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Indian Petroleum Industy: An Update

http://industrytracker.wordpress.com/2011/05/05/indian-petroleum-industy-an-update/
May 5, 2011Sonal ThakurLeave a commentGo to comments

Prices of petrol and diesel in India are likely to rise by Rs 5 per litre. Given the high inflation and rising costs of commodities, profits of companies in India are expected to be adversely affected.The latest figures released by the Petroleum Planning and Analysis Cell (PPAC) show that demand for petroleum products rose by 4.4% (yearon-year) to 144.35 million tonnes during the financial year 2010-11. Currently, India has a petroleum refining capacity of 144.35 million tonnes per annum. This is expected to rise to 240 million tonnes by September 2012. Following are the major projects that are likely to get commissioned in the next 1218 months:

Bharat Oman Refineries Bina refinery project was initially scheduled for commissioning in April 2011, no updates are available on completion till date. However, it is sure to get commissioned in FY 2011-12. The refinery will have an annual refining capacity of 60 lakh tonnes. HPCL-Mittal Energy will commission its Guru Gobind Singh refinery project at Bhatinda in Punjab by September 2011. This is a joint venture company between Hindustan Petroleum and Mittal Energy Investments. On completion, the project will add capacity of 90 lakh tonnes. Essar Oil is expected to complete its Vadinar Oil refinery phase-I project by July 2011. This will enhance its existing capacity of 105 lakh tones per annum to 180 lakh tonnes per annum. The company has also announced its plans to add another 20 lakh tonnes per annum in phase-II and take the total capacity to 200 lakh tonnes per annum by September 2012. IOCL is expected to commission its green field Paradip refinery by mid-2012. The project will add a refinery capacity of 150 lakh tonnes per annum. (Source: CMIE) Currently, Indias total demand for the petroleum products is pegged at around 140 MTPA. This creates a spare capacity of 48 million tonnes per annum at the refineries. Post capacity addition, the country would have an excess petroleum refining capacity of around 90 million tonnes per annum in next 12 to 18 months. This excess capacity is believed to boost exports of petroleum products from India.

Consumption of Petroleum Products (million tonnes)

201011 LPG Motor Spirit (Petrol) Naphtha Aviation Turbine Fuel Superior Kerosene High Speed Diesel Light Diesel Oil Lubes Furnace Oil / LSHS Bitumen Others Total 14.4 14.4 11.5 5.1 8.9 60.4 0.4 2.6 11.4 4.7 10.7 144.4

200910 13.1 12.8 10.1 4.6 9.3 56.2 0.5 2.5 11.6 4.9 11.9 137.8

% Yo-Y growth 9.6% 12.1% 13.9% 9.1% -3.8% 7.3% -6.0% 0.8% -1.7% -6.0% 11.1% 4.8%

While domestic demand for petroleum products is rising at a healthy pace, sale of essential petroleum products at government determined prices which are way below market prices, results in under-recoveries for the public sector petroleum companies. These essential products include diesel, kerosene (under PDS) and LPG (for domestic use). The three public sector oil marketing companies are Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation. Crude oil is the main raw material used by the petroleum industry. A surge in crude oil prices leads to higher costs for the refineries. Given that average price of Indian basket of crude oil has risen to $121.9 per barrel (FOB basis), the Petroleum

Ministry has released the product-wise under-recovery for the oil marketing companies in India.

Product-wise Under-recovery of Public Sector Oil Marketing Companies Product Unit Underrecovery (effective May 01, 2011) 16.17 28.28 329.73

Diesel PDS Kerosene* Domestic LPG*

Rs/litre Rs/litre Rs/cylinder

*Additionally, a subsidy of `0.82/litre on PDS Kerosene & `22.58/Cylinder on Domestic LPG is provided by the Government. Source: Petroleum Ministry
OMCs are currently incurring daily under-recovery of Rs 495 crore on the sale of diesel, PDS kerosene and domestic LPG. Assuming Rs 500 crore daily, the underrecoveries for the financial year 2011-12 can be estimated at Rs1.8 lakh crore. The revenue loss, termed as under-recovery by oil firms, will be the highest ever, even more than what they lost in FY09 when crude touched a record high of US US $147 a barrel. In addition, OMCs lose about Rs7.50 per litre on petrol, whose rates although decontrolled have not moved in line with the imported costs because the companies need to seek an approval before raising rates. During the financial year ended March 2011, the three OMCs lost Rs 78,202 crore, however, so far the government has provided only Rs 20,911 crore in compensation. The oil marketing firms lost Rs 2,227 crore on selling petrol below imported cost during April-June 2010, before its price was freed from the government control. Loss on sale of diesel was Rs 34,384 crore, Rs 19,566 crore was on sale of PDS kerosene and Rs 22,025 crore on sale of domestic LPG.

Retail Price of Petrol (Rs per litre) Delhi Sep 16, 2010 51.9 Mumbai 56.3 Chennai 56 Kolkata 55.7

Oct 16, 2010 Nov 9, 2010 Dec 15, 2010 Jan 16, 2011 Feb 1, 2011

52.6

57

57.1

56.4

52.9

57.3

57.4

56.8

55.9

60.5

60.6

59.9

58.4

63.1

63.4

59.9

58.4

63.1

63.4

62.5

The public sector oil marketing companies are estimated to register a fall in profits, given the current crude oil prices. Given the high crude oil prices and rising prices of other commodities, production costs for the Indian companies are estimated to rise at a rapid pace compared to the previous year. If the end product prices are do not increase in tandem with rising raw material costs, profitability of the companies may get adversely impacted.