Friday, May 20, 2005

India Petroleum Update

Refineries for Rajasthan

Rajasthan, home to some of the biggest onshore oil fields in the country, wants to have more refineries in the state, instead of sending the crude to other states for refining. It is planning a bouquet of incentives on this. Cairn Energy meanwhile plans to invest $1.3 bn in its Rajasthan discoveries.

Woe for ONGC...

It was a bad week for ONGC. Following a Petroleum Ministry directive to appoint additional executive directors to the board, ONGC is risking delisting by SEBI. ONGC is the biggest company in India in terms of market capitalization. The easy way out would be to appoint more independent or non-executive directors on the board to maintain the required proportion. Other policies remain violated though.

Meanwhile ONGC will continue to lose Rs 3000 crore every year in underpricing of natural gas sales to fertilizer and power companies - simply because the ministry concerned does not want to raise power tarriffs.

Student protestors in Assam shut down ONGC's operations in the state for a "100 hours bandh". Operations were resumed but only after the 100 hours were up. Fears of another flare-up remain. ONGC is already said to be overstaffed in Assam.

... And some cheer

After First Calgary Petroleum, it is another Canadian company this week. After successfully reaching the second round of bidding, ONGC arm OVL, "has bid $1.4 billion for buying out Canadian firm Encana's stake in a cluster of oilfields in Ecuador". If successful this would be OVL's second largest overseas investment after Sakhalin-I. Encana's Amazon assets have a combined output of 66,891 barrels a day.

Oil Hike Update

The Left wants to target the very high refining margins of refineries, particularly stand-alone refineries, who earn as much as $12 per barrel (consumers of petrol and diesel pay around $100). Other cost saving measures suggested are cutting down on advertising and public displays. In lieu of these suggestions, the Left thinks the price hike (per litre) should be in the range of Rs 1.50 to 2.00, when the oil companies are asking for Rs 4.84/4.52 and the ministry is mulling Rs 2.6/3.75 on petrol/diesel. A final formula might involve the Govt, the oil cos and the consumer sharing the burden.

India International

In volume terms, India's exports of petroleum products went up 25% while imports went up just 5.4%. The devil in the details of course is the stupendous increase in cost of imports, while there was no proportional increase in price of exports. Oil minister Aiyar is pretty upbeatthough on prospects of India becoming a major petro products exporter. "India's crude oil import bill in 2004/05 was 1,170 billion rupees, while earnings from exports amounted to 284 billion rupees". This number does not take into account the increased import of natural gas that has also been responsible for freeing refinery capacity for exports.

The Saudis brought India down to earth by refusing both Indian bids for a stake in Saudi Aramco's Yanbu refinery. Aramco said they were looking at "western partners". India had offered a barter deal via Aramco taking a stake in an Indian PSU refinery. The refusal does not have any major significance except when seen in the context of the recent bonhomie.

Pipeline Politics Update

Pakistan will decide by Dec 31 on its pipeline options. It will choose between Qatar, Iran and Turkmenistan, and wants at least two pipelines. Further Pakistan has, "offered India use of those pipelines to fulfil its gas needs". It would be interesting to observe whether the Pakistani market is deemed big enough to absorb the costs of two rather expensive pipelines. It is also widely believed that India has decent leverage with the Baloch rebels who will then not be restrained if the pipeline does not go all the way to India. Even if the pipeline comes all the way to India apprehensions on commercial viability remain.

Hindi-Chini Oil-Bhai

India's petroleum ministry is finalizing a strategy paper on cooperation between India and China in international oil exploration. Despite the recent bonhomie, here is an article that reiterates why this nature of cooperation is highly unlikely.