A sharp slowdown in economic growth, particularly in the United States, is hitting consumers and companies and forcing economic forecasters and analysts to slash estimates for global oil demand.In a report to be published in the next few days, Barclays Capital has cut its estimates of world oil demand growth for this year and 2012 to reflect the dramatic slowdown in the United States and elsewhere.The investment bank, which has been one of the most bullish forecasters of oil prices this year, now sees global oil demand increasing by 1.1 million barrels per day (bpd) this year to 88.68 million bpd.Barclays Capital previously forecast a rise in oil demand this year of 1.56 million bpd and two months ago expected the increase to be as much as 1.7 million.Analysts say they expect other investment banks to follow Barclays Capital and cut their own estimates further.Barclays Capital has also cut its forecast for oil demand growth next year, expecting an increase of 1.34 million bpd in 2012, compared with its previous forecast of 1.4 million bpd."Given the general state of the macro-economy, the state of oil demand does not seem particularly healthy," Barclays Capital oil analyst Amrita Sen said."Moreover, US GDP is 2 per cent lower than what everyone expected (or) knew of due to the revisions issued last week and our economists have reduced a cumulative 1.8 per cent of US growth over this year and next. Hence the revision."Washington has cut sharply its estimates of growth this year and now says the U.S. economy stumbled badly in the first half, coming dangerously close to contracting at one point.The Commerce Department said last week that the US. economy expanded by just 0.4 percent in the first quarter, a sharp downward revision from the previously reported 1.9 percent gain, and grew at only a 1.3 percent annual pace in the second quarter as consumer spending barely rose.More RevisionsUS consumer spending, which accounts for about 70 percent of US economic activity, decelerated sharply in the second quarter, advancing at only a 0.1 percent rate. In June, U.S. consumer spending dropped for the first time in nearly two years.Barclays Capital said it now expects real U.S. gross domestic product (GDP) to increase by an average of 1.7 percent in 2011 and global economic growth to average 3.8 percent.Barclays Capital's projections for oil demand growth this year are now below estimates from the world's top oil market forecasters, the International Energy Agency (IEA), the Organization of the Petroleum Exporting Countries (OPEC) and the U.S. Energy Information Administration (EIA).Both the IEA and EIA last month cut their oil demand growth forecasts for 2011, to 1.2 million bpd and 1.43 million bpd respectively, and analysts expect further revisions when they publish their latest estimates this month.Christophe Barret, global oil analyst at Credit Agricole, has already cut his estimate of global oil demand growth to 1.0 million bpd from 1.25 million bpd and says high oil prices are eating into fuel consumption across the world."Our estimates may still be too optimistic," Barret said.Olivier Jacob at oil consultants Petromatrix said lower economic growth and consumption were likely to lead eventually to lower oil prices.North Sea Brent crude oil futures hit a two-and-a-half-year high of more than $127 per barrel in April, but have since slipped back to near $112."Even Barclays, a perma-bull, is forced into revising down its forecast for oil demand growth for 2011," Jakob said. "High oil prices do have an impact on the global economy."(Reuters)
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There couldn't be better news for home buyers who are short-changed by builders. The Competition Commission of India (CCI), in a first-of-its-kind order has fined India's largest developer DLF Rs 630 crore (7 per cent of its average annual turnover for 3 years) for using its dominant position to build additional floors and delay its Belaire project in Gurgaon. The anti-monopoly watchdog is now considering proceeding against other realtors.Property buyers continue to be at the mercy of slick-talking space sellers. Most of the big developers sell flats on the basis of ‘super built-up' area that has nothing to do with the actual floor area available. Similarly, completion clauses are routinely violated by companies like Unitech have become the norm. In this context, CCI's order against DLF is a wake-up call for both builders and the government. The Centre, which for years has been mulling a regulatory body for the real estate sector to protect hapless consumers, must act before the pressure cooker blows up. STRICTLY BUSINESSBrands such as Canon, Coca Cola and Future Group who had designed ad campaigns around Sachin Tendulkar scoring the 100th century are now back-peddling furiously. Team India's disastrous England tour has given cricket a bad name, and no one wants a share of that, at least for now.(This story was published in Businessworld Issue Dated 29-08-2011)
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Prime Minister Manmohan Singh will review the functioning of the oil ministry amid criticism over falling output from a key gas field as well as poor performance of state-run oil firms, the Economic Times reported on Friday quoting unnamed government officials.In June, the oil ministry came under criticism from the state auditor for what it said was allowing some exploring companies to overstate costs of field developments and exploring beyond their contracted areas.The Comptroller and Auditor General's (CAG) draft report said energy major Reliance Industries had inflated development costs on its D6 block in the Krishna-Godavari basin and cited a joint venture of Reliance with BG and ONGC for hiking development costs in the Panna-Mukta and Tapti gas fields.Reliance is already facing criticism for pumping less gas than it should from the key D6 block, one of the biggest gas producing blocks in India."PM will take a review meeting soon but no definite date is known to us," the Economic Times quoted an unnamed oil ministry official as saying.It said Prime Minister Manmohan Singh will also assess the performance of state-run oil companies, some of which have posted losses in the first quarter of the current year.He is also expected to review the burgeoning fuel subsidy bill and delays in key appointments to state oil firms, the report said.The possible review by the prime minister comes at a time when his coalition's political capital is being sapped by popular protests against government corruption.(Reuters)
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Reliance Industries, for long the darling of Indian investors, was knocked off its four-year long perch as the country's most valuable company, as fears over slowing gas production dragged its stock down almost 30 per cent this year and led to the first full day of trade with Coal India on top.Reliance, owned by Mukesh Ambani, the world's ninth richest man, saw its crown seized by Coal India, the world's largest coal miner, whose stock in energy-hungry India is the best performer this year on the country's top index.Reliance has been under fire over the past few months from the upstream regulator, investors and analysts due to slowing gas output, sending its shares down over 29 pe rcent this year, compared to an almost 19 percent fall in the main index.Analysts on Thursday talked down the chances of RIL regaining its top spot in the near future, due to Coal India's surging growth outlook and margin worries across Reliance's other sectors, such as refining and petrochemical production.Fund manager J.P. Morgan Asset Management halved its holding in Reliance between March and June this year. BlackRock Asset Management has reduced its position by nearly 29 percent between March and April, according to Thomson Reuters StreetSight.UTI Asset Management has cut its positions in Reliance while increasing its holding in Coal India.The two companies are separated only by a thread. As of mid-day trade on Thursday, Reliance had a market cap of 2.45 trillion rupees ($54 billion) while Coal India's market cap stood at 2.49 trillion rupees ($55 billion).Coal Heats UpState-owned Coal India has surged in Asia's third-largest economy, which aims to halve its peak-hour power deficit of nearly 14 percent in two years by ramping up generation. The miner accounts for nearly 80 percent of India's coal output.The Kolkata-based miner has seen its shares rise over 25 percent this year, after the government sold a 10-percent stake for $3.4 billion in the country's largest IPO ever last November.Templeton Asset Management, Blackstone Group and Allianz Global Investors are among funds that have expanded their portfolios to include Coal India since April, according to Thomson Reuters StreetSight.India is likely to import 135 million tonnes of coal this fiscal year, to meet a forecasted 11-percent rise in demand, and Coal India is in talks for acquisitions in Indonesia, Australia and the United States.Reliance, which became India's largest company by market capitalization in February 2007, is looking to expand beyond its core businesses into telecom, financial services and in June said it planned to invest aggressively in retail.Results from the fiscal first quarter showed a 16.7 percent rise in net profit last month, but analysts cautioned of a peak in refining margins and predicted further slowdown in its oil and gas business, which already lag estimates.In May, India's upstream regulator called on Reliance to drill two extra wells this fiscal to meet gas production targets at a flagship block off the country's east coast. (Reuters)
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The crude oil tanker market's hopes for a recovery next year could run aground as global economic turmoil stifles oil demand in the United States and Europe, denting prospects for a sector already battling a supply glut and a rate rout.Strong global oil demand, driven mainly by China, has been the lone bright spot in the depressed dirty tanker market this year, although earnings for ship owners still slipped to record lows this month as supply of new ships outpaces demand growth.An economic slowdown, or worse yet a recession, could push oil consumption in the United States - the world's top oil consumer - into an irreversible decline and overshadow China's growing needs for the energy resource."The crude tanker markets have been really bad so far in 2011, but the bad news is that it can get worse," said Peter Sand, chief shipping analyst with ship association BIMCO."Supply is not stalling the way demand is, in particular for crude tankers."The U.S. Energy Information Administration (EIA) last week lowered its forecast for domestic oil demand from growth to decline in 2011. It also cut its forecasts for growth in global oil demand, as did the Organization of the Petroleum Exporting Countries and the International Energy Agency (IEA).For 2012, agencies were mixed with OPEC lowering global demand growth estimates, while the EIA and IEA raised theirs. The IEA, however, said its forecast could more than halve if the economy grew slower than expected next year.Supply To Outstrip DemandThe global dirty tanker fleet, dedicated to transporting crude and fuel oil, is expected to grow 9 per cent this year with the delivery of 36 million deadweight tonnes of new vessels, BIMCO said.Further expansion is seen in 2012 with 29 million more deadweight tonnes, a 7 per cent increase in supply.That compares to global oil demand growth of between 1-2 per cent in 2011 and 2012 forecast by the IEA.The current oversupply problem stems from a ship ordering spree before the economic turmoil in 2008. Those tankers, which typically take three years to build, are only now entering the market."The current supply side picture is not seeing any improvement in recent months," said shipping consultants Maritime Strategies International in a research report."The large crude segments continue to be pounded by new deliveries and there will be little respite from this assault over the next year."A similar situation is playing out in the dry bulk freight market, which ships iron ore, coal, grains and other dry goods. More economic turmoil could lead to further casualties and possibly bankruptcies in both the tanker and dry bulk sectors."The market is jumpy and things are about to get very unpleasant for some tanker owners," said a ship industry source.In The RedCrude oil tanker earnings on the Baltic Exchange's benchmark Middle East route tumbled to a record low this month, dipping into negative territory for 10 of the 13 trading days in August so far, plummeting as low as -$1,889 a day.In other words, ship owners briefly paid $1,889 more a day in bunker fuel and other variable voyage costs than they received from companies using their very large crude carriers (VLCCs) to ship crude oil on the TD3 route.This is the first time that average earnings have traded negative since the Baltic Exchange started collating earnings-equivalent data in 2008."With negative returns, you are paying charterers to lift their oil - that makes no sense," said Nigel Prentis, head of research, consulting & advisory with HSBC."Unfortunately, the market is too fragmented to see any solidarity of action. So if one owner is willing to cut and run and keep his ship at a negative return then it spoils it for everyone else."Average TD3 earnings so far this year was around $11,000 a day, down more than 65 per cent from last year's $32,000 a day average."The sour state of the macro economic situation in the largest oil consuming areas, with the exception of China, is very worrying for the shipping industry," said BIMCO's Sand."The recovery of tanker earnings is not likely to happen during the next 15 months, but visibility is low at the moment making forecasting extra challenging."Oslo-listed Frontline, the world's largest independent tanker operator, said this month it was pulling some of its largest crude oil carriers from the market - also known as laying up - to limit its losses."The financial turmoil has pushed the (industry's) confidence level to a new all-time low," Frontline's Chief Executive Jens Martin Jensen told Reuters. "I don't think the market can get worse."He urged ship owners to refuse to take negative earnings and to lower the speed of their tankers, which would lower supply, for the industry to have any hope of recovery. Frontline does not expect a recovery before 2016.Nevertheless, some analysts say there is a remote possibility an economic slowdown could actually support earnings for ship owners.If global oil demand falls due to a downturn but OPEC is unable to match that with a cut in its production, then it could revive the use of tankers for storing crude.The amount of crude oil stored at sea has steadily declined to around 6 million barrels since hitting a peak of more than 100 million barrels in April 2009, after changes in the oil market structure that made floating storage less profitable.In 2009, floating storage employed the equivalent of 50 tankers, mainly VLCCs, or about 10 per cent of the VLCC fleet at the time."If OPEC were to keep total production around current levels despite lower oil demand, the return of floating storage would clearly be helpful for tankers," said RS Platou Markets in a research note.(Reuters)
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Competition watchdog CCI (Competition Commission of India) on Tuesday imposed a penalty of around Rs 600 crore on realty major DLF Ltd for abusing its dominant market position.The CCI found DLF guilty of breaching laws regarding the unfair pricing of goods and services, after a complaint was lodged by a customer of the company, it said in an order posted on its website.The penalty, which amounts to 7 per cent of the company's average annual turnover of last three years, was imposed as DLF has been proven guilty of violating section 4(2) of the Competition Act, 2002, sources told PTI.A company violates Section 4(2)(a) of the Competition Act when it directly or indirectly imposes unfair or discriminatory conditions or prices with respect to the purchase or sale of goods or services.In May last year, on the basis of complaints by some people who booked flats in DLF projects, the CCI had referred the matter for a probe by the director general (investigations).According to one such complaint, DLF had promised to complete its residential project in Gurgaon, called Belaire, in 2009, but buyers are yet to get possession.In addition, DLF has increased the number of floors in the apartment complex from the original figure given to buyers. This led to the number of apartments in Belaire increasing to 564 from 384.(Agencies)
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Hitachi Ltd, Japan's biggest industrial electronics firm and Mitsubishi Heavy Industries Ltd, the nation's leading heavy machinery maker, may merge to a $150 billion revenue infrastructure firm, three sources said on Thursday, but warned that the companies may struggle to forge a pact.A murky global outlook for nuclear power - both companies build reactors - in the wake of Japan's nuclear crisis and profit-sapping yen strength is spurring talks to combine their infrastructure and other core businesses in a new company in 2013, one source with direct knowledge of the matter said.Traditionally seen as a last resort of failing companies, Japanese corporations until recently have largely eschewed strategic mergers. A combination of two of Japan's oldest, most established conglomerates would mark a deeper embrace of mergers as a tool for corporations to squeeze costs and gain competitive scale.A deal would mark a significant shift in a business landscape dominated by large, sprawling conglomerates with close ties to peers across a range of different industries."It's going to be a history-changing event if true," said Fujio Ando, senior managing director at Chibagin Asset Management. "It would really be praiseworthy if they can really move this forward because the merger means they will be creating a new company with companies from different ex-zaibatsu or business groups. This used to be seen as extremely difficult."Any failure to agree on a merger pact, however, would mark a major embarrassment and setback for particularly for Hitachi, which with a market value of $27 billion, would likely be the acquirer of Mitsubishi Heavy, valued at nearly $16 billion as of Wednesday's closing price."Many of the key questions remain unaddressed. Who will take leadership in what? What will happen to overlapping businesses? What happens to each company's alliances? There is still some confusion internally," said one executive with direct knowledge of the talks.Hitachi and Mitsubishi Heavy said in separate statements that no agreement had been reached on a merger. Hitachi President Hiroaki Nakanishi was quoted as saying they would begin negotiating a deal, but sources said that a planned Thursday announcement had been postponed, raising further concerns that talks might be called off.Shares in both companies rose, with Hitachi, the likely dominant partner in any tie-up, rising 3.2 per cent, and Mitsubishi Heavy jumping 4.3 per cent.Union SurprisedA merger between the two industrial groups has not yet been discussed with workers, a union official said."We have not heard about the merger. It was a big surprise to find out about the talks in the paper," said an official at Hitachi Workers Union, which represents around 30,000 workers at Hitachi. The official, who declined to give his name, said his union couldn't comment until it had more information on the proposed merger.Managers at Hitachi however, will likely have to seek the understanding of their workers before any agreement to absorb Mitsubishi Heavy because doing could result in the sale or closure of some units."We think this could mean the continuation, acceleration of Hitachi's exit from non-core businesses and measures to leverage group company profitability," Goldman Sachs analyst Ikuo Matsuhashi said in a report on the media reports, describing any merger decision as "a surprise."Yen Up, Economy DownSpurring a revamp is a gain in the yen to record levels and a weak global economic outlook that is prompting more Japanese companies to mull mergers with rivals, in a bid to lower costs and stay competitive, say analysts.Hitachi makes products ranging from rice cookers, televisions to excavators, lawn mowers and computer chips and projects annual sales this business year of 9.5 trillion yen. The company, which employs 360,000 people, said on Wednesday it would halt production of television panels.Mitsubishi Heavy is Japan's leading aircraft builder, defense contractor, a major shipbuilder and the lead system integrator for Japan's space program. A major partner of Boeing Co, it racks up sales of annual sales of about 3 trillion yen with 69,000 workers worldwide.By combining their reactor businesses, Hitachi, which makes boiling-water reactors, would have access to Mitsubishi Heavy's pressurised-water reactor technology, which has become the technology of choice by countries around the world.Mitsubishi Heavy would be better positioned to weather an industry downturn as nations around the world demand more stringent safety requirements in the wake of the Fukushima nuclear power plant crisis.Hitachi has a nuclear power joint venture with General Electric, while Mitsubishi Heavy has teamed up with industry giant Areva. Their common rival is Toshiba Corp, which has acquired U.S. nuclear unit Westinghouse and is aggressively bidding for contracts in China, Southeast Asia and the Middle East. (Reuters)
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The results of the recently concluded ninth round of National Exploration and Licensing Policy (Nelp) auction is another testimony that the policies for India's oil and gas sector need serious overhaul and alignment with internal standards. The auction was largely ignored by the multinational players — of the 74 bids placed, 33 were from state-owned firms, including ONGC, with the balance from private sector companies. The response to Nelp has slowed over the years. The first five rounds of Nelp attracted total investments of $7 billion, which by end of three more rounds went up to just $11 billion. In the nine rounds of Nelp till date (since 1999), out of the 268 blocks offered, more than 50 per cent were taken by state-owned companies. Rest were picked up by small global oil companies or subsidiaries of oil majors. And that too as joint venture partners of an Indian company.Besides, there are exploration challenges in India. In an estimated area of 3.14 million sq. km, comprising 26 sedimentary basins, there are limitations to hydrocarbon reserves. But, according to officials in foreign oil companies, the worst dampener is the lack of confidence on the independence of the regulator, Director General of Hydrocarbons (DGH) — a fact that senior officials in the petroleum ministry also acknowledge. Experts say the government's interference in the functioning of DGH has upset many foreign players.Another reason for the lukewarm response to Nelp is the government's reluctance to offer ‘speculative survey' that is sponsored by a consortium of global oil majors. DGH officials, however, think the survey prepared by them is far superior than the one prepared by foreign companies. DGH officials reckon that the report about possible hydrocarbon reserves prepared by Indian agencies is based on indepth research, while those prepared by outside agencies are narrowly focused on the product availability. But if the speculative survey prepared by an outside agency is acceptable globally and meets international standards, why is it not acceptable to DGH? Planning Commission estimates that by 2015, 100 per cent of the Indian sedimentary basin area is likely to be under exploration. The DGH's obduracy on speculative survey will not help that. There is an absolute need for setting up a technical committee within or outside the DGH. A tax holiday and clarity in policy guidelines are needed for companies that want to undertake exploration-related survey of the blocks. Interestingly, there is scarcity of technical manpower in India to undertake the survey as per international norms. No institute has yet focused on this subject, nor has there been any effort to bring in private institutions to work with the research and development institutes sponsored by big oil majors.Another important move that the government needs to make is to bring all energy-related departments within different ministries under one centralised unit. This unit should constantly assess the energy requirement of the country, not only for the immediate future, but also for the next 50 years.If the government is keen to realise the objective of Nelp as conceived in the 1990s, which is to address the increasing demand-supply gap in energy, it has to remove the red tape on tax, pricing, and mergers and acquisitions. It is a high-risk business after all.(This story was published in Businessworld Issue Dated 11-04-2011)
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