Wednesday 17th January 2018

    2017 was year of policies for Hydrocarbon growth; Outlook bright!

    The year 2017 though strong in terms of policy decisions to improve the overall infrastructure, exploration and production acreages and city gas distribution networks, was not so notable in terms of production of crude oil and natural gas. According to data available on the Ministry of Petroleum and Natural Gas (MoPNG), the cumulative crude oil production during April-November, 2017 fell 0.20% over same period last year to 23,943.34 thousand metric tonne (TMT). The production was 4.01% lower than the set target for the period. Read On...



    The cumulative natural gas production for the April-November period was 5.25% lower than the target for the period at 21,936.19 million metric standard cubic meter (MMSCM) though it was higher by 3.72% year-on-year (YOY).

    In refinery production, India continued to maintain its surplus production in the April-November period. The cumulative refinery production was 165,830.63 TMT which is 3.39% higher than the target for the period and 2.08% higher than the production during corresponding period of last year.

    Government Initiatives in 2017

    Exploration and Production: Year 2017 saw the government launch a new Hydrocarbon Exploration Licensing Policy (HELP) for award of hydrocarbon acreages in the upstream sector of India on July 1st 2017. Open Acreage Licensing Policy (OALP) is one of the key features of HELP which got notified on June 30. The government also approved 69 marginal fields for offer under Discovered Small Fields Policy. Out of these, 67 discovered small fields were clubbed into 46 contract areas and put on offer. Based on the success of DSF bid round-I, DGH has further identified 60 non-monetised discovered fields of ONGC and OIL in nomination regime and relinquished blocks of contracts regime.

    Besides, to generate seismic data for initiating exploration and production (E&P) activities, the Government prepared a project to conduct 2D seismic surveys of all sedimentary basins of India at an estimated cost of Rs 2,932.99 Crore. The project will be completed by 2019-20. As of October 31, 2D seismic survey of 10,200.54 lakh kilo meter has been carried out by ONGC and OIL.

    National Data Repository was set up at Directorate General of Hydrocarbon (DGH) in June to make the entire exploration and production data available for commercial exploration, research and development and academic purposes.

    Piped Natural Gas and CNG: As part of gas based economy the government plans to enhance the share of gas in the energy basket to 15%. The Government has envisaged developing an additional 15,000 km of gas pipeline network. At present, the natural gas grid in the country predominantly connects the western, northern and south-eastern gas markets with major gas sources. As a commitment to provide the clean energy in the eastern part of the country, the government has approved a capital grant of Rs 5,176 Crore (40 per cent of the estimated capital cost of Rs. 12,940 Crore).

    Besides, there are plans to increase the piped line gas connection to 1 crore from 28 lakh connections in the next four years to reduce pollution in the cities. At present, 31 city gas distribution (CGD) companies are developing CGD networks in 81 cities in 21 States and union territories which are supplying clean cooking fuel in the form of piped natural gas (PNG) to about 40 lakh people in the country. In order to promote the CNG services in the country, the government has issued guidelines for making available domestic gas to the CGD entities for meeting the entire requirement of CNG for transport segments.

    Refinery: The country is not only self-sufficient in the refining capacity for its domestic consumption but also exports a sufficient quantity of petroleum products. Of the total refineries in the country 18 are in the public sector, 3 are in the private sector and two are in joint venture with a total refining capacity of 247.566 million metric tonne per annum (MMTPA). Out of the total refining capacity of 247.566 MMT, 142.066 MMT is in the public sector, 17.3 MMT in joint venture and the balance 88.2 MMT is in the private sector.

    Marketing: Under the Pradhan Mantri Ujjwala Yojana (PMUY) as on December 4, 2017 more than 3.2 crore new LPG connections were given to women belonging to families below the poverty line out of total target of 5 crore women over 3 years starting FY17.

    Under the PAHAL scheme, crores of people have benefited from the direct benefit transfer scheme. As per government data till November 13, more than 19.12 crore LPG consumers have joined PAHAL Scheme. So far, more than Rs 58,243 crore have been transferred into the bank accounts of consumers. PAHAL has helped in identifying 'ghost' accounts, multiple accounts and inactive accounts. Estimated savings in subsidy due to implementation of PAHAL for FY 2014-15, 2015-16 and 2016-17 is nearly Rs 29,446 crores.

    To bring reforms in allocation and distribution of public distribution scheme (PDS) and SKO distribution for better subsidy management, and also for reducing subsidy outgo by means of curbing diversion of subsidized kerosene, the Direct Benefit Transfer in PDS Kerosene Scheme (DBTK) was launched in all districts of Jharkhand and 4 districts of Chhattisgarh. Other States have been requested to join the Scheme. Further, States/ UTs are encouraged to become 'Kerosene Free' by bringing all households under LPG. So far, UTs of Delhi, Chandigarh, Daman & Diu, Dadar and Nagar Haveli & Puducherry and the States of Haryana, Andhra Pradesh and Punjab have become 'Kerosene Free'.

    LPG Coverage: As on November 1, 2017, National LPG coverage has reached 78.3% from 60.6% as on November 1, 2015. In FY18 (up to December 18), more than 2.15 crore new LPG connections have been released compared with 3.31 crore new LPG connections in FY17.

    To increase the LPG coverage further, advertisement for selection of 6149 new LPG distributorships has been released in various states across the country and selection process is underway. As on 19.12.2017, draw for 2468 locations have been conducted.

    Subsidy on Kerosene and LPG: As on December 1, 2017, the oil marketing companies are incurring under recovery of Rs12.44 per litre on PDS Kerosene and Government is providing cash compensation of Rs 252 per cylinder under direct benefit transfer link.

    Auto Fuel Vision

    Auto Fuel Vision and Policy - Introduction of BS-IV & BS-VI fuels in the Country: As per this policy it was mandated to convert auto fuel from BS-III fuel to BS-IV in the entire country in phases by April 1,2017. Further, Government decided to leapfrog from BS-IV to BS-VI directly and a notification was issued to implement BS-VI from April 1, 2020. However, considering the recent rise in environmental pollution in Delhi and the national capital region government has advanced the implementation of supply of BS-VI to April 1, 2018 in NCR-Delhi.

    Outlook

    In order to improve the overall position of the country in the oil and gas sector the government in line with its 'Act East' policy through series of engagements in the hydrocarbon sector with the neighbouring countries, has initiated construction of various pipelines to connect India's gas grids with its neighbours like Bangladesh and Nepal.

    "We have a robust hydrocarbon trade with Nepal, Bhutan and Mauritius and have sent first test cargo of petroleum products to Myanmar. We are also working towards setting up an LNG terminal in Sri Lanka through an international JV company," said R Ramachandran, director refineries, BPCL.

    After the completion of certain refinery projects undertaken by BPCL, HPCL and IOC, the refining capacity of India is expected to reach 256.55 MMTPA by 2019-20. The demand for petroleum products is estimated to reach 244,960 million tonne by 2021-22, up from 186,209 million tonne in FY17. The demand for natural gas is expected to reach 606 MMSCMD by 2021-22 as against a demand of 473 MMSCMD in FY17.

    Impact of increase in crude price on economy in 2018: the past three months, crude oil prices have increased by around 28% from US$ 52.3/barrel in August-end. The increase can primarily be attributed to geo-political tensions, extension of timeline for production cut back by OPEC and few non-OPEC countries, higher-than-anticipated global demand growth of petroleum products and some supply disruptions. However, the recent run up in crude prices if sustained will have a modest impact on macro economy, it could impact other stakeholders.

    K Ravichandran, Senior Vice President and Group Head - Corporate Sector Ratings, ICRA, believes, the "Gross under-recoveries (GURs) on sensitive petroleum products are expected to be higher at Rs 220-250 billion (assuming average Indian basket crude price of US$56-59/barrel) as compared to earlier estimates of around Rs 160-200 billion (average crude price of US$50-55/bbl) for FY2018.

    According to ICRA's estimates, for every US$1/bbl rise in Indian basket crude price, annual gross under recoveries will increase by around Rs 10 billion and net import bill by US$1.2 billion. "Hence, further increase in gross under recoveries in ensuing years could increase pressure on the GoI to increase subsidy allocation for the petroleum products. Moreover, there will be pressure on the GoI to reduce the excise duty on auto fuels in order to soften the impact on consumers." 

    Gross Under Recovery is the subsidy paid by government to oil marketing companies for selling products like Kerosene and LPG at subsidized rates compared with their actual cost of production.

    - TradeBriefs Bureau

     


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