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Transcript of Challenges of the Sri Lanka’s Petroleum Industry by R. H. S. Samaratunga Secretary, Ministry of...
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Challenges of the Sri Lanka’s Petroleum Industry
byR. H. S. Samaratunga
Secretary, Ministry of Petroleum Industries
1
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Challenges of the Sri Lanka’s Petroleum Industry
• Global Scenario in Brief
• Sri Lanka’s Petroleum Industry Structure
• Demand, Supply and Challenges
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Challenges of the Sri Lanka’s Petroleum Industry
Global Scenario
Consumption• Global : 90/mb/day (2011)• OECD : 50% (appox)• North America: 24%
Production• OPEC: 37% North America: 15%• Russia: 11% Saudi Arabia: 10%
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Challenges of the Sri Lanka’s Petroleum Industry
• Petroleum product prices: increasing trend• Short term demand: price inelastic• Current scenario:- Weaker demand in EU
- Supply side uncertainties
- Additional supplies
- Downward stock adjustment
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US
$/B
bl
Brent Crude Oil Prices 1997 - 2012
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Challenges of the Sri Lanka’s Petroleum Industry
Sri Lanka’s Petroleum Industry• Import dependent petroleum consumer• Prior to nationalization: oligopoly of imports/distribution• 1961 - creation of state monopoly• 2003 - end of state monopoly and creation of duopoly (CPC
and LIOC)• Island-wide presence• Many players in several petroleum product markets:
bunkering, lubricants• Case for regulating the market: products quality, services
quality maintenance and enforcement • Employment 600-700 (1970s); now 6000-7000
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Challenges of the Sri Lanka’s Petroleum Industry
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Period Products Market
structure
Market players
Prior to 1961 All products Oligopoly Caltex, Mobil, Shell
1961-2003 All products Monopoly CPC
2003 to date Petrol, diesel,
kerosene, bitumen
Duopoly CPC, LIOC
Market Structure of Petroleum Product Distribution
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Challenges of the Sri Lanka’s Petroleum Industry
• PG was a private monopoly, nationalized and again privatized
• Presently a duopoly market - Litro (govt.); Lauhfs
(private)
• Both are import dependent to a larger extent
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49%
10%
31%
10%
2000
55%
6%
33%
6%
2010
Transport
Industrial
Power Generation
Other
Petroleum Products Consumption by Sector
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Challenges of the Sri Lanka’s Petroleum Industry
Demand, Supply and Challenges• Importer of refined products: beginning till late 1960s • Only refinery commissioned in 1969• Refinery met the country requirement in total for about a
decade• Since then a larger part of key products/total demand for
kerosene from the refinery• Currently about third of the country requirements met from the
refinery
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Challenges of the Sri Lanka’s Petroleum Industry
• Rising domestic demand: petrol, diesel, fuel oil• Fuel oil demand: depends on the rain- inverse
relationship• Declining demand: kerosene
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YearGrowth Rate (%)
Petrol Diesel Kerosene Fuel Oil
1990 - - - -
1995 -8.34 57.81 12.41 8.65
2000 32.49 79.46 5.03 26.04
2001 7.07 2.64 -3.67 -0.68
2002 21.13 0.73 11.05 9.91
2003 10.85 -6.46 -27.52 -14.76
2004 12.52 21.43 28.38 -0.71
2005 27.54 19.39 -6.71 68.68
2006 -5.78 4.19 -3.23 -13.81
2007 16.29 4.05 -34.91 -10.11
2008 4.75 -9.59 -5.93 0.68
2009 0.05 -1.65 9.2 16.33
2010 18.21 4.21 -23.56 -6.842011 15.47 15.99 0.13 9.14
Growth Rates of Refined Petroleum Products
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1985
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0
200
400
600
800
1,000
1,200
Year
Volu
me /
MT
1985
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Year
Valu
e/
Rs.
Million
Furnace Oil Annual Sales Volume (MT)
Furnace Oil Annual Sales Value (Rs/Mn)
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Challenges of the Sri Lanka’s Petroleum Industry
• Rapidly rising overall demand• Petroleum accounts for 24% of import bill and 45% of exports
(2011)• Demand doubled during last three years (in value terms)• More on refined products• More resources required for imports in absolute and relative
terms in the future
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1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 20110
1000
2000
3000
4000
5000
6000
Country’s Demand for Petroleum ProductsV
alu
e (
US
$/M
n)
Year
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1980
1985
1990
1995
2000
2005
2006
2007
2008
2009
2010
2011
0
5
10
15
20
25
30
35
40
45
50
Country's Demand – Relative Signif-icance -
% of Exports & Imports
% of Exports
% of Imports
Perc
enta
ge o
f Export
s &
Im
port
s
Year
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Challenges of the Sri Lanka’s Petroleum Industry
• Sri Lanka: price taker, import quantity being very small
• Periodic price revisions from 2005: upward/downward
- international price trends
- subsidy levels for each product
- CPC’s financial status etc.
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19
70
19
74
19
79
19
85
19
90
19
95
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
0
20
40
60
80
100
120
1.6
11.6
18.9
28.523.6
17.4
28.328.7
25.129.3
37.4
51.9
65.1
72
97.6
62.6
79.3
110
Crude Oil Imports - Unit Price Movements
C&F Price US$/bbl
Year
C &
F P
rice (
US
$/ B
bl)
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International Market Prices and Government Subsidy
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Import Prices Vs. Domestic Market Prices
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Challenges of the Sri Lanka’s Petroleum Industry
• State control in pricing during the monopoly era
• Price revision by LIOC on its own or LIOC can follow the government program of revision
• As the largest share of market is with CPC, major price changes by the competitor becomes ineffective
2011 Petrol 80%
Diesel 95%
Kerosene 100%
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Challenges of the Sri Lanka’s Petroleum Industry
• Increased power supplies to be met from oil based electricity
generation : 2010 - Gwh 10714 of which thermal: 46.7%
2011 - Gwh 11528 of which thermal: 49.9%
• Fuel oil is also subsidized, affecting CPC financial status
• Electricity consumption is subsidized and also regulated
(average unit cost: Rs 15.59 against selling price of Rs. 13.22)
• Stable electricity supply
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2006 2007 2008 2009 2010 20110
2000
4000
6000
8000
10000
12000
14000
51%60% 58% 60%
47%50%
49%40% 42% 40% 53%
50%
Other
Thermal
Year
Ele
ctr
icit
y G
en
era
tion
/GW
h
Year Thermal Other2006 4751 46382007 5865 39502008 5763 41382009 5975 39082010 4994 57202011 5748 5781
Electricity Generation / Gwh
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Challenges of the Sri Lanka’s Petroleum Industry
• Refinery provided: entire requirement in 1970s
• 1990s: about one half met from refinery
• 2010: about 35 met from the refinery
• Increasing demand met from imported refined products
(on expenditure basis)
• Change due to: fixed processing capacity and increased
demand
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Product 1990 2000 2010
Refinery Output 91.5 55 35
Imported Refined Petroleum Products
8.5 45 65
Crude Oil & Refined Petroleum Product Import Ratio
Perc
en
tag
e (
%)
Year
8.5%
91.5%
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Challenges of the Sri Lanka’s Petroleum Industry
Refinery’s technological limitations:
- built in 1960s
- can accommodate limited crude types
- low yield and value addition
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Challenges of the Sri Lanka’s Petroleum Industry
• Current tension in the Middle East/supply uncertainties
gulf region: 20% of global petroleum exports
30% LNG exports
• Diversification of sources of supply
- crude oil (technological issues)
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Thank You
28