27 Feb 2012;business-standard.com:Kalpana Pathak:Mumbai: Late last year, when energy major British Gas’s Indian arm, BG India, announced plans to exit from two of its Indian energy assets, the industry wondered if it was a fullstop to BG’s India plans. BG is selling 65.12 per cent stake in Gujarat Gas Company (GGCL), India’s largest private sector natural gas distribution company in terms of sales volume. Also, British Gas Exploration and Production India (BGEPIL) sold - 25 per cent stake in the Mahanadi deep water block MN-DWN-2002/2; 45 per cent in KG OSN 2004/1 block and a 30 per cent interest in KG 98/4 block — it held in partnership with state-run Oil and Natural Gas Corporation (ONGC). Now, ONGC holds the entire stake in these blocks. Despite these exit decisions, BG says it will continue evaluating expansion opportunities in India. “We believe India is a fast growing and dynamic gas market and we continually evaluate opportunities to expand our business in India,” the company said. Analysts say sale of assets is a natural process of asset rationalisation for a company like BG Group. BG requires $9 billion for its exploration and production businesses in Brazil and Australia. “From a group perspective, these are very small businesses for BG. It is rationalising its global portfolio. Selling stake in Gujarat Gas is part of this process, as it needs money to invest in E&P businesses in other parts of the world. Besides, as a group policy, it has realigned focus on upstream and LNG businesses,” said an analyst tracking BG Group. This month, BG Group, in its annual strategy update alongside fourth quarter and full year 2011 results, said it is planning to release some $5 billion over the next one to two years, with the continuing execution of its portfolio rationalisation programme. BG Group’s chief executive Sir Frank Chapman said: “The outlook for global gas and LNG demand is strong. BG Group is well set to capitalise on these opportunities and is making good progress with delivering its plans.” The company has raised its LNG profit guidance for 2012 by over 30 per cent to between $2.6-$2.8 billion. “Not only is our LNG supply set to exceed our 2015 target of 20 million tonnes per annum (mtpa), but we believe that a BG Group supply portfolio of 30 mtpa by 2020, is now within reach. Our LNG business is set fair with the prospect of excellent profit momentum for many years,” added Chapman. In India, BG, however, may not look at setting up an LNG terminal but only at supplying LNG to domestic players, said a person in know of BG operations. In 2009, BG India Energy Solutions Private Limited (BGIES), a wholly owned subsidiary of BG Group, commenced midstream gas marketing operations in India. It has approval from the Foreign Investment Promotion Board of the government of India to undertake wholesale marketing and distribution of natural gas from domestic sources as well as LNG. More recently, BG Group signed a heads of agreement (HoA) with Gujarat State Petroleum Corporation (GSPC) for the long-term supply of up to 2.5 million tonne per annum of LNG. The HoA sets out the basis on which BG Group will sell LNG to GSPC for up to a 20-year period, beginning 2014. The LNG will be sourced from the Group’s current and future global supply portfolio. On the gas retailing side, BG began its operations in 1995 through Mahanagar Gas Ltd (MGL), a Mumbai-based gas distribution company where BG Group along with GAIL India, holds 49.75 per cent stake with the remaining held by the government of Maharashtra. It later acquired majority stake in GGCL in 1997 for Rs 170 crore. Not only it is not expanding this portfolio, it wants to exit both these operations. Today, by selling its stake in GGCL, it plans to realise Rs 4,500 crore. While rumours are rife that BG would sell its stake in MGL too, analysts say this may happen at a later stage. “MGL has state-run companies as partners, so the process will be more long drawn. Considering GGCL is listed, it is easier to sell one’s stake,” said a Gurgaon-based analyst. Among its exploration and production assets, BG still holds the operatorship of Panna/Mukta and Tapti with 30 per cent stake. ONGC and Reliance Industries hold 40 per cent and 30 per cent, respectively. Analysts say BG sold its stake in three blocks to ONGC as the economics of the block did not fit into its overall plans. “Each company has its threshold and it was not falling in that range for BG. For ONGC the economics is a lot different,” said an analyst.
If you can't stand the LPG limit, build another kitchen
27 Feb 2012;business-standard.com:Ajay Modi:New Delhi: The oil ministry has launched a drive to do so. A household with one kitchen can have only one cooking gas connection irrespective of the number of family members. It can have two connections only if there are two kitchens. For a new connection, consumers are now required to give an undertaking that they will not position any other LPG installation in the same kitchen that also includes a piped gas connection. Following an amendment issued by the ministry of petroleum and natural gas to the LPG marketing rules some months back, gas agencies now seek an undertaking from new consumers as well as those consumers who seek fresh connections against termination to give an undertaking agreeing to various conditions in the form of a notarised affidavit on non-judicial stamp paper. Those having ration cards, however, can give the undertaking on a plain paper. The 10-point one-page undertaking has several conditions, such as neither the applicant nor any other member of his family living in the same house with a common kitchen has any LPG connection from PSU oil companies or a piped gas connection. The consumer is also required to state the connection will be used at the address mentioned in the form and only for domestic cooking. In case the consumer does not abide by the undertakings, the oil company will seize the connection and forfeit the security deposit. There is no recovery drive by the oil companies for households that have single kitchens but multiple connections but oil companies maintain it is illegal and should be surrendered. Government-owned oil marketing companies, IndianOil, Bharat Petroleum and Hindustan Petroleum, which together cater to the entire nation’s demand, currently lose Rs 378 on every domestic cooking gas cylinder. A 14.2-kg LPG cylinder meant for domestic use sells at Rs 399.26 in Delhi compared to Rs 1,349 for a commercial cylinder of 19 kg, which is market-linked. The huge difference provides an incentive for black marketing and diversion towards commercial use. It also leads to indiscriminate use of the cooking fuel.The annual subsidy on domestic LPG is usually in the range of Rs 25,000-30,000 crore. For the nine months of the current year, the gross subsidy on LPG has been Rs 20,516 crore. "Domestic LPG is a highly subsidised product. A household with multiple connections usually does not use it and it gets misused by distributors and diverted by distributors for commercial use. Instead of going for multiple connections, a family should go for a double-bottle connection that allows two cylinders on one connection," said G C Daga, former director (marketing) at IndianOil. A proposal last year to limit the number of subsidised cylinders consumers could get in a year was dropped after opposition from key UPA allies, the DMK and Trinamool Congress. The petroleum ministry had made proposals to cap subsidy to the committee on direct transfer of subsidies headed by Unique Identification Authority Chairman Nandan Nilekani. The ministry wanted to bring an income-based cap on cooking gas so that the subsidy benefit was targeted at economically weaker sections.
US, Saudi manoeuvre to contain Iran oil market threat
26 Feb 2012;business-standard.com:Washington/New York: Saudi Arabia has raised oil exports and the United States is considering releasing crude from its strategic reserves as oil prices hit nine-month highs on Friday and concerns deepened over Iran's nuclear program. Brent crude surged to over $125 a barrel after the United Nation's nuclear watchdog issued a report flagging the potential military nature of Iran's nuclear program, following an aborted UN inspection mission to Iran this week. The report heightened fears of a supply disruption and could stoke worries in Israel, which has threatened Iran with pre-emptive strikes on nuclear sites. That would send shockwaves across the region and almost certainly drive oil prices even higher. Top oil exporter Saudi Arabia increased exports over in the past week and offered additional crude to its biggest customers to tame runaway prices, industry sources told Reuters on Friday. US sanctions on Iran's oil buyers, as well as a European Union oil embargo to begin July 1, have already forced its customers in Europe and Asia to curb purchases from the world's fifth-largest crude exporter. The Saudi move comes as the Obama administration studies tapping crude from the Strategic Petroleum Reserve among possible measures to offset any Iranian supply disruptions, according to sources familiar with the discussions. Treasury Secretary Timothy Geithner told CNBC on Friday there may be a case for using the reserve. "Obviously Iran can do a lot of damage to the global economy," Geithner said. "We are working very carefully to try to minimize that risk." The fear of tightening supplies, including a threat from Tehran to close the Strait of Hormuz -- the main Gulf oil shipping lane -- have lifted oil prices 11 per cent this year, putting political pressure on President Barack Obama, who is running for re-election in November. Prices at the US gasoline pump are the highest on record for February. They hit $3.65 a gallon on Friday, up 13 per cent from last year, according to AAA. That has raised concern that any oil market disturbance could hoist them well over $4.00 during the US summer driving season -- when demand in the world's largest oil consumer tends to be highest.
24 Feb 2012;business-standard.com:New Delhi: The government has sought to increase crude oil inflow from Saudi Arabia by five million tonnes from 27.33 million tonnes, as supplies from Iran is set to decline following US sanctions. “We have sought five million tonnes (mt) of more crude oil from Saudi Arabia in 2012-13,” Minister of State for Petroleum and Natural Gas R P N Singh told reporters after a meeting with Abdul Aziz Bin Salman bin Abdulaziz, Assistant Minister for Petroleum Affairs, Saudi Arabia, here. India also sought more LPG from Saudi Arabia to meet growing energy needs. India imports nearly two mt of LPG from Saudi Arabia. The Saudi minister said his country had spare production capacity of 2.5 million barrels a day, beyond the current output of 9.8 million barrels a day. Singh said he conveyed India’s requirement of incremental quantities of Saudi Arabian oil imports in the years ahead considering the expansion in refining capacity in the country. “Other related issues such as the imposition of arbitrary cuts imposed by Saudi Aramco on supply of butane and propane from time to time, MRPL’s request for supply of crude oil on the basis of parent company guarantee instead of letter of credit and others were taken up with the Saudi side,” said a government statement. India invited Saudi participation in upcoming investment opportunities in its petroleum sector — upstream and downstream — including OPaL’s Petrochemical project at Dahej and OMPL’s Petrochemical project at Mangalore. “An offer was made to the Saudi side for considering equity participation in these projects as a strategic investor,” it said. Other proposed investment opportunities such as IOC’s LNG project at Ennore, BPCL’s LNG terminal at Kochi, HPCL’s grassroot refinery in Vizag and IOC’s petrochemical plant at Paradip were also discussed. “The Saudi side assured affirmative consideration of India’s request for larger quantities of crude oil and LPG while also agreeing to look into the issues raised by India relating to the hydrocarbon trade and investment between the two countries,” the statement added.
23 Feb 2012;business-standard.com:Ajay Modi:New Delhi: With non-revision in prices of controlled petroleum products such as diesel and continued surge in crude oil price, state-owned oil marketer Hindustan Petroleum (HPCL) is looking to increase its borrowing limit by Rs 10,000 cr to Rs 42,000 cr. The country’s biggest oil marketer Indian Oil had earlier raised borrowing limit by Rs 30,000 cr to Rs 110,000 cr in October last year. HPCL’s borrowings recently touched an all-time high of Rs 31,000 cr, surpassing the earlier record of Rs 28,000 cr in 2008 when crude oil had hit an all-time high of $147 a barrel. “Since there is a delay in the compensation of under-recoveries by the government, we are seeking shareholders’ approval to increase borrowing limit from net worth plus Rs 20,000 cr to net worth plus Rs 30,000 cr. The company’s net worth is Rs 12,000 cr,” said B Mukherjee, director (finance). There has been a continuous increase in crude oil prices with the Indian basket of crude rising close to $120 a barrel from the average price of around $110 in January. However, prices of controlled petroleum products have not increased due to assembly elections in five states. Even prices of petrol, a decontrolled product, have been not increased. Oil companies have an under-recovery of Rs 12.31 on every litre of diesel, Rs 28.77 on kerosene and Rs 378 on cooking gas cylinder. Companies are also losing around Rs 3.20 on every litre of petrol. This has caused an increase in the under-recovery or revenue losses of these companies. At the same time, there is a delay in grant of cash compensation from the government with the result that borrowings of these companies to fund working capital requirements have been going up. The last revision in prices of three controlled products was made in June last year. Due to a non-revision in prices, companies have declared loss in the nine month period of the fiscal. HPCL had declared a net loss of Rs 3,720 cr in the period.
23 Feb 2012;timesofindia.indiatimes.com:NEW DELHI: Making a strong pitch for raising diesel prices, Prime Minister's Economic Advisory Council chairman C Rangarajan on Wednesday said there was a need to revise prices to reduce the huge subsidy burden and bring down the fiscal deficit. While releasing the economic review for 2011-12, Rangarajan said it was earlier agreed to deregulate diesel prices but the decision was never implemented. He advocated a phased deregulation of diesel prices over the next few years and limiting subsidized LPG cylinders for domestic use. "Consumers should get a fixed number of LPG cylinders in a year and anything above that should be charged at market prices," Rangarajan suggested. When asked if it was a politically viable proposition, he said raising prices would have short-term impact on inflation but would even out in the long term. "The government will have to carry the message to the people," he added. "It will be necessary during 2012-13 to make some adjustments on diesel prices in a phased manner. We have not done this for quite some time and international crude prices have gone up... It is not possible for us to subsidize this sector beyond a level," Rangarajan said. Diesel price was last hiked in June 2011. The government had cut excise and customs duties to cushion the impact of the price rise, thus sacrificing annual revenue of Rs 38,000 crore. Pitching for deregulation of urea prices, Rangarajan said, "Partial reforms in the fertilizer subsidy regime of introducing nutrient-based subsidization will not be effective unless the price of urea is decontrolled or at least raised substantially." The government expects that its subsidy bill would increase by Rs 1 lakh crore to Rs 2.34 lakh crore, mainly on account of higher outlay towards fertilizer, food and oil.
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