, at least we don’t have to worry about radiation.

In the most comprehensive study of the subject ever conducted, the Pennsylvania Department of Environmental Protection found that there is no concern of radiation exposure from fracking wells for oil or gas (PA DEP News Release).

Released last week, the Technologically-Enhanced Naturally-Occurring Radioactive Material, or TENORM, study, analyzed the levels of radioactivity associated with oil and gas development in Pennsylvania, particularly fracking. PA DEP Deputy Secretary Vince Brisini said the study concluded there is little potential for harm to workers or the public from radiation exposure from fracking for either oil or gas.

Only a few samples analyzed in the study were found with radiation levels above that of potato chips, which have the highest radioactivity of all foods.

Rocks, sediments and sands contain naturally occurring radioactive materials (NORM) such as uranium, thorium, potassium-40, carbon-14 and tritium (H-3) as well as their daughter products (see figure at end of post), particularly radon (Rn) and radium (Ra).



TENORM is produced when activities such as mining, sewage treatment, de-watering or drilling, concentrate these radioactive materials to higher levels than occur naturally. Particularly important is the decay product Ra whose half-life and radioactivity are in just the right range to make it a problem. Ra also acts like calcium (Ca) and precipitates as carbonate scale in pipes.

Pennsylvania Governor Tom Corbett called for this radiological study two years ago, at a time when PA DEP began studying radioactivity levels in other parts of the fracking and drilling process – flowback waters, treatment solids, drill cuttings and drilling wastes.

PA DEP was also studying radon levels in the natural gas itself.

PA DEP had begun similar studies over 20 years ago (PA DEP 1991 NORM Study). Although those studies were not as extensive, the result were similar.

This recent peer-reviewed study concludes that there is little potential for exposure to radioactivity for the general public from all fracking activities, including everything from the development to the storage and the end use of the natural gas (see Figure 1).

In particular, the TENORM study concluded that:

- There is little potential for additional radon exposure to the public due to the use of natural gas extracted from geologic formations located in Pennsylvania.

- There is little or limited potential for radiation exposure to the public and workers from the development, completion, production, transmission, processing, storage, and end use of natural gas. There are, however, potential radiological environmental impacts from fluids if spilled. Radium should be added to the Pennsylvania spill protocol to ensure cleanups are adequately characterized. There are also site-specific circumstances and situations where the use of personal protective equipment by workers or other controls should be evaluated.

- There is little potential for radiation exposure to workers and the public at facilities that treat oil and gas wastes. However, there are potential radiological environmental impacts that should be studied at all facilities in Pennsylvania that treat wastes to determine if any areas require remediation. If elevated radiological impacts are found, the development of radiological discharge limitations and spill policies should be considered.

– There is little potential for radiation exposure to the public and workers from landfills receiving waste from the oil and gas industry. However, filter cake from facilities treating wastes could have a radiological environmental impact if spilled, and there is also a potential long-term disposal issue. TENORM disposal protocols should be reviewed to ensure the safety of long-term disposal of waste containing TENORM.

While limited potential was found for radiation exposure to recreationists using roads treated with brine from conventional natural gas wells, further study of radiological environmental impacts from the use of brine from the oil and gas industry for dust suppression and road stabilization should be conducted.

It should be pointed out that these study results most likely apply to all fracking and drilling activities across the United States since Pennsylvania has some of the most radioactive source rocks in the country.

You might remember that whenever radioactive emissions come up in discussions of nuclear power, someone always points out that the mining, drilling and burning of fossil fuels emit much more radiation in total than nuclear energy does.

And that’s true.

Because ore deposits, gas deposits, coal and oil tend to contain and concentrate NORM to varying degrees, especially in unconventional deposits like tar sands, oil shales and gas shales, using these materials in our lives has increased radiation levels much more than nuclear power has.

But both are so low that there is no reason to be worried at all (Nukes In My Backyard), a previous understanding borne out by this study.

“While the recommendations for future actions contained in the report call for additional studies and efforts, we now have data to inform management of natural gas resources and resultant wastes for environmental and health protection,” Vince Brisini said.

With 15 million Americans living within a mile from a fracking well, this is an important result. Now the same studies have to be done for carcinogenic volatile organic compounds such as benzene and the xylenes.



Source: Forbes

India mulls building LPG and natural gas pipelines to Nepal

India will explore the feasibility of building LPG (liquefied petroleum gas) and natural gas pipelines to Nepal, after the two neighbours agreed to build a petroleum pipeline link, a statement here Wednesday said.

During a meeting earlier in the week between Indian Minister of State for Petroleum and Natural Gas Dharmendra Pradhan and Nepal's Minister for Commerce and Supplies Sunil Bahadur Thapa in New Delhi, the Indian side agreed to send a technical team to Nepal to study the feasibility of laying LPG and natural gas pipelines.

Pradhan assured Thapa that LPG would be supplied to Nepal in adequate quantities without interruption.Nepal is totally dependent upon India with regard to petroleum products, and LPG and natural gas supplies.The Indian government also directed the state-owned Indian Oil Corporation's (IOC) refinery in Barauni to increase the quota of LPG for Nepal. The refinery has been ordered to boost LPG supplies to 30,000 tonnes monthly from February. Nepal presently receives 22,000 tonnes of the cooking fuel per month.The two sides agreed to continue their cooperation and explore avenues of cooperation in other possible areas in the oil and gas sector, a statement issued jointly after the meeting concluded said.

According to Nepal Oil Corporation (NOC), consumption of LPG surged 14.12 percent to 207,038 tonnes in the 2012-13 fiscal. Nepal's LPG import bill amounts to around Nepali Rs.20 billion (RS.12.50 billion) annually.

Because of the surge in the demand for LPG and other petroleum products, the country considered the building of pipeline as the best option, said Nepali officials.
According to the National Population and Housing Census, 2011, about 21.03 percent of Nepali households use LPG. In cities, the figure is 67.68 percent.

Demand for LPG is high in urban areas because of the presence of a large number of hotels, restaurants and other industries, which use the fuel due to an increasing electricity deficit.
At present, Nepal suffers from 75 hours of weekly power cuts.

Source: Yahoo

Oil price volatility: Winners and losers

Should oil price volatility worry us? Not if we have focused on diversifying our assets. As Richard Heaney, an expert based in Australia, notes: volatility is a natural part of financial markets. And, while falling oil prices aren’t good news for energy equity investors, there will be positive implications for companies in other sectors. Take the big-picture view, says Heaney.

By Richard Heaney*

Financial markets are certainly experiencing considerable turbulence at present, with a six year low in oil prices weighing on international exchanges and the value of Australia’s energy industry falling around 25% since September 2014.oil prices

How do we deal with this?

Commentators often focus on volatility in financial markets and the energy sector has been singled out of late, but volatility is a natural part of financial markets. Finance theory tells us as long as investors are well diversified, they will be compensated for the risk that cannot be diversified away and what is currently happening in the energy equity market is a good example of this in action.

It is rare that news reaching the market is all bad, even for one industry. Yet, the energy sector has seen little good news over the last few months, with oil and gas producers having a hard time of it as highlighted by the fall in the S&P ASX 200 Energy index, particularly from the end of May 2014 to early January 2015.



If we calculate rates of return for the S&P ASX 200 energy index we get a sense of the changes in return volatility in this sector.

The returns reported in Figure 2 for the extended period from 30 March 2013 to 9 January 2015 do show increased volatility, particularly since November 2014,with dramatic rises and falls in index value.

But this is not the only period where volatility is evident in the market. Indeed, the market went through considerable volatility in the period from March 2013 to July 2013, less than two years ago.



Yes, the energy sector has been hit hard by the recent falls in crude oil prices – but we should ask this: is this volatility widespread? Figure 3, which shows the daily returns on the Australian Securities Exchange from the end of March 2013 to the present shows little change in Australian equity market volatility more generally.



The distribution of returns in Figure 3 is fairly uniform over the period and this tends to highlight the reason that finance specialists recommend diversification as a primary tool in investment. While the energy sector has been subject to considerable volatility, the market as a whole is little affected by the rather idiosyncratic events that have taken place in this industry. It appears movements elsewhere in the Australian equity market have cancelled out the energy industry woes. This observation is important to investors. Indeed, careful analysis of this diversification effect provides one of the reasons that Markowitz, Miller and Sharpe received their Nobel prizes in 1990.

Winners and losers

There is no doubt the current events affecting the energy industry will have a profound impact on the state of Western Australia. The economy in this state is already in shock from the recent fall in iron ore prices and the fall in oil and gas prices will not help the state government manage its budget.

Queensland in an important gas producer and the recent falls in crude oil prices will also have an impact on LNG prices. (http://www.abc.net.au/news/2015-01-07/gas-price-to-fall-in-2015/6004676). Eventually, Queensland Government royalty takings from gas production will fall and this could be of some concern to Queensland politicians with the coming election.

Yet, these same price falls will help the other industries in Australia. The primary industry depends on petrol, diesel and fertilisers which are produced from oil and gas and so it is expected that the primary industries will become more profitable with the fall in oil and gas prices. The fall in iron ore prices may also eventually lead to cheaper steel which affects the cost to farmers of fencing.

The oil and gas price falls will have a direct impact on fuel costs across the entire economy – consumers are already enjoying cheaper fuel – and the other impact will be decreasing costs on a wide range of products and services.

This is not the only effect of the fall in the resource sector (mining and oil and gas). It’s argued that the Australian dollar is a commodity currency and indeed, the Australian dollar has devalued with the fall in iron ore and oil and gas prices, falling more than 15% (10%) over the last six months (Figure 4). This devaluation will have a direct impact on exporters, including the miners. Exporters will be in a much better position now than they were just six months ago.



Probably our most important exporters are the mining companies and primary producers. Both these groups gain from the devaluation of the Australian dollar. This will tend to lessen the effect of falling commodity prices that mining companies face at present. Mining companies export their output at world prices and these are expressed in US dollars. So, if the Australian dollar devalues with respect to the US dollar then the Australian dollar price of exported goods rises, thus dampening the effect of the fall in the world price of commodities.

The devaluation of the Australian dollar will also improve the marketability of our primary products. These include meat, wheat, dairy products and wool. Other important benefactors include service providers and our education industry.

Finally, interest rates are also lower than a year ago and this will tend to decrease the cost of investment. As a result, exporters who choose to increase productive capacity may be able to borrow more cheaply than they could 12 months ago.

All in all, while the resource sector is struggling it is important to keep an eye on what is happening in the Australian economy more generally. There is good reason for concern, particularly in Western Australia and Queensland, but there is also good reason to take a more positive view about the Australian economy.

A pessimist might note the possible impact of fire and drought on primary production over the long hot summer to come and the possibility of further disruption in the regulation of the education and services sector with recent government initiatives. An optimist might take the alternate approach and agree to wait and see what the future brings.

Source: biznews

Moody's: Lower crude prices will negatively affect Southeast Asian E&P companies

Lower subsidy burden will help Indian companies cushion the impact
Singapore, January 20, 2015 -- Moody's Investors Service says that lower crude oil prices will be negative for exploration and production (E&P) companies in South and Southeast Asia producing a high proportion of liquids or exporting crude price-linked liquefied natural gas (LNG). However, they will help support the margins of refiners.

Moody's further considers that crude oil prices will remain weak in 2015 and 2016, and an effective supply response by producers is unlikely until at least 2016.

Moody's conclusions were contained in its just-released Asia Oil & Gas Quarterly.

"In our rated universe of South and Southeast Asian producers, those with a larger proportion of liquids to natural gas production in FY2013 are most vulnerable to the crude price decline," says Vikas Halan, a Moody's Vice President and Senior Credit Officer.

"Although Oil and Natural Gas Corporation Ltd. (ONGC, Baa2 stable) and Oil India Limited (OIL, Baa2 stable) have the highest proportion of liquids production amongst regional rated oil & gas companies, the negative impact of lower oil prices on their revenues and earnings will be cushioned by a corresponding decline in fuel subsidies," says Halan.

"If oil prices are sustained at $55/bbl for a year, we expect the fuel subsidy burden on ONGC and OIL to fall to about $10-12 per barrel from $56 per barrel in fiscal year ended March 2014. Such a decline in subsidy burden would mean that the net realization for these companies will still be about $40-45/bbl as compared to about $50/bbl achieved in fiscal year ended March 2014.The impact on ONGC and OIL will be further cushioned by the Indian government's decision to increase the price of domestic natural gas as they will benefit from an increase in revenues," adds Halan.

"And although Petroliam Nasional Berhad's (A1 stable) oil production remains under 50%, its profitability will be more affected than peers with a similar production profile because of its LNG sales that are linked to crude oil prices, albeit with a delay. In FY2013, LNG sales accounted for another 39% of total sales volumes. Despite its substantial exposure to lower oil prices and high dividend payouts to the government, PETRONAS' ratings remains well positioned given its strong liquidity and conservative financial policies," says Halan.

Companies with a higher proportion of domestic gas sales will be less impacted because such volumes are typically sold at fixed prices.

"In our rated portfolio, Pertamina (Persero) (P.T.) (Baa3 stable), PTT Exploration & Production Public Co. Ltd. (PTTEP, Baa1 stable) and Energi Mega Persada Tbk. (P.T.) (EMP, B2 stable) produce more natural gas than crude and are also predominantly domestic focused," says Halan.

"Earnings for Pertamina, however, are largely derived from its upstream business. Therefore, despite a lower proportion of liquids production, its earnings will be significantly impacted by the decline in crude oil prices. Such a decline will put further pressure on Pertamina's credit metrics, which have already been deteriorating over the last 2 years as the company has embarked upon debt funded investments. This could in turn put pressure on Pertamina's fundamental credit profile, although its final Baa3 rating should continue to remain supported by its close alignment with the Indonesian government," adds Halan.

"We also note that the recovery in margins for refiners in the region -- as exemplified by the Singapore complex gross refining margin (GRM) -- has largely been on the back of lower crude prices and strong seasonal demand across the barrel," says Halan.

"We expect refiners will benefit from the stronger margins in Q4 but will, at the same time, record inventory losses, given the decline in oil prices during the quarter. We expect the regional GRM to remain weak in 2015, but largely flat against 2014 levels of around $6/bbl as capacity additions will continue to outpace demand growth," says Halan.

In the latest newsletter, Moody's also notes that it has lowered its price assumptions for Brent to $55/barrel (bbl) through 2015 and $65/bbl in 2016.

Moody's has also lowered its assumptions for West Texas Intermediate crude to $52/bbl in 2015 and to $62/bbl in 2016.

The topics covered by the newsletter are:

• Lower Oil Prices Will Negatively Affect South and SouthEast Asian E&P Companies With High Proportion of Liquids Production

• Refiners Will Benefit From Stronger Margins in Q4

• Moody's Revises Oil and Natural Gas Price Assumptions

• Lower Oil Prices in 2015 Reduce E&P Spending and Raise Risk for OFS Sector

• 2015 Outlook - Asian Refining and Marketing: Demand Growth Will Ease Pressures From Capacity Overhang

• Japanese Refiners: Aggressive Restructuring is Needed to Revive Profitability and Strengthen Credit Profiles

• India Energy Reforms Are Credit Positive for the Sovereign, Oil and Gas Companies and Natural Gas Producers

• Indonesian Fuel Price Hikes Are Credit Positive for the Sovereign and Pertamina

Source:moodys.com

RIL to re-open all 1400 petrol pumps in a year

Mukesh Ambani led Reliance Industries (RIL) will commission all of its 1400 fuel retail outlets in a year's time and plans to replicate the success of 2006 in the fuel retail segment by mopping up a market share of 14.3 per cent in high speed diesel and 7.2 per cent in petrol.

RIL, has re-opened 230 outlets since the diesel de-regulation on October 18,2014. It has 1,400 fuel retail outlets across the country. At present, RIL's fuel retail market share is less than 0.5 per cent.

In its presentation to analysts post its third quarter results last week, RIL said "It is launching aggressive consumer schemes for quick ramp up of volumes and targeting to replicate 2006 performance levels." RIL posted a drop of 4.5 per cent in consolidated net profit at Rs 5,256 crore for the quarter ended December 2014.

In the presentation, RIL said it has seen diesel demand at its outlets go up 11 per cent quarter on quarter. The industry has however, seen demand for diesel go up only by 1 per cent owing to slowdown in economic activities.

To garner more footfalls at its fuel retail outlets, RIL plans to leverage technology to provide superior customer value across the network. It would also go for an aggressive automation based instant reward schemes providing an edge over the competition which lacks nationwide automation, it said. Among the private players, RIL has one of the largest network with state-of-the-art infrastructure.

In May 2008, RIL had closed its fuel pumps owing to mounting losses, as it was selling fuel at rates much higher than the subsidized prices of state-owned oil companies.

RIL also proposes to give unique value added services through fleet management program to help customers with fleet control, cash flow management, cashless transactions and information. Customized loyalty program targeting different customer segments would also be launched.

"RIL and Essar are getting aggressive in the fuel retail segment post diesel deregulation. So far there has been a shift of 0.2-0.3 per cent from the market share of state-run oil marketing companies," said a senior official from Indian Oil Corporation.

Last month, to attract footfalls at its retail outlets, RIL began offering discounts to customers at its retail outlets.

According to retailers and dealers, RIL offers a discount of Rs 5 on petrol worth Rs 300 and Rs 10 on diesel of Rs 1,000. For diesel worth Rs 12,000, the discount is Rs 225. An RIL executive confirmed this."Post deregulation, our business has picked up pace but we have to provide discounts if we need to attract more customers. There is a misconception among customers that RIL outlets charge more for fuel. We have to dispel these notions if we need business," an RIL dealer from Gujarat had said last month.

According to dealers, bulk buyers and transporters who facilitate transporting of fuel to remote locations find these discounts attractive.

While a few company-owned pumps have already begun dispensing fuel, around 150 dealer-owned, dealer-operated; or company-owned, dealer-operated outlets will be re-opened at a later stage. At company-owned, dealer-operated outlets, RIL takes care of the cost on account of services.

RIL has been battling commission related issues with its dealers. Many of its dealers have been demanding higher commission from the company having declined to re-open their outlets.

A few other dealers, however, have agreed to re-open their outlets. "Some dealers are claiming losses for non-operation of their retail outlets for the past four years. They do not plan to re-open the outlets till they are reimbursed. However, others have softened their stand and plan to begin operations at their outlets," said an RIL dealer.

Dealers say they have invested between Rs 2 crore and Rs 4 crore in each outlet. Depending on the location, the cost of land is between Rs 1.5 crore and Rs 3 crore, with another Rs 30 lakh to Rs 1 crore thrown in for maintaining services at the outlets.

RIL, dealers said, has communicated to them that it will revise their commissions after re-starting of the retail outlets.

Source: B.S

Pioneer Pipeline Unit Said to Get Bids From Enterprise, Williams

EFS Midstream, a pipeline operator in the Eagle Ford Shale basin, has drawn bids from Enterprise Products Partners LP (EPD), Energy Transfer Equity LP (ETE) and Williams Cos., people with knowledge of the matter said.

EFS, owned by Pioneer Natural Resources Co. (PXD) and Reliance Industries Ltd. (RIL), is expected to sell for more than $3 billion, said the people, who asked not to be identified because the process is private. Pioneer, the Dallas-based oil and gas producer, and India’s Reliance announced the sale in November.

Large oil explorers including Chevron Corp. and Occidental Petroleum Corp. have been selling pipelines and other infrastructure to fund capital-intensive drilling operations. The trend could accelerate as a plunge in oil squeezes producers’ cash flow.

Bidders have been winnowed down to only very large pipeline operators that can finance a deal despite volatile debt and equity markets, the people said. Pipeline companies typically have long-term contracts and are better able to withstand volatility in oil prices than explorers.

A spokesman for Williams declined to comment, while representatives for Pioneer, Enterprise, Energy Transfer and Reliance Industries didn’t immediately return calls seeking comment.

MLP Structure

Enterprise, Williams and Energy Transfer are three of the largest U.S. pipeline operators structured as master-limited partners, or MLPs, which get tax breaks for distributing most of their income to investors. That structure puts pressure on MLPs to keep growing to maintain dividends, which incentivizes them to make acquisitions.

Pioneer and Reliance formed EFS in 2010 to gather condensate and natural gas produced by a separate joint venture they control in the Eagle Ford. EFS has 460 miles of pipelines and 10 gathering plants, Pioneer said in November. It’s forecast to generate more than $100 million in cash flow this year.

Regency Energy Partners LP, an MLP controlled by Energy Transfer, had been in talks to buy Talisman Energy Inc.’s pipeline operations in the Marcellus Shale region in November. That sale process has been halted due to Talisman’s pending sale to Spain’s Repsol SA, the people said.

Source: Bloomberg

Railways starts first train that chugs on CNG

In significant step towards adopting green fuel, the railways have launched their first CNG train. Railway minister Suresh Prabhu flagged off the train, run on dual fuel system — diesel and CNG — on the Rewari-Rohtak section of northern zone.

An official said introduction of CNG trains will reduce greenhouse gas emission and also cut the transporter's fuel bill by reducing consumption of diesel.

The minister, who has opened a separate environment directorate in the railway board, has stressed on the use of alternative fuel, including use of solar and wind power, to reduce dependence on conventional energy.

The railways have modified the 1,400 HP engine to run on dual fuel - diesel and CNG - through fumigation technology.

The passenger train would consume over 20% of CNG, covering a distance of 81km in about two hours.

"Gradually, CNG usage will be increased to around 50%. Currently, test trials are being conducted for increased usage of CNG," said an official.

A senior official said there are plans to run more such CNG trains to reduce diesel consumption.

The move is not only a significant step towards reducing the carbon footprint of the railways, but it will also provide capacity to use a cheaper alternative fuel source in future.

The train comprising of two power cars and six car coaches has been manufactured by the Integral Coach Factory at Chennai with the CNG conversion kit being supplied by Cummins.

Development of a CNG conversion technology, which will permit utilization of over 60% CNG, is also under way, he said, adding, "Switchover to LNG technology is also being planned as that will enable higher fuel carrying capacity."

Source: TOI

India to construct seven LNG terminals at a cost of $10 billions

The country benefits immensely due to low oil prices, a top Indian executive says
 Drop in oil price has helped India to deal with subsidies, current account deficit and raise some taxes on petroleum products which in turn has helped the government, a top energy executive from India has said.

Narendra Taneja, co-chairman of the Hydrocarbons Committee of the Federation of Indian Chambers of Commerce and Industry and national convener of energy cell in the ruling Bharatiya Janata Party said the drop in oil price has come at the right time for the new government. "It is kind of God sent. There is new spring in Indian economy and low oil price has contributed immensely towards it," said Taneja speaking to Gulf News on the sidelines of Gulf Intelligence UAE Energy Forum in Abu Dhabi on Tuesday.

He said that the government has readjusted some schemes and plans based on the current oil price. "If the price goes up to $140 per barrel, it might be costly for us both politically and economically. We have serious doubts whether the present price is sustainable."

"We need cheap oil but at the same time we also want the Middle East which is the main source of our oil to be socially, economically and politically stable."

The country is constructing seven new Liquefied Natural Gas (Lng) Terminals with a total investment of more than $5 billion dollars over next ten years, Taneja said.

"Companies have signed agreements to bring Lng from Australia, Mozambique and from the United States. Our appetite for natural gas is huge. Our dependency on gas is going to grow."
According to him India, China, Korea and Japan are considering forming a cartel in the gas market to directly negotiate with countries which are exporting gas. "It will be like Opec which will benefit both exporting and importing countries."

India's gross domestic product (GDP) is expected to expand at 6.4 per cent in 2015.

Source: Yahoo

Government clears 30 oil, gas discoveries for production

The government has cleared 30 oil and gas projects stuck in contractual disputes, that would also help monetise about 2.6 trillion cubic feet of gas reserves, Petroleum Minister Dharmendra Pradhan said Monday.

"I am happy to share that after this approval, within a short span of less than 3 months, 30 long-pending issues have been resolved. This is expected to result in exploitation of about 34 million barrels of oil and about 0.7 trillion cubic feet (TCF) of gas," Pradhan said here at the Geo India conference co-sponsored by the Oil and Natural Gas Corp (ONGC).

"The estimated reserves of discoveries where additional probing has been allowed is to the tune of about 172 million barrels of oil and 1.9 TCF of gas reserves," he added.

Pradhan said the government has approved a policy framework for relaxation, extensions and clarifications in timelines that will grant operational flexibility to help produce oil and gas from several discoveries.

This policy provides for relaxations in timelines under the production sharing contract (PSC) between the government and the explorer so that exploration and production (E&P) activities do not suffer because of excessive rigidity in decision making.

The policy framework for relaxation, extensions and clarifications allows three-to-six month extension in the current 18-60 month timeframe for submission of declaration of commerciality (DoC) of discoveries. The deadline for submitting the investment plan for the discoveries would also be extended by up to six months.

Most of the discoveries so held up belong to state-run ONGC, the Gujarat State Petroleum Corp (GSPC) and private player Cairn India Ltd.

Source: B.S

Oil’s not well

While falling crude prices maybe good for India, they will weigh heavily on the financials of Indian oil and gas companies especially pure play crude producers like Cairn India. Cairn operates India’s largest, onshore hydrocarbons asset, the Barmer block in Rajasthan, which contributed nearly a quarter of India’s total crude production in 2013-14.

Not surprisingly, the Cairn stock has lost close to 25% of its market value since January 2014, while the Sensex has gained 30%. With an oversupply of the commodity globally, crude prices have lost as much as 55% in the last six months and are hovering around $50 a barrel. Net realisations of oil producers will no doubt be hit. The impact will be lesser for those companies that have a more diversified business model, like Reliance Industries (RIL) and Oil and Natural Gas Corp. Ltd (ONGC).

The Bloomberg consensus of Cairn India’s earnings per share (EPS) over FY15-17 has come off by 14-17% and operating an net profits are also seen declining in the three years to FY17 . On the other hand, the estimated EPS for RIL and ONGC over the same period have been trimmed by a more moderate 3-4%.

There are also concerns owing to uncertainties surrounding the production sharing contract (PSC) it has with the government for operating the Barmer block. As reported by FE in May, the Director General of Hydrocarbons (DGH) has turned down the company’s request for a ten year extension of PSC for this block that expires in May 2020.



The regulator is of the view that the contract can be extended for another five years only since the block is primarily an oil producing asset and not a gas field. It has been reported that the government may bargain for a greater share of profit petroleum and a bigger stake for ONGC in the
Barmer block, in exchange for extending Cairn India’s PSC. ONGC, the original licensee of the block, holds a 30% stake at present.

Contractually, upon expiry of the PSC, a hydrocarbon block has to be returned to the original licencee. Renegotiations of the fiscal terms and conditions of the PSC is also a key development experts seek clarity on as the government may raise its share of profit petroleum beyond the current contracted peak level of 30-40% for some fields.

Even as Cairn has guided for an annual growth rate of 7-10% in production, between fiscals 2015 and 2017, analysts feel that in the wake of this uncertainty the company may scale down its capex plan at Barmer.

According to IIFL, although Cairn India’s management is hopeful of an extension of the PSC, it is focusing on only short-term capex plans until it receives further clarity. The domestic brokerage has reduced production estimates for 2015-16 and 2016-17 by 2% and 6% respectively and sees the production peaking at 187,000 barrels per day in FY17. In fiscal 2014, Cairn India’s gross average production stood at 218,000 barrels of oil equivalent per day.

“It (Cairn India) is likely to scale down exploratory capex outside the Mangla-Bhagyam-Aishwarya (MBA) fields. This could affect its production profile in the medium-term,”  IIFL said in a research note.
For the long-term Cairn India is planning to develop natural gas assets that it has discovered in Rajasthan and is proposing to invest around $700 million to bring these assets into production. This strategy may help Cairn India’s case as it seeks a 10-year extension for the Barmer block. The company may share more on information on this development when it announces its earnings for the October-December quarter on January 22. Most analysts have factored an up to 50% decline in year-on-year net profit for the period.

In the first nine months of the current fiscal the Brent price of crude averaged $96 per barrel.
Analysts generally account for a 10% discount to this benchmark value while pegging a value to Cairn India’s net realisation by selling crude. Not surprisingly, as the outlook for global prices worsen, the company’s realisations are set to be affected.

Source: FE

Reliance, Essar to add 1,400 fuel retail outlets this year

Reliance Industries and Essar Oil plan to increase their fuel retailing presence in the country after demand for gasoline (petrol) and diesel crashed in the global market because of lower economic activity.

The private players will open another 1,400 outlets -Reliance 1,000 and Essar 400-this year, posing a tough challenge to the giant public sector retailers.

Reliance operates 400 outlets in the country at present, while Essar is much ahead with 1,400 outlets.
Reliance had 1,400 outlets in 2008, but shut down most of them after incurring a Rs 800-crore loss in its fuel retailing business in 2007-08 as its fuel rates were much higher than the subsidised prices of state-owned oil companies.

The government has recently rationalised the prices and the final piece of the lot was the diesel price deregulation in the last October. A Reliance official says the number of retail outlets will increase to 1400, mostly by reopening the earlier shut down 1,000 outlets.

Reliance is currently operating company-owned retail outlets. About 500 properties used for the fuel retail business are owned by the Mukesh Ambani-controlled group. The remaining outlets are dealer-owned and dealer-operated.

Reliance is in negotiations with its dealers for reopening the pumps. But the dealers are fighting for higher commissions. They claim that the government's oil marketing companies offer better commissions than the private players. Issues will be sorted out soon, say the sources.
As for Essar, it is identifying locations for its new outlets, which are mostly outside the crowded cities. They are also trying different models to increase the number of outlets and to gain market share.

Now that petroleum prices have been deregulated, the private players have an edge since their advanced refineries can process the low-cost crude and achieve maximum efficiency.
Essar and Reliance can both process everything from cheaper extra heavy crude to light crude oil, which gives them a huge competitive advantage over older PSU refineries in India.

Source: Business Today

Oil price slump to bring down profits of upstream firms: ICRA

The 55 per cent slump in global oil prices will result in material decline in profits of crude oil producers like Cairn India, but will help oil marketing companies cut their fuel losses, ratings agency Icra said today.

Global crude oil prices have declined from USD 112 per barrel in June 2014 to USD 50 now, primarily due to significant increase in supply with a record US crude oil production, demand slowdown in Europe, Japan and China.

"The crude oil prices are expected to remain at low levels in the near-term, although oil prices could marginally recover over the next 1-2 years with slower production growth and demand recovery (aided by lower prices)," it said in a report.

Lower crude oil prices would materially impact profits of crude oil producers in India, it said adding the operating profit of Cairn India could decrease by about 35 per cent in 2014-15.

According to K Ravichandran, Senior Vice-President and Co-Head, Corporate Ratings, ICRA, "the impact on (state-run) ONGC and OIL would be limited with around 15 per cent hit on operating profit in FY15 as their subsidy burden will likely go down with fall in under-recovery levels."

Icra expected ONGC/OIL's subsidy discount to decline from USD 59 per barrel in FY14 to USD 40-45 in FY15.

If crude oil prices sustain in the range of USD 50-55 a barrel, the extent of discount for upstream companies would be a key driver of profits in FY16.

Further, cash generation of overseas ventures of ONGC Videsh Ltd, OIL and Reliance Industries (RIL) would decrease significantly.

The significant decline in crude oil prices, if sustained, will lead to reduction of capital spending of global E&P companies due to lower realizations and deferment of development of complex fields due to poor economics, it said.

"This could lead to increase in idling assets of service providers, which could put pressure on the service providers to reduce rates leading to lower finding and development (F&D) costs for the upstream companies," Icra said.

Gross under recoveries or revenue losses on fuel sales of downstream companies are expected to decline sharply from Rs 139,900 crore in FY14 to around Rs 78,800 crore in FY15 (estimated at Indian Basket crude oil price of USD 65 per barrel and Rupee-US Dollar exchange rate of 62.5 for H2 FY15) and Rs 45,000 crore in FY16 (at crude price of USD 60 and Rupee-USD of 64).

Ravichandran said "on account of the lower crude prices, the working capital requirements of downstream oil companies would reduce leading to lower working capital debt levels. Additionally lower under-recoveries on the sale of sensitive products would also improve the profitability and liquidity of oil marketing companies."

Nevertheless, the sharp decline in crude oil prices during Q3 would lead to large inventory valuation losses for the downstream companies. "Consequently, refining margins are expected to be negative or remain subdued," Icra said.

Source: ET

Policy changes and private enterprise to boost greener India with cleaner fuel

Early this year, the World Health Organization concluded that the air in Delhi was the worst among 1,600 cities in 91 countries. This was on the basis of the most widely accepted measure of air quality: The density of particulate matter (PM 2.5), fine and extremely dangerous particles that can get lodged in the lungs. Other Indian cities are not far behind.

Pollution is also impacting agriculture, and studies show that yields of some crops have halved over the past 10 years.

Switching to cleaner fuels for transportation, and producing power through renewables could cut emissions substantially. We asked a few experts how we could get to a cleaner, greener India.

Natural Gas For Transportation
Global gas prices have begun declining sharply since the shale revolution in the US. Gas use in India did not take off in the past decade, mainly because of shortages. CNG use is limited to Mumbai, Delhi, Pune, and a few cities in Gujarat. This could change soon, thanks to increased supply: Availability is set to grow over the next few years, as gas utility GAIL has been contracted to buy gas from a variety of sellers in the US, Canada, Russia, Australia and Turkmenistan. The supplies coming in, either as LNG or through long-distance pipelines, have the potential to change India’s energy-mix substantially.

Finance minister Arun Jaitley announced the first steps to enable this in the 2014 Budget. He rolled out plans to double India’s gas pipeline network to 30,000 km.

Much of this will allow the gas to move from terminals to urban demand centres around the country. Once more gas is available easily and widely, more heavy-duty users like truckers are likely to switch.

Subsidies on diesel have been removed and this could further help reverse the process of dieselisation. One recent initiative is the ministry of railway’s plan to run trains powered partly by gas. Dual-powered (CNG and diesel) trains are being tested on the Delhi-Rohtak-Rewari section.

Grid Parity For Solar Power
The Holy Grail for solar energy advocates is the point at which solar power becomes cheaper for the consumer compared to conventional (coal-based) power being delivered by the state electricity boards. With falling prices of solar equipment, what seemed improbable in the past is now within our grasp. With tariffs coming down steeply, per unit cost in some states is already less than that of power produced from imported coal.

The big push could come from the new Ultra Mega solar power plants that the government is planning to roll out.

These new projects, of 1,500 MW and above, are being planned in Andhra Pradesh, Madhya Pradesh and Rajasthan, and are likely to have much lower capital costs.

Experts like Tobias Engelmeier of solar power consultancy Bridge To India say this could bring down unit costs to below Rs 6. Solar power plants are modular and easier to build when compared to conventional power stations.

However, they require large tracts of land and this could be a bottleneck. The other factor to work against price parity, warns Engelmeier, is the fact that coal prices are softening, and could bring down the cost of coal-based power.

Source: Forbes 

ONGC bets on Russian shale to save Imperial Energy acquisition

Oil and Natural Gas Corp. Ltd (ONGC), India’s biggest energy explorer, is banking on the world’s largest shale oil reserves to save its Russian acquisition. Stumbling blocks include oil prices at a five-year low and US sanctions. Imperial Energy Corp., which the Indian state-run explorer bought in 2009 for £1.4 billion ($2.1 billion), will drill four wells in Russia’s Bazhenov shale formation by July, seeking to find enough oil to start commercial production, said Narendra Kumar Verma, managing director of ONGC’s overseas unit, which owns Imperial. Failure would mean seeking options, including selling the unit, he said. “We’re banking on that silver lining,” Verma, the chief of ONGC Videsh Ltd, said in an interview in his office in New Delhi. “We have to think of alternative strategies. All options are open,” should Bazhenov flop, he said. ONGC plans to more than double its oil and gas production from overseas fields in four years even as it seeks to reverse declining output from Imperial’s fields, revive assets in troubled Sudan and Syria and boost output in Venezuela. It gives away 79% of its revenue from Imperial’s fields as taxes to the Russian government, which is facing the prospect of defaulting on its debt amid sanctions following the annexation of Crimea from Ukraine. “At the moment, Bazhenov is the promising thing,” Verma said. “We have to see how much it yields, as shale oil wells are costlier due to horizontal drilling and hydro-fracking.” Shale oil is trapped in non-porous, shale-rock formations, also found in the Bakken area in North Dakota. The oil can be extracted by cracking open the rocks using a mixture of water and chemicals at high pressure, a process called hydraulic fracturing, or fracking, pioneered in the 1990s in the US.

Biggest reserve 

Bazhenov may hold as much as 360 billion barrels of recoverable reserves, Bloomberg Industries said in a December 2012 report, citing estimates by Russian subsoil agency Rosnedra. Venezuela holds 298.35 billion barrels, the world’s biggest known oil reserves. Russia’s Bazhenov has yet to yield oil. The formation has proved to be tougher to drill than areas in the US, prompting Russian oil majors such as OAO Rosneft and OAO Gazprom Neft (GAZ) to seek partnerships with US and European companies.

Contract ended

Imperial had given Denver-based Liberty Resources Llc a contract to drill in its shale-oil acreage in the Bazhenov formation. Liberty ended the contract following US sanctions on Russia, Verma said. Imperial is now drilling two wells on its own and plans to drill a total of four by July, he said. France’s Total SA (FP) is reevaluating plans to explore for shale oil with Moscow-based OAO Lukoil in Bazhenov. Royal Dutch Shell Plc and Norway’s Statoil ASA may also miss out on Russian shale, Bloomberg Intelligence analyst Philipp Chladek wrote in a 3 October report. Russia can develop its shale oil resources even without foreign partners, Interfax reported on 29 December, citing Lukoil President Vagit Alekperov. The development is not profitable at current oil prices, Interfax reported in the interview. Russia has potentially the biggest shale oil resources, followed by the US, according to a January 2014 report by the US Energy Information Administration. Shale basins in the US have helped boost the country’s production to the highest in more than three decades, drawing it into a price war with Saudi Arabia as oil prices slump to the lowest since 2009.

Larger share 

The Russian government will allow companies that produce in the Bazhenov formation to retain about 40% of their revenue, compared with 21% that Imperial gets now, Verma said. “If we are able to have substantial production from Bazhenov, then our net back may improve, bottomline may improve and we may sail through,” he said. “I’m not saying we will make profits, I’m saying the company may sail through.” Current output at Imperial’s fields in western Siberia, which holds part of the Bazhenov formation, has declined to about 7,000 barrels a day from 17,000 barrels in April 2010. Even in a scenario where oil is at $100 a barrel, Imperial is left with $6 after spending as much as $15 on production, and paying oil extraction levies, Verma said. It pays about $2 a barrel as income tax to the government and the remaining $4 has to fund operating costs, capital expenditure and administrative costs, he said.

Oil glut 

Plunging crude oil prices is making it worse for Imperial, Verma said. Brent crude, a benchmark for more than half the world’s oil, declined 48% last year in London trading, the steepest annual loss since 2008. Weak economic growth in China, a global oil glut and Opec’s refusal to cut output have pushed crude into a bear market since June. In Russia, ONGC Videsh owns 20% in the Sakhalin-1 project off the country’s far eastern coast, which it acquired in 2001. The project produces both oil and gas and ONGC Videsh gets a share of the output or equivalent revenue from the sale. The company is also in talks with Rosneft, Russia’s biggest oil producer, to study the possibility of buying stakes in two other oil and gas fields in Russia, ONGC chairman D.K. Sarraf said in November.

Below expectations 

Imperial has always performed below expectations for ONGC. A plan to revive production from Imperial’s fields was scrapped just months after ONGC completed the purchase in 2009 because the fields didn’t meet expectations. The Comptroller and Auditor General of India (CAG) in March 2011 said ONGC lost Rs.1,180 crore in the 15 months ended 31 March 2010 after Imperial produced at half of the target rate. ONGC announced the plan to buy Imperial in August 2008 and completed the purchase in 195 days. Brent crude, which slumped 62% in that period, reached $36.6 a barrel in December that year as the global financial crisis deepened. ONGC then justified the acquisition saying oil would rebound to $100 a barrel. Most negotiations for the Imperial acquisition “happened in the peak price of oil,

Source: Livemint

Revenue-share model for oil explorers to debut with marginal fields

The ministry of petroleum and natural gas (MoPNG) is likely to usher in the much-anticipated revenue-share model for the nearly 60 small and marginal fields surrendered by PSUs ONGC and Oil India and are being auctioned.

The ministry is currently preparing the policy guidelines for the auction, and if the Cabinet Committee on Economic Affairs (CCEA) approves the proposals, it would mark the launch of the new bidding mechanism for hydrocarbon explorers, as recommended by the C  Rangarajan Committee.

The move comes at a time when it is widely believed that auction of hydrocarbon acreages under the next (10th) round of  the New Exploration and Licensing Policy (NELP) regime will be based on the revenue-share model.

The MoPNG also intends to offer an attractive fiscal regime for those who bid for the marginal fields.
This is in keeping with the Narendra Modi government’s strategy of plucking the low-hanging fruit first when it comes to augmenting the country’s oil and gas output. A few months ago, MoPNG came out with a model revenue-sharing contract (MRSC) to replace the PSCs and had sought industry’s comments on it.

The current model where developers grab by bidding the maximum work programme was criticised by the CAG which said it kept room for companies to keep jacking up costs and defer a higher share of profits to the government.

In the revenue-sharing regime, the companies will have to indicate the quantity of oil and gas they will share with the government at various stages of production along with the rates. So the  government’s remuneration is de-linked from the quantum of investment made in developing the block and extracting the hydrocarbons. Under the present production-sharing contract (PSC) system, applicable for blocks auctioned under all the previous NELP rounds, an explorer gets to recover costs incurred during the exploration cycle, before sharing profits with the government.

These 60 fields (five surrendered by Oil India and the remaining by ONGC) were left idle by the two firms as they found it difficult to put these acreages under production, since they were ‘not economically viable’. Petroleum minister Dharmendra Pradhan targets to increase hydrocarbon output from domestic fields by exploiting the marginal fields, a strategy he believes would yield immediate results.

“It will take a while for the auction to kick off, as post-CCEA clearance, the model production-sharing contract has to be drafted,” a senior government official told FE. The expected reserves in the 60 blocks to be auctioned are not immediately known (the total recoverable reserves of the 165 marginal fields held by the two PSUs, including these 60 were estimated at 340 million tonnes of oil equivalent, or mtoe).

In FY14, only 7.19% of ONGC’s standalone crude oil production and 13.74% of its gas output came from the marginal fields.

Sources said an explorer bidding for the marginal fields on offer would be allowed to combine multiple fields and develop them as a cluster. At the same time, if any of the auctioned marginal fields is in the vicinity of existing asset of any firm, it would be allowed to prepare a development plan in parallel with its old asset, the official added.

The ministry feels that the revenue-sharing approach leaves less room for government interference, and hence, will be attractive to investors. In addition, the model would safeguard the government’s interest in the event of any windfall gains arising out of higher-than-estimated output from unexpected finds.



According to industry watchers, the gas drilled from marginal fields not connected to the pipeline network could be filled into cylinders and transported. The life of these fields would be less than a decade and, of this, four-five years would yield higher production.

Earlier, ONGC had sought a market-driven price for the hydrocarbon produced from its marginal fields. This means the company wants these fields to be exempted while forking out subsidy for compensating oil-marketing companies.

The ONGC board, under former chairman and managing director Sudhir Vasudeva, had decided to bid out 26 marginal fields comprising six in KG onshore, seven in Western onshore and 13 fields in Western offshore to private explorers as ‘service contracts’ under a fixed international pricing model. However, fluctuations in net realisation because of the higher subsidy burden did not allow the government-run firm a go-ahead.

Source: FE

Gas pricing: Oil Mininstry plans extending formula to exempted blocks predating Nelp

The Cabinet has asked the oil ministry to examine if the recently approved gas pricing formula, from which a per-unit rate of $5.61 was derived, can be extended to several exempted blocks including the Cairn India-operated Rajasthan fields, government officials said. Cairn charges $8.4 per unit for its Rajasthan gas, ETreported in August.

The formula has applied since November 1 to several nomination blocks held by ONGC and Oil India and 254 blocks auctioned under the New Exploration Licensing Policy (Nelp). But it's not applicable to at least 17 blocks that predate Nelp, including Rajasthan and Hazira fields. Their production sharing contracts (PSCs) allow explorers to sell gas at market-discovered rates without prior approval of government, oil ministry and industry officials said.

Approved by the Cabinet on October 18 the formula based on the recommendations of a committee of secretaries (CoS) aligned prevailing domestic rates with global benchmarks, including gas from Reliance Industries-operated KG-D6 fields.

At the time, the Cabinet had said: "As suggested by the committee (of secretaries), the possibility of applying modified approach to all PSCs, which provide for arm's length pricing, but do not provide for approval of the formula/basis by the government, would be examined separately."

The committee had proposed to the Cabinet that the oil ministry could see whether the pricing mechanism should apply to exploration contracts that predated Nelp, a suggestion that's now being taken up.

Gujarat Narmada Valley Fertilizers Co. pays Cairn $8.40 per unit for gas from its Rajasthan block, ET reported on August 24. Cairn has found significant quantities of gas in the block and is currently developing some of these discoveries.

According to industry estimates, Cairn's gas fields are expected to produce at least about 7 million standard cubic metres per day (mmscmd) of gas, which is more than half the current output from KG-D6 block. A Cairn spokesman did not offer any comment on the proposal because the matter is not in public domain.

The government had constituted the CoS in August to review the gas price formula proposed by the Rangarajan committee in 2012 and approved by the UPA administration. The previous government, which had notified the new pricing mechanism in January 2014, could not announce the rate after the Election Commission vetoed its move because polls were imminent.

Source: ET