Energy Scenario - Oil Gas_Rev1

7/31/2019 Energy Scenario - Oil Gas_Rev1

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Group Members :

Arjyama Choudhury 12EM03

Mahendra Kumar 12EM06

Manas Joshi 12EM07

Shourabh Roy 12EM12

Surobhi Deb 12EM14

Energy Scenario in India Our

Perspective on Oil & Gas Sector


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Energy Scenario in India - Our Perspective of Oil & Gas Sector

Part 1. Current Energy Scenario in India

Part 2. Challenges faced by Oil and Gas sector in India

Part 3. Benchmarking StudiesMarket study of Asian countries

Part 4. Price Instability

Part 5. Government Intervention

Part 6. Summary and RecommendationTo be finalized


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REFERENCES :

1. http:// petroleum.nic.in2. http:// in.reuters.com3. http://moneycontrol.com4. http://cleantechnica.com5. Union Budget 20126. http://indiatoday.intoday.in7. http://iimc-finclub.com8. http://www.mospi.gov.in9. http://www.team-bhp.com/forum/indian-car-scene/121005-petrol-prices-hiked-rupees-7-50-

effective-midnight-may-23rd-2012-a-13.html

10.Energy Statistics 2012 19th Issue11.India Energy Book 2012 by World Energy Council12.

http://en.wikipedia.org/wiki/List_of_countries_by_oil_production

Tables & Figures.

1 Fig 1.1 Estimated Reserve of Natural Gas in India2 Table 1.1 Consumption Summary3 Fig 2.1 Estimated Reserves of Crude Oil in India4 Fig 2.2 Consumption of Petroleum Products5 Fig 2.3 Mass consumption pattern6 Fig2.4 Change in percentage consumption7 Fig 2.5 Production of Petroleum Products8 Fig 2.6Country wise import of crude oil9 Fig 3.1 Petrol prices country wise10 Fig3.2 List of oil trading nations(production vs export)11 Fig 3.3 Net exports vs Production
http://moneycontrol.com/http://cleantechnica.com/http://indiatoday.intoday.in/http://iimc-finclub.com/http://www.mospi.gov.in/http://www.team-bhp.com/forum/indian-car-scene/121005-petrol-prices-hiked-rupees-7-50-effective-midnight-may-23rd-2012-a-13.htmlhttp://www.team-bhp.com/forum/indian-car-scene/121005-petrol-prices-hiked-rupees-7-50-effective-midnight-may-23rd-2012-a-13.htmlhttp://www.team-bhp.com/forum/indian-car-scene/121005-petrol-prices-hiked-rupees-7-50-effective-midnight-may-23rd-2012-a-13.htmlhttp://www.team-bhp.com/forum/indian-car-scene/121005-petrol-prices-hiked-rupees-7-50-effective-midnight-may-23rd-2012-a-13.htmlhttp://www.team-bhp.com/forum/indian-car-scene/121005-petrol-prices-hiked-rupees-7-50-effective-midnight-may-23rd-2012-a-13.htmlhttp://www.mospi.gov.in/http://iimc-finclub.com/http://indiatoday.intoday.in/http://cleantechnica.com/http://moneycontrol.com/


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12 Table 3.1 World-wide production of petroleum13 12Fig 4.1 Production vs Price & Demand.14 Table 4.1 Components of Petrol15 Fig. 4.2 Components of Petrol16 Fig 4.3 Petrol price in India, year wise17 Table 5.1: Positive impact of the price recoveries on the PSUs post deregulation18 Figure 5.1(a, b, c) (Current Market Analysis)


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Part 1.

CURRENT ENERGY SCENARIO IN INDIA(OIL & GAS SECTOR)

1. INDIAN NATURAL GAS SECTOR1.1NATURAL GAS RESERVES

The central feature of the petroleum and natural gas sector is that domestic availability of oil

resources is limited and rapid economic growth means that demand will rise rapidly. Indias

import dependence has, therefore, been rising and is currently 78 per cent for oil. This is

bound to increase in the future unless there is some unexpected domestic oil discovery.

Fig 1.1 Estimated Reserve of Natural Gas in India


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1.2CONSUMPTION SUMMARY

Table 1.1 Consumption Summary

1.3NATURAL GAS EXPORTS AND IMPORTS

India imports gas from the world's top five countries in terms of proven gas reserves, viz. Iran,Qatar, Saudi Arabia and Abu Dhabi.

India produces 49 BCM of gas from domestic sources and imports 12 BCM through 2 LNG

terminals- Dahej and hazira in Gujarat .


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2, INDIAN OIL SECTOR

India is the 4rth largest importer of oil and the 5th largest refining country in the world,

accounting for 4% of the worlds refining capacity.

The estimated reserves of crude oil in India are around 757 million tonnes (MT). Geographical

distribution of Crude oil indicates that the maximum reserves are in the Western Offshore

(43%) followed by Assam (22%).

2.1 OIL RESERVES

The estimated reserves of crude oil in India are around 757 million tonnes (MT). Oil accountsfor about 30 per cent of Indias total energy consumption. The countrys total oil consumption

is about 4 million barrels of oil per day.

Fig 2.1 Estimated Reserves of Crude Oil in India


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2.2 CONSUMPTION OF PETROLEUM PRODUCTS

Fig 2.2 Consumption of Petroleum Products

Fig 2.3 Mass consumption pattern

0

50

100

150

200

250

Crude Oil

(Million Tonnes)

Natural Gas

(Billion Cubic Meter)


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2.4

Fig2.4 Change in percentage consumption

2.5 PRODUCTION OF PETROLEUM PRODUCTS

Fig 2.5 Production of Petroleum Products

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Crude Oil

(%)

Natural Gas

(%)

CHANGE IN THE PERCENTAGE CONSUMPTION PATTERN OF NATURAL GAS AND OIL IN INDIA

LPG, 4% Others, 8%

Bitumen, 2%

Petroleum Coke,

2%

Fuel Oil, 11%

High Speed

Diesel Oil, 41%

Aviatio

n

Turbine

Fuel,

5%

kerosene

, 4%

Naphtha, 9%

Motor Gasoline,

14% LPG

Others

Bitumen

Petroleum Coke

Fuel Oil

High Speed Diesel Oil

Aviation Turbine Fuel

kerosene

Naphtha

Motor Gasoline


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Total production = 196 Million Tonne

2.6 IMPORT OF CRUDE OIL

India imports more than 70% of its oil needs from several different countries with Saudi

Arabia and Iran topping the list.

\

Fig 2.6Country wise import of crude oil

Others, 14%Yemen, 3%

Malaysia, 4%

UAE, 9%

Kuwait, 9%

Iraq, 10%Nigeria,

11%

Iran, 17%

soudi Arabia, 23%

Others

Yemen

Malaysia

UAE

Kuwait

Iraq

Nigeria

Iran

soudi Arabia


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Part 2

CHALLENGES FACED BY OIL AND GAS INDUSTRY IN INDIA

Addressing sustainability issues:

A key challenge for energy companies is how to develop business strategies and practical

implementation plans to enhance economic performance, while demonstrating the highest

standards of environmental stewardship and socially responsible performance. Sustainability,

then, is performance measured in the triple bottom line dimensions of economic,

environmental and social factors. Social license to operate and the purchasing decisions of

customers are increasingly influenced by demonstrated environmental and social

responsibility.

Effective focus on sustainable business solutions addresses and manages business risks and

corporate citizenship challenges and strengthens trust and credibility in the marketplace.

Many energy companies are successfully integrating sustainability into their overall strategies

by engaging all stakeholders, developing robust performance indicators, voluntarily preparing

sustainability, corporate social responsibility, and environmental reports, and, in some cases,

providing independent verification of these reports to increase the transparency of their

disclosures.

Complying with regulatory & reporting requirements:

The regulatory and reporting landscape is particularly complex for oil and gas companies. Not

only do they have to conduct operations in a variety of regulatory and tax regimes but theyalso have big upfront investment needs, which often go hand in hand with great uncertainty

about long-term outcomes. The geopolitical, environmental, energy and natural resource

supply and trading environment, combined with often complex stakeholder and business

relationships, adds to the complexities oil and gas companies face.
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Improving performance and operational effectiveness:

As a mature industry, oil and gas companies must achieve enhanced profitability, in large

part, through best in class performance and disciplined cost control as market demand for

their products is strong, but not without fluctuation. Many commodity price levels are high

today, but management teams know that commodity price levels are cyclical. In the face offluctuating demand and cyclical pricing, operating an efficient and streamlined business, as

well as squeezing costs, is critical. Aging infrastructure needs to be upgraded or replaced.

Compliance costs for environmental remediation and enhanced safety standards have trimmed

already thin margins. Achieving internal efficiencies ahead of the competition is a key

challenge. Investing in medium and longer term process improvements and cost control

measures while product demand is strong and prices are high makes good business sense.

Industry transactions :

The scale of todays oil and gas organizations dwarfs that of many other industries. The size

and scale of the industry will continue to grow to meet the ever-increasing demand for

energy.. To feed the increasing demand for affordable and reliable access to sources , it

requires greater capital, larger workforces, better technology, and effective risk management.

While sustaining growth, oil and gas companies must also maintain the highest standards of

environmental stewardship . Organizations have begun to expand beyond their national

boundaries to compete for resources and end markets. Managing these global operations,

across borders and product lines, involves carefully balancing enterprise risks with financial

goals.

Managing financial risk:

Extractive and power companies are cyclical businesses driven by commodity price

fluctuations. Highly publicised business failures are requiring companies in this sector to

establish and strengthen financial, trading and risk management capabilities. Methods for

measuring market and credit risk must better reflect a company's business portfolio, as these

companies are significant investors, borrowers or users of derivatives.

External oversight bodies are requiring more rigorous financial disclosure and demonstration

of robust corporate governance policies and practices. Executives face increasinglysophisticated cash management solutions driven by technology and opening markets, as well

as complex tax and funding structures requiring careful management of cash flow within the

company.

There is increasing pressure on financial officers to demonstrate that risk identification and

financial management are grounded in timely, accurate forecast and performance data on
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which top management can base strategic decisions. Review of existing financial and risk

reporting and mapping of financial systems and data within both the finance and treasury

functions can identify opportunities for process automation and synergies, encourage

consistency of data and identify areas for control enhancements.

Managing geopolitical risk:

Political risk relates to the preferences of political leaders, parties, and factions, as well as

their capacity to execute their stated policies when confronted with internal and external

challenges. Changes in the regulatory environment, local attitudes to corporate governance,

reaction to international competition, labour laws, and withholding and other taxes, to name

but a few, may all be influenced by hard to discern shifts in the political landscape.

For global energy companies, effectively managing geopolitical risk is a strategic imperative.

Cross border expansion to fuel corporate growth is commonplace, not only for exploration

and production activities, but also for transportation, marketing and refining operations. In

some cases, oil and gas reserves are located in troubled or developing markets where

considerable cultural, infrastructure, security or technology challenges must be met. At the

same time, population growth, especially in Asia, is creating new demand for fossil fuels.

Sufficient supply must be in place with supporting infrastructure and distribution to meet

these high growth markets.

Markets of particular interest to energy companies seeking to resolve supply challenges or

grow their stake today are Russia, the countries of the former Soviet Union, much of North

and West Africa, as well as parts of Central and South America. Emerging centers of high

demand include China and India. According to the Energy Information Agency, energy

demand in these emerging economies of developing Asia is projected to more than double

over the next quarter century.

Recruiting and retaining a skilled workforce:

Recruiting strategies and the ability to retain employees in oil and gas companies is more

important now than ever. With growing demand for energy, companies need greater

production and a larger workforce. Developing human resource strategies that help attract

new recruits, as well as retain the experienced workforce and their knowledge and skills, is

imperative to the future of the industry.
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Securing the supply :

The suppliers of oil and gas aim to provide reliable and affordable supply of energy needed to

grow the global economy, and to do so without harming the environment. Traditionally, fossilfuels have provided the largest source of reliable energy, with oil and gas comprising more

than half of the worlds supply. Under debate now is whether the supply of fossil fuels has

peaked, and if so, which energy sources will fill the supply/demand gap.

Certainly oil and gas reserves are becoming more difficult and more expensive to find and

exploit. Frontier markets and deep water sources hold the most promise for discovering

substantial reserves. These locations also present considerable risks for exploration and

development operations, ranging from economic, social and political instability to geological

challenges.

Downstream operations have a different set of challenges. New refining capacity is needed,

particularly in emerging markets, while many existing refineries are overdue for upgrades.

Yet communities make it difficult, if not impossible to locate new refineries. Refinery

upgrades and expansions are very costly.

In the midstream sector, pipeline integrity is an ongoing concern. Aging infrastructure,

sabotage, and environmental conditions all can threaten the supply of oil or gas pouring

through miles of pipeline. The midstream sector is also finding it more difficult to locate new

pipeline; there are environmental and social concerns blocking new developments or

expansions.

Given the global context of Indian Oil and Gas companies in todays scenario , its imperative

that they strive to meet the above challenges for a sustainable future ahead ,
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Part 3

BENCHMARKING STUDIESMARKET STUDY

DEMAND WISE

China

The latest apparent demand figures for China, (net product imports plus refinery output),

show a slight uptick in demand growth following the low figures witnessed at the turn of the

year. Estimates for 1Q12 demand point towards total product consumption of 9.9 mb/d, 3.4%

(or 330 kb/d) higher than a year earlier after a relatively flat 4Q11 (up 0.3% yoy). Chinese

demand growth remains muted in comparison to the doubledigit percentage point gains seen

at the beginning of 2011, with the most obvious decelerations seen in the industrially

important gasoil and naphtha markets. Having risen by as much as 11.1% yoy in 1Q11,

gasoil demand growth fell back to 2.8% in 1Q12 (to 3.4 mb/d) as manufacturing activity

slowed. HSBCs PMI has endured six consecutive months of sub50 readings through April,

implying contracting sentiment in the manufacturing sector, albeit at a lesser degree (as the

index has risen to 49.3 in April, from 48.3 in March). Naphtha consumption growth similarly

fell, from 10.2% in 1Q11 to 0.8% in 1Q12 (to 1.2 mb/d), as demand from the previously

buoyant petrochemical sector waned.

Brazil

Gasoline fundamentals remained tight in Brazilamid firm demand, low supply of ethanol and

high gasoline prices. Even though total gasoline consumption (including ethanol) grew by2.5% yoy in February, the share of ethanol (by volume) remained at a low 38% of the total

gasoline pool. The latter is on the back of low stocks of ethanol during the inter harvest period

and historically poor investment in the sector. Going forward, the long awaited 2012

sugarcane harvest in Brazil started with weather related delays reducing output. However, the

Sugarcane Industrial Union of Brazil (UNICA) said that laboratory tests on cane samples

showed recoverable sugar content was 1015% higher than last year. Also the industry union


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informed that around two thirds of the crushed cane was channeled to ethanol production due

to price signals that favour the motor fuel over refining sugar. Effectively, the start of the

season in late April brought a respite to ethanol consumers and helped tame the price of

blended motor gasoline, highly demanded by flexfuel vehicles. The economy is showing

signs of slowing down, as sales of passenger vehicles and light commercials in Brazil came in

flat during 1Q12 versus last year, while gasoline imports during the same period retraced

slightly from the historically high level observed in December. In 2012, Brazilian total

products demand is expected to be 2.8 mb/d, a yearoveryear increase of 1.2%.

India

Preliminary estimates of Indian demand in March point towards a 5.1% yoy gain to 3.7

mb/d. Gasoil demand continues to show the strongest significant growth, as consumption rose

by an estimated 10.3%yoy to 1.5 mb/d, supported by particularly strong growth from the

automotive and power sectors. Subsidies on diesel consumption continue to distort demand

trends in relation to fuel oil and gasoline, which are sold at market prices. Indian demand is

forecast to rise by 3.4% in 2012, to 3.6 mb/d, as consumption expands supported by an

economy forecast to grow by just under 7%.

Russia

Russian demand continues to surge thus far in 2012, with the second month of

neardoubledigit percentage growth yoy seen in March, taking total demand to 3.5 mb/d.

The preliminary March estimate is 215 kb/d up on last months forecast as strong growth in

February proved to be more than a temporary aberration. Transportation fuels led the upside,

with gasoline demand 12.4% higher at 750 kb/d and jetkerosene up 9.9% at 250 kb/d. The

Russian demand forecast has been significantly revised higher in recent months to reflect not

just the recent flow of more bullish demand data, but also what now looks a stronger

structural trend. Russian consumption is now forecast to average 3.6 mb/d in 2012, a 3.4%

gain on 2011, whereas last year we were assuming a relatively flat 1% trajectory for 2012.

Japan

Japan, with preliminary consumption of 8.4 mb/d in March, 335 kb/d (4.2%) more than the

corresponding month in 2011. Heavy fuel oil and other products, which include crude oil for

direct burn, continue to dominate growth prospects, as they are the key replacement fuels in

the power sector shorn of nuclear capacity. Here, respective yoy expansions of 16.2% and

25.9% are forecast.


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In March, according to preliminary data, Japaneseoil product deliveries posted their largest

yoy increase (9.9%) in nine years (albeit distorted by very low demand in March 2011 on

account of the tsunami). Demand grew across all product categories, bar naphtha and

jet/kerosene, notably residual fuel oil and other products, which include direct crude burn,

rose by 41.6% and 32.5% respectively, on the back of strong electricity generation.

Japanese economic activity drove total electricity generation in March to 81.9 TWh an

increase of 1.3% yearoveryear and in line with the fiveyear average. Total thermal

generation during 1Q12 rose to a record high of 186 TWh or 73% of total generation. Strong

electricity consumption certainly boosted oil product demand but economic activity in general

also gave support to LPG (+24.7%), diesel (3.2%) and gasoline (2.8%). Our 2012 demand

outlook for Japan thus remains unchanged for now at 4.5 mb/d,

In the year 2008-2009 Hindustan petroleum company had a net profit of Rs: 574.5 crores,

similarly in 2009-10 Indian oil had a profit of Rs: 5556.77 crores and Bharat petroleum had aprofit of Rs; 5015.5 crores. If these companies had incurred a loss, then where from, they got

this profit?

IOC, gifted their current employees and retired employees gold coins. So then, how can a

company that is projected to suffer losses of several crores per day give such large gifts?

The government is just putting this picture of loss. Its true that these 4 products, namely

petrol, diesel, kerosene and LPG are given on subsidy and the company does suffer a loss on

them. But these companies produce other products and by products of the refining process

such benzene and toluene etc, which makes huge profits for them. Hence, the company on the

overall is not at a loss but make profits.

Moreover, the governements taxes on fuel accounts for more than 50% of the cost. The

government is making a fool of all of us. market crude oil is not the reason for this. Its all

gain for Indian Government and private oil companies

Petrol prices in other countries :


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Fig 3.1 Petrol prices country wise

PRODUCTION VS EXPORT

Fig3.2 List of oil trading nations(production vs export)


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Fig 3.3 Net exports vs Production

WORLD WIDE PRODUCTION & CONTRIBUTION.

Country Production (bbl/day) Share of World % Date of

Information

1 Russia 10,540,000[3]

12.01% 20112 Bangladesh 5,733 0.01% 2009

3 Brazil 2,572,000 3.05% 2009

4 China 3,991,000 4.56% 2009

5 Germany 156,800 0.19% 2009

6 India 878,700 1.04% 2009

7 Iran 4,172,000 4.77% 2009

8 Iraq 2,399,000 2.85% 2009

9 Japan 132,700 0.16% 2009

10 U. K. 1,502,000 1.78% 200911 Kuwait 2,494,000 2.96% 2009

12 Pakistan 59,140 0.07% 2009

Table 3.1 World-wide production of petroleum
http://en.wikipedia.org/wiki/Barrel_%28unit%29http://en.wikipedia.org/wiki/Barrel_%28unit%29http://en.wikipedia.org/wiki/Barrel_%28unit%29http://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/List_of_countries_by_oil_production#cite_note-autogenerated1-2http://en.wikipedia.org/wiki/List_of_countries_by_oil_production#cite_note-autogenerated1-2http://en.wikipedia.org/wiki/List_of_countries_by_oil_production#cite_note-autogenerated1-2http://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Iranhttp://en.wikipedia.org/wiki/Iranhttp://en.wikipedia.org/wiki/Iraqhttp://en.wikipedia.org/wiki/Iraqhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Kuwaithttp://en.wikipedia.org/wiki/Kuwaithttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Kuwaithttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Iraqhttp://en.wikipedia.org/wiki/Iranhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/List_of_countries_by_oil_production#cite_note-autogenerated1-2http://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Barrel_%28unit%29


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Part 4

PRICE INSTABILITY

Production and Consumption of Petrol in India


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Fig 4.1 Production vs Price & Demand.

The above data and the graphs shows the relation of petrol price and the production and

consumption of petrol in India. Through the graphs we can see that the oil demand and supply

do not follow the law of demand which states that keeping all other parameters constant, if

the price of a product increases, the quantity demanded would be reduced.

As oil-dependent countries' economies and population increased, oil demands will alsoincrease, and therefore, more pipelines should be built to meet these demands. Oil price is

soaring because the demands of oil keep on increasing, as the finite supply of oil is

decreasing, so as a long term effect, oil price will increase.

Components of Petrol Price in India


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Table 4.1 Components of Petrol

Fig. 4.2 Components of Petrol

The above table gives us the petrol price break up in India. As we see from that a part is the

basic price which is dependent on the crude price. The others are a percentage of this base

price. So the overall price of petrol changes as there is a change in the crude price.

From the above Pie chart we find that around 41% of the petrol price is based on the

government taxes and excise duties that are levied on a liter of petrol.

Petrol Price in India since 2002


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Fig 4.3 Petrol price in India, year wise

Part 5


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GOVERNMENT INTERVENTION

GOVERNMENT INTERVENTION-DEMERITS AND NEED FOR DEREGULATION:

In the scope of the present context, we can define government intervention as setting up

certain rules and regulations to curb the oil price. Due to the governments intervention, the

oil and gas prices remained low for the past several years. So while the companies imported

oil at international prices the government maintained lower domestic prices in order to shield

the people from inflation; therefore all the state-owned companies operated in heavy losses

for several years. Globally, in most places like US & UK, the fuel prices are unregulated. In

U.S for example, prices at gas stations change on daily basis depending in the Global market

rate. The global fuel market is quite volatile and price fluctuations depend on global

circumstances and demand. Now, under the regulated market what Indian Government used

to do is if the fuel prices are higher, they still kept it at lower rate by chipping in the difference

and making up for it when the fuel prices are lower. India relies on imports for more than 75percent of its energy needs. Hence the Indian government set retail prices of petrol, diesel,

cooking gas and kerosene to help control inflation and protect consumers from sharp

fluctuations in global energy prices. The price-setting policy affects earnings of Oil Marketing

Companies (OMCs) such as BPCL, HPCL and Indian Oil which were forced to sell fuel at

below the prevailing market rates, for which the government provided certain subsidies to

such companies to compensate the sale of fuel at cheaper rates. Meanwhile, upstream

companies such as ONGC, Oil India and GAIL used to bear the under-recoveries of oil

marketing companies on the sale of petrol and diesel. The under-recoveries on kerosene and

LPG were supposed to be compensated by the government. These under-recoveries were in

the hundreds of crores each day. Following this, on June 25, 2010 decision was taken to de-

regulate Petrol only while diesel prices were set to go the same way, with minor increase in

the prices of kerosene and LPG.

THE POSITIVE FACTORS IMPACTING DE-REGULATION:

The governments decision to deregulate oil price was an effort to set the direction for this

industry, while managing its public face and inflationary concerns. The decision was taken by

the Oil Companies suffering huge losses and it was important to be done from macro -

economic perspective . Fiscal Deficit was very high at that time and one of the primaryreasons wasregulated fuel priceswhich was expected to put a burden of 70,000 to 80,000

crore rupees in that fiscal alone. The key benefit that the marketing companies got from the

oil price de-regulation was that their cash flows improved and thus they were able to reduce

their borrowing. This, in turn, greatly reduced their interest burden and improved net profit.

Table 1 below serves to highlight the positive impact of the price revision to the under

recoveries of the PSUs.


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Table 5.1: Positive impact of the price recoveries on the PSUs post deregulation

CURRENT MARKET SCENERIO ANALYSIS ( 2 YEARS POST DEREGULATION):

The graphs below show the recent figures (as on May, 2012), regarding the fluctuation in

crude prices, the trend of rupee to all time low against the dollar and the resulting hike in

petrol price. From the above graphs, we can interpret the current market economy 2 years post

deregulation. Today, it is becoming difficult to control the hike in the petrol prices (73.18)

due to the trend of rupee to all time low against the dollar (56.22) leading to the Oil Marketing

companies make a substantial hike in the petrol price. The irony of the hour is that this

situation cannot be controlled inspite of the crude prices reaching a low point (90.22). The

hike in petrol price is 42.3 % increase in hike since June 26, 2010 following deregulation.

Hence, this flawed policy measure to correct the imbalance in the under recoveries of the oil

marketing companies is acting a travesty because it has widened the differential between

diesel and petrol.The sinking of the rupee to all-time low against the dollar is worrying the

investors who continue to fret about the yawning current account and fiscal deficits in India,

which imports 80 per cent of its oil and heavily subsidises fuel products. The quantum of

Indias oil import is substantial at around 160$ billion-170$ billion annually and hence the

Indian economy is highly disturbed by the rising oil import bills and global uncertainities.
http://businesstoday.intoday.in/story/petrol-price-hike-last-12-month-diesel-price-raise-too/1/184814.htmlhttp://businesstoday.intoday.in/story/petrol-price-hike-last-12-month-diesel-price-raise-too/1/184814.htmlhttp://businesstoday.intoday.in/story/rupee-slide-kaushik-basu/1/184809.htmlhttp://businesstoday.intoday.in/story/rupee-slide-kaushik-basu/1/184809.htmlhttp://businesstoday.intoday.in/story/petrol-price-hike-last-12-month-diesel-price-raise-too/1/184814.htmlhttp://businesstoday.intoday.in/story/petrol-price-hike-last-12-month-diesel-price-raise-too/1/184814.html


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Figure 5.1(a, b, c)

(Current Market Analysis)

FUTURE ANALYSIS : WHAT SHOULD THE GOVERNMENT DO NOW?

According to the economists, the hike in petrol price is unlikely to give the significant lift to

the embattled rupee. In the deregulated market, petrol is not a part of the budget and has a

zero fiscal impact which will help only the marketing companies. But however, the

government must intervene in deciding the right price along with the state oil companies

with respect to the fluctuation in crude prices. Also, government should make some substitute

arrangement for the long impending structural problem of oil subsidies in the country, given

the current unplanned nature of subsidy-sharing among the consumers of subsidizing one

consumer segment at the cost of another.


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Governments may need to intervene in the reporting of oil prices to avoid market

manipulation, according to global regulators.The International Organisation of Securities

Commissions (IOSCO) is scrutinising the role played by oil price reporting agencies, in the

wake of worries among the Group of 20 nations over swings in oil prices. The price reporting

agencies (PRAs), play a crucial role in setting benchmark oil prices, which means they have a

large impact on how the markets in oil and related derivatives function. Such is the

importance of oil to the global economy, their activities could have a systemic impact, as

reported by IOSCO. Hence, government should intervene to keep a check in this area as

according to IOSCO, there is a risk that a PRAs benchmark price can be manipulated by the

submission of false prices or by over or understating the volume transacted.

CONCLUSION AND FUTURE RECOMMENDATION:

Though deregulation will end up with reducing the burden of fiscal deficit of the government

and help in long term planning, but government must always keep a tap on the fuel price

increase as compared to the crude price increase. It has been observed that when the crude

price increases, the petrol and diesel price subsequently increases in no time, but the vice-

versa does not necessarily take place as quickly. So government must intervene to decide the

right price along with the state oil companies at this point of time and ensure the right

economic move so that right burdenis transferred to the Aam Aadmi. The government

can also find out if some measures can be taken in reducing the burden on the oil companies,

for example, reducing the oil import duties, etc.

Energy Scenario - Oil Gas_Rev1

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