India promised to protect key industries from the full impact of higher gas prices on 28 June' 2013, taking the shine off a reform which may bring in more investment to the gas sector but could hike costs for consumers by around 50 per cent from next year. Asia's third-largest economy took the unpopular step of approving a gas hike for the first time in three years on Thursday to encourage investment in domestic output of the resource and to boost imports as it struggles to cure a chronic power shortage that besets industry with blackouts. But higher gas prices, on the heels of an increase in coal costs agreed last week, could translate into higher power costs for consumers and more costly fertiliser for farmers, which could cost the government votes in elections due by next May. "Power has to be produced at an affordable price, fertiliser has to be produced at affordable prices. Those issues will be addressed," Finance Minister P. Chidambaram told a news conference, adding prices could be "tweaked" for these sectors. India, the world's fourth-largest energy consumer, wants to double the proportion of gas in its energy mix by 2020 from 10 per cent now. It uses coal for nearly 56 per cent of its energy needs, while oil, mostly imported, accounts for 26 per cent. But the government is treading a fine line between populist measures such as plans to expand cheap food distribution and painful reforms to shore up state finances and halt a slide in the rupee, which hit a record low this week. "The weak currency is acting as a blessing in disguise, as it will prevent the government from engaging in pre-election populism and encourage it to continue with supply-side reforms," Nomura economists said in a note on Friday. Watering Down?The new formula uses a combination of US, European and Japanese benchmark prices as well as taking into consideration the cost of liquefied natural gas imports. It replaces one linked to oil prices and capped at $4.2 per mmBtu. But the original proposal has already been watered down with quarterly, rather than monthly, reviews after lobbying by the power and fertiliser sectors. The indicative price is $6.385 per mmBtu for the April to June 2013 quarter, according to Vivek Rae, the Oil and Gas Ministry's top bureaucrat. Monthly reviews had given an indicative price of $8.4 per mmBtu, about double current levels. Chidambaram said the "tweaks" could be additional subsidies, but there were already calls from gas and power suppliers to remove existing price caps now that input costs would rise. India's state-run gas company GAIL India Ltd called for the subsidies to be removed, saying it cost the company about Rs27 billion in 2012/13 and adding that its pre-tax profits could see a hit of $218 million a year on higher gas costs. "The ultimate tariff is going to be expensive," T. Adibabu, chief operating officer, finance, at Lanco Infratech Ltd, which runs gas-fired plants in southern India, told Reuters. "So whether the discoms (distribution companies) are going to buy the power or they'll not buy the power, that is the thing ... if the discoms are not buying it, what is the point?" Oil & Gas Shares Jump For energy companies that have gas production, the price hike would boost profits. "The rise in gas price will ... encourage the upstream companies to invest in exploring more challenging frontiers to augment gas production," Sudhir Vasudeva, chairman of the largest state producer, ONGC, said in a statement. Oil and Natural Gas Corp (ONGC) shares were up 3.2 per cent by 0921 GMT, while Reliance Industries, which operates the country's biggest gas block off the east coast along with BP Plc, gained 3.6 per cent in a strong Mumbai market. ONGC expects to add about Rs80 billion in profits annually thanks to the increase in gas prices, its finance head said. Oil India said it is likely to add about Rs10 billion in profits annually. Billionaire Mukesh Ambani's Reliance, which has seen a slump in gas output from its KG D6 gas fields, has said gas prices need to be increased in order to encourage further investment. "We project upside of 39 per cent for ONGC and 20 per cent for Reliance for our FY 2015 earnings estimates. At constant currency, we estimate the earnings upside at 26 per cent for ONGC and 4 per cent for Reliance," Morgan Stanley analysts said in a note on Friday. (Reuters)
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Following months of ‘debates and discussions’ on improving coal production the government is finally taking cognisance of the murky coal situation. On 28 June, the union cabinet gave its nod for the Coal Regulatory Authority Bill, 2013 to be tabled in the next Parliament session and the constitution of independent regulatory authority.The industry has welcomed the move stating this will help in reducing bureaucratic delays and streamline the sector making it investment friendly. Chandrajit Banerjee, Director General CII said the Independent Regulator for the Coal Sector should have the mandate of managing the allocation process, opening of new exploration areas, mine planning and development, compliance by developers and to act as a central repository of exploration data and pricing.The Cabinet said the regulator will be set up through an executive order and will specify methods of testing, grading, pricing of both raw and washed coal and any other by-produce generated during the process of coal washing. The authority is also meant to monitor, enforce closure of mines and settle disputes between parties.The Coal Regulatory Authority Fund will be created where all grants, fee and charges of the Authority will be credited. Once the bill is passed an appropriate financial sanction for the initial start-up funding will be decided. mmatbworld (at) gmail (dot) com
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State-run producer Oil India expects to increase profit by Rs 1,000 crore annually on account of the increase in gas prices, its finance head said on Friday. "This will incentivise us to get more aggressive in exploration activity," Oil India Finance Director T.K. Ananth Kumar told Reuters. Natural gas segment contributes about 10-12 per cent of Oil India's revenues.Meanwhile state-run gas company GAIL expects a hit of Rs 1,300 crore annually on pre-tax profits on account of higher costs in its liquefied petroleum gas (LPG) and petrochemicals businesses, its finance head said. "We have a solid case for withdrawal of subsidy burden now. We are already taking up the case with the ministry," GAIL's Finance Director P.K. Jain told Reuters. GAIL bore subsidy costs of about Rs 2,700 crore in 2012-13 as part of the government's scheme to compensate state oil retailers for selling petroleum products below costs. On Thursday, the government approved a gas price hike for the first time in three years. Indicative pricing suggests domestic gas could rise to around $8.4 per mmBtu from April 1, 2014, compared with $4.2 per mmBtu currently. (Reuters)
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Shares of oil and gas companies rallied on Friday after the government approved a doubling in domestic gas prices from next April, signalling its intent to make the country's troubled energy sector more attractive for investment.Shares in the largest state producer, ONGC, jumped 5.4 per cent in early trade, while Reliance Industries which operates the country's biggest gas block off the east coast along with BP Plc rose 3.4 per cent in a strong Mumbai market.State energy companies said the government's decision late on 27 June, to approve a gas price hike for the first time in three years would boost their profits.Indicative pricing suggests domestic gas could double to around $8.4 per mmBtu from April 1, 2014."It is more than expected. We expected up to $6.7 (per mmBtu). This is really positive. It will encourage us to invest more in exploration," TK Ananth Kumar, finance director at state-run Oil India said.The revised prices would put India roughly in line with Indonesia's $6-$9 per mmBtu, but were still short of typical LNG import costs. Demand Vs PriceDemand for gas in Asia's third-largest economy far outstrips production, as India's desire to keep prices cheap for the power and fertiliser industries deters investment in costly producing areas and in pipelines and terminals for more expensive LNG.India, the world's fourth-largest energy consumer, uses coal for nearly 56 per cent of its energy needs, while oil accounts for another 26 per cent. It aims to double the proportion of gas in its energy mix to 20 per cent by 2020.The price increase is expected to be unpopular with voters ahead of local and national elections in the next 12 months, but is key to easing acute power shortages in the country, where cheap gas deters investment and keeps demand far above actual use.Shares in gas producers jumped on Friday on expectation of a sharp increase in profitability.ONGC expects to add about Rs 8,000 cr in profits annually thanks to the increase in gas prices, its finance head said.Oil India is likely to add about Rs 1000 cr in profits annually, Kumar said.Billionaire Mukesh Ambani's Reliance, which has seen a slump in gas output from its KG D6 gas fields, has said gas prices need to be increased in order to encourage further investment."We project upside of 39 per cent for ONGC and 20 per cent for Reliance for our FY 2015 earnings estimates. At constant currency, we estimate the earnings upside at 26 per cent for ONGC and 4 per cent for Reliance," Morgan Stanley analysts said in a note on Friday.(Reuters)
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The Cabinet on 27 June will consider doubling the natural gas prices to $8.42 even as the first revision in 3 years faces stiff resistance due to resultant increase in electricity tariff and fertiliser cost.The Oil Ministry's proposal to price all domestically produced natural gas as per a complex international hub and imported LNG-based formula suggested by the Rangarajan panel is listed as item number 8 on the agenda of Cabinet Committee on Economic Affairs (CCEA) meeting scheduled for tomorrow.The price formulation is to come into effect from April 1, 2014 for all domestically produced gas - be it that of state-owned companies like ONGC or private firms like Reliance Industries, and rates will be revised every quarter till 2017 when prices will be completely freed, sources said.The price of gas if CCEA accepts the proposal will be $8.42 per million British thermal unit as opposed to $4.2 currently. The rates are higher than $6.775 that the Ministry had been propagating to temper opposition.Sources said power and fertiliser ministries have opposed the move as it would result in cost of electricity generation rising to unviable levels and steep jump in urea subsidy.Left parties have alleged that Oil Minister M. Veerappa Moily is trying to help RIL by proposing a steep hike.The CCEA, some government insiders say, may not accept the Oil Ministry's proposal of revising prices every three months based on quarterly average of international hub and imported gas (LNG) price.It may approve a 'moderate' revision but put a cap or ceiling of no more than $7 per mmBtu as it would be not advisable to have a fuel cost with cascading impact on the economy, change every quarter and that too based on international volatility.Sources said there was also a possibility of the issue being referred to a ministerial panel for wider consultation.The Oil Ministry has reasoned that the increase in gas price was need to incentivise exploration while also resulting in higher revenues to the government. Every dollar increase in gas price would result in $128.5 million (Rs 707 crore) in additional royalty and profit petroleum.Sources said even in 2007 when $4.205 per mmBtu was fixed as the price of gas that RIL had planned to produce from KG-D6, the government had exercised its discretion to modify the formula suggested by the private firm and imposed a cap.The price was at that time lowered from $4.34 sought by RIL and capped at $4.2 for the first five years of production.The CCEA may decide on similar lines tomorrow.The power ministry has opposed any hike saying electricity generation at any price of over USD 5 was economically unviable. Also, it has questioned the need to price the fuel in US dollars as any depreciation in the Indian currency would further add to the strain on the consumers.Sources said the variable cost of generating electricity would be around Rs 5.40 per kilowatt hour (per unit) at new gas price, taking the total cost of generation to Rs 6.40 per unit. This compares to current cost of Rs 2.93 a unit.The outgo for every $1 increase in gas price will be up to 1.138 billion (Rs 6,260 crore). Outgo for fertiliser sector due to $1 increase in gas price will be $406 million (Rs 2,233 crore).The Fertiliser Ministry has shot off a letter to the oil ministry saying it had never supported an increase in gas price as was being brought out in the note oil ministry moved for consideration of the CCEA.(PTI)
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The European Union will levy a 4.7 per cent duty on jet fuel imports from India in addition to cargoes from the Middle East, its two top suppliers, an EU official said, increasing risks of price rises for European airlines.The European Union said last month it would impose the duty on imports from Gulf Cooperation Council (GCC) states starting 1 January 2014 after removing the group from the generalised scheme of preferences (GSP), which offers trade advantages to developing economies.India has not been removed from the GSP, but the EU will remove the waiver because its oil products have become competitive in global markets."Once a country becomes competitive as an exporter of a particular category of products, the tariff preference is not essential any more," the EU official said on Thursday."This means that India will not benefit any more from the duty-free access to the EU market for oil products as of January 2014. Oil products imported from India will fall under the general tariff regime, which for jet fuel foresees a duty of 4.7 per cent."Jet fuel will be the main product affected by the move, given that diesel shipments enjoy a blanket exemption from the EU duty.The duty could lead to an increase in European jet fuel prices. European airlines have warned that the decision could cut into the embattled industry's competitive edge."We strongly condemn this levy as it is another tax burden imposed on airlines that have to face already so many regulatory and economical challenges," the Association of European Airlines, which represents 32 major airlines, said recently.The levy "will further weaken the competitiveness of the European airlines," it added.Jet fuel is the largest component of airline operating costs in Europe, representing almost 35 per cent today compared with 25 per cent a decade ago, the AEA said.European demand for jet fuel amounted to 1.2 million barrels per day (bpd) last year, of which one third was imported, most of that from the Middle East, according to the International Energy Agency (IEA) and traders.India exported an average of 57,500 barrels per day (bpd) of jet fuel per month to the EU in 2012, according to traders.The third-largest exporter of jet fuel to Europe is South Korea, which could benefit the most from the changes in the duty system, according to traders. (Reuters)
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ONGC Videsh Limited (OVL), subsidiary of state-run ONGC, and Oil India have signed an agreement to buy a 10 per cent stake in a Mozambique gas field from Videocon Group for $2.48 billion, the state companies said. ONGC, which faces diminishing supplies from its ageing oil and gas fields in India and has been buying interests in overseas assets, announced the deal earlier this month but later withdrew the statement. "This acquisition is a significant step towards the energy security of our country," ONGC Chairman Sudhir Vasudeva said in a statement on 25 June' 2013. Demand for gas in Asia's third-largest economy far outstrips production, as India's need to keep prices cheap for strategic industries deters investment in costly producing areas and in pipelines and terminals for more expensive LNG. India, the world's fourth-largest energy consumer, uses coal for nearly 56 per cent of its energy needs, while oil accounts for another 26 per cent. It aims to double the portion of gas in its energy mix to 20 per cent by 2020. Recent discoveries have turned Mozambique's Rovuma offshore field into a major draw for global energy producers and boosted Mozambique's gas reserves to around 150 trillion cubic feet, enough to supply world number-one LNG importer Japan for 35 years. The Rovuma field has the potential to become one of the world's largest liquefied natural gas (LNG) producing hubs by 2018 and is located close to the India market. Anadarko Petroleum Corp, the operator of Rovuma's Area 1 block in which it holds a 36.5 per cent stake, and Videocon had each launched an auction of a 10 per cent stake in the block earlier this year. The two Indian state companies have also bid a similar amount for Anadarko's 10 per cent stake, a source with direct knowledge of the matter told Reuters earlier this month. At 3:00 p.m., shares in ONGC were up 4.6 per cent, compared with a 0.8 per cent gain in the broader Mumbai market. Videocon shares were trading 3.7 per cent lower. (Reuters)
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Iraq has offered three discovered oil blocks to India and has agreed to consider investing in Indian Oil Corp's 300,000 barrels per day Paradip refinery, an oil ministry statement said on 11 July' 2013. Baghdad has also offered to consider extending 60 days credit for crude sales to India, the statement said. Iraq has emerged as the second-biggest crude oil supplier to India after supplies from Iran were hit due to pressure from western sanctions. Iraq has offered three discovered oil blocks in the Middle Furat oilfields on a nomination basis, the statement said.(Reuters)
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