L&T signs MoU with US-based KBR for building refineries

Source: The Economic Times, Jun 22, 2020

MUMBAI: Larsen & Toubro’s hydrocarbon arm has signed a memorandum of understanding with US-based engineering company KBR for construction of modular process plants for refinery and petrochemicals projects.

KBR and L&T Hydrocarbon Engineering (LTHE) will collaborate to develop business opportunities for refineries and petrochemical units, the Indian engineering major said Monday.

“Through this MoU with KBR, LTHE will combine its best-in-class engineering, world class modular fabrication facilities and core strength of project management and construction to offer safe, reliable, and optimized solutions to our customers,” Subramanian Sarma, managing director and chief executive officer of LTHE said.

LTHE will exclusively bid for KBR’s solid acid alkylation technology, solvent de-asphalting technology and catalytic olefins technology for global projects with special emphasis on India, South East Asia, Middle East and Africa.

L&T’s hydrocarbon business reported a 25% decline in new orders in FY20 at Rs 20,964 crore due to deferment of orders mainly in onshore vertical. Energy companies across the world have delayed petrochemical projects in view of the economic slowdown and ongoing uncertainties due to the Covid-19 pandemic.

India’ LNG import drops 40% to 1.5 MT in May

Source: Financial Express, Jun 05, 2020

India’s import of liquefied natural gas (LNG) recorded a drop of 40% year-on-year (y-o-y) in May. However, the import volumes inched up 4% from the levels in April. For LNG imports, Petronet LNG’s Dahej and Kochi terminals have been losing market share to Shell’s Hazira and the newly commissioned Mundra terminals over last three months, analysts at Credit Suisse noted.

The Mundra terminal is owned by GSPC LNG, a joint venture by the Gujarat government and Adani Enterprises.

The total capacity of operational LNG import terminals is 41 MT per annum (MTPA). Petronet’s Dahej, the largest among them with 16.3 MTPA capacity, was operating at 55-60% utilisation in May. The 5 MTPA Dabhol terminal, owned by a joint venture of GAIL and NTPC, has been closed from May 26 due to the monsoon season, and this is seen to provide some support to Dahej’s LNG volumes, experts pointed. Though the existing capacity of Dabhol is 5 MPTA, the available capacity is only 1.7 MTPA due to the absence of breakwater facility. Petronet LNG is a joint venture by Bharat Petroleum Corporation Ltd, GAIL, Indian Oil Corporation Ltd and Oil and Natural Gas Corporation. Import dependency of natural gas has increased to 53% of consumption in FY20 from 47% in FY19. Imports of LNG have increased at a CAGR of 12% during FY16-20, as the government plans to convert India into a ‘gas-based economy’ by 2030. As noted by Care Ratings, LNG imports have increased by more than 17% during FY20 with gas-based power plants, oil refineries and gas marketing companies taking advantage of low spot LNG prices. Value of imports came down by 7.8% in FY20 to $9.5 billion. India mainly sources supplies of LNG from Qatar, UAE, Niger, Angola and the US.

India’s fuel demand recovers in May

Source: The Economic Times, May 17, 2020

India’s fuel demand is recovering fast in May after falling at a record pace in April following the easing of lockdown that has permitted more vehicles on the roads and increased factory activity.

The diesel and petrol sales by state oil companies have fallen by 28% and 47.5%, respectively, in the first fortnight of May from a year earlier, according to industry executives. This is a sharp improvement from April, when the sale of diesel and petrol had declined by 56.5% and 61%, respectively. State companies control nearly 90% of domestic fuel sales.

A staggered easing of nationwide lockdown has got many factories humming back to life and more goods trucks and passenger cars on the roads, driving up demand for fuel. The first fortnight of April, which overlapped with the first and the strictest phase of the nationwide lockdown imposed to stem the spread of coronavirus had witnessed the sharpest fall in fuel demand with diesel and petrol sales falling 61% and 64%, respectively, from a year earlier.

An expected further easing of the lockdown curbs may boost fuel demand in the second fortnight of May, executives said.

Jet fuel sales, however, are barely recovering as passenger planes are still barred from flying. Jet fuel sales fell 87% in the first fortnight of May from a year earlier. In April, it had declined by 91.5%.

The sales of liquefied petroleum gas (LPG), used mainly for cooking in the country, has jumped 24% in the first fortnight of May from a year earlier, further improving its scorching growth pace of the past many months. The LPG sales in the first half of April was 21% higher though for the full month reduced to just 12% mainly because dealers slowed taking delivery towards the end of the month in anticipation of a sharp reduction in cooking gas prices at the beginning of May, executives said.
Increased fuel demand has come as a big relief to refineries, which are now increasing their run rates. Indian Oil Corp said its refineries have raised capacity utilization to 60% from 45% last month and plan to raise it further to 80% by end-May. A demand collapse and overflowing storage had forced all refiners to cut capacity utilization. None of the refineries was shut down though some came very close to it.

ONGC losses on gas business to widen to Rs 6,000 cr in FY21

Source: Financial Express, May 11, 2020

India’s top oil and gas producer ONGC is likely to see its loss on natural gas sales widen by nearly 50 per cent to Rs 6,000 crore in the current fiscal after the government-mandated rates for the fuel dropped to a decade low.

Oil and Natural Gas Corp (ONGC) had posted Rs 4,272 crore loss on gas business in 2017-18, which is likely to widen to over Rs 6,000 crore in the current fiscal (April 2020 to March 2021), sources said citing a company communique to the government.

The accounts for 2019-20 are yet to be finalised but the loss on gas business should be around Rs 4,500 crore.

ONGC has seen incurring losses on the 65 million standard cubic meters per day of gas it produces from domestic fields shortly after the government in November 2014 introduced a new gas pricing formula that had “inherent limitations” as it was based on pricing hubs of gas surplus countries such as the US, Canada, and Russia.

Rates according to this formula were revised every six months. Prices effective April 1 have been cut to USD 2.39 per million British thermal unit – the lowest in more than a decade.

Sources said ONGC in the communique stated that the break-even?price of major ongoing/planned projects to produce gas from newer discoveries was in the range of USD 5-9 per mmBtu.

In previous years, loss from the gas segment was getting offset from the gain from the oil business. But with oil business itself coming under severe strain due to a sharp slump in benchmark prices to a low of USD 20 per barrel, it has become difficult for the company to meet even the operating expenses, they said.

The company wants gas pricing to be completely freed with a floor rate of USD 4.2 per mmBtu (equivalent to rate given in the regulated regime), they added.

The price applicable from April 1 is the lowest that ONGC will realise since 2010 when the government had moved towards deregulating gas pricing.

In May 2010, the Cabinet had approved an Oil Ministry proposal to raise the rate of gas sold to power and fertilizer firms from USD 1.79 per mmBtu to USD 4.20.

ONGC and Oil India Ltd (OIL) got USD 3.818 per mmBtu price for the gas they produced from fields given to them on nomination basis and after adding 10 per cent royalty, the fuel cost USD 4.20 per mmBtu for consumers.

The Congress-led UPA had approved a new pricing formula for implementation in 2014 that would have raised the rates but the BJP-led government scrapped it and brought a new formula.

The new formula takes into account the volume-weighted annual average of the prices prevailing in Henry Hub (US), National Balancing Point (the UK), Alberta (Canada), and Russia with a lag of one-quarter. Prices are set every six months — on April 1 and October 1 each year.

The rates at the first revision, using the new formula, came to USD 5.05 but in the subsequent six-monthly reviews kept falling till they touched USD 2.48 for April 2017 to September 2017 period. Subsequently, they rose to USD 3.69 in April 2019 to September 2019 before being cut by 12.5 per cent in October 2019 to USD 3.23.

Oil Minister Dharmendra Pradhan, in a written reply to a question in the Lok Sabha on March 20, 2017, had stated that the cost of production of natural gas in the prolific Krishna Godavari basin is between USD 4.99 -7.30 per mmBtu. The same for other basins is in the range of USD 3.80 -6.59 per mmBtu, he had said. For ONGC, which produces most of its 64 million standard cubic meters per day of gas from western offshore, the breakeven is around USD 3.8.

Govt to gain Rs 1.6 lakh cr this fiscal from record excise duty hike on petrol, diesel

Source: The Economic Times, May 06, 2020

The cash-strapped government will gain close to Rs 1.6 lakh crore in additional revenues this fiscal from a record increase in excise duty on petrol and diesel, that will help make up for revenue it lost in a slowing economy and shutting down of businesses due to coronavirus lockdown. Late on Tuesday evening, the government hiked excise duty on petrol by Rs 10 per litre and that on diesel by Rs 13 a litre to mop up gains arising from international oil prices falling to a two-decade low.

This is the second hike in excise duty in less than two months and will help government garner over Rs 1.7 lakh crore in additional revenues annually at 2019-20 level of consumption, industry officials said.

Considering the slump in consumption due to travel restrictions imposed by coronavirus lockdown, the gains in the remaining 11 months of the current fiscal year (April 2020 to March 2021) will be close to Rs 1.6 lakh crore, they said.

Together with Rs 39,000 crore in annual revenues gained from the March 14 excise duty hike of Rs 3 per litre each on petrol and diesel, the government stands to gain as much as Rs 2 lakh crore.

State-owned fuel retailing companies, Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) had frozen petrol and diesel prices since March 16, as if anticipating the government move and will now set off gains they accrued from continuing drop in international oil prices against the excise duty hike.

Officials said normally retail prices would have changed with any revision in taxes but like March 14, there is no change as the excise duty hike is being adjusted against the gains consumers should have got from Brent crude oil dipping to about USD 18 per barrel – the lowest since 1999.

Commenting on the excise duty hike, Vikas Halan, Senior Vice President, Corporate Finance, Moody’s Investors Service, said: “Government of India’s increase in petrol and diesel taxes by USD 21/barrel and USD 27/ barrel respectively will result in government’s tax collection increasing by about USD 21 billion, if the tax hike is maintained for full year.

“This reinforces the importance of oil marketing companies to the government of India and validates the support incorporated in our credit assessment of these companies. The tax hike could result in higher working capital outflow for the oil marketing companies, which will partly offset the working capital savings from lower inventory costs.”

According to a notification issued by the Central Board of Indirect Taxes and Customs, special additional excise duty on petrol has been hiked by Rs 2 per litre and road cess has been hiked by Rs 8 a litre. In case of diesel, special additional excise duty has been hiked by Rs 5 per litre and road cess has been raised by Rs 8 a litre.

With this, the total incidence of excise duty on petrol has risen to Rs 32.98 per litre and that on diesel to Rs 31.83.

Petrol costs Rs 71.26 a litre in Delhi and a litre of diesel comes for Rs 69.39.

Central excise duty makes up for 46 per cent of petrol and diesel price now. After considering local sales tax or VAT, the total tax incidence in the price is as high as 60 per cent.

The excise tax on petrol was Rs 9.48 per litre when the Modi government took office in 2014 and that on diesel was Rs 3.56 a litre.

The government had between November 2014 and January 2016 raised excise duty on petrol and diesel on nine occasions to take away gains arising from plummeting global oil prices.

In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months that helped government’s excise mop up more than double to Rs 2,42,000 crore in 2016-17 from Rs 99,000 crore in 2014-15.

It cut excise duty by Rs 2 in October 2017 and by Rs 1.50 a year later. But it raised excise duty by Rs 2 per litre in July 2019.

It again raised excise duty on March 14 by Rs 3 per litre.

In preparation for the excise duty hike, Finance Minister Nirmala Sitharaman had at the fag end of the Budget session of Parliament took the authorisation to raise excise duty on petrol and diesel by Rs 8 per litre each in future.

Sitharaman through an amendment to the Finance Bill, 2020 raised the limit up to which the government can raise special excise duty on petrol and diesel to Rs 18 per litre and Rs 12 per litre, respectively.

The March 14 excise duty hike included Rs 2 a litre increase in special additional excise duty and Re 1 in road and infrastructure cess.

This hike took the special additional excise duty to maximum permissible limit in law – Rs 10 in case of petrol and Rs 4 in case of diesel.

This, through an amendment to the Eighth Schedule of the Finance Act, was increased to Rs 18 per litre in case of petrol and Rs 12 in case of diesel.

Government sources said the Centre has taken this step of increasing duty to raise some revenue in view of a tight fiscal situation. This would help in generating the resources to meet expense of coronavirus fight as well as meet other spending needs such as on infrastructure.

Govt simplifies oil, gas block process with self-certification, deemed approval

Source: LiveMint.com, Apr 27, 2020

NEW DELHI: In perhaps the most far-reaching easing of rules, the government has simplified procedures for oil and gas exploration and production by providing for self certification for a host of compliance, such as a discovery notification and deemed consent for investment in fields in a stipulated time.

With a view to make it easier to do business, the government has provided that notification of a discovery and tests to confirm them will not require approval and documents will be accepted on self-certification basis, according to the notification issued on April 25.

Work programme and field development plan or their revisions will be deemed to be approved on expiry of 30 days of submission of documents under self-certification. Only issues requiring government nod will be grant of petroleum exploration or mining license, transfer of stake and extensions.

The Directorate General of Hydrocarbons (DGH) has issued a detailed notification, simplifying procedures and process under Production Sharing Contract (PSC) for pre-NELP and NELP oil and gas blocks.

Almost all of India’s oil and gas production comes from either areas given to state-owned ONGC and OIL on nomination basis or awarded to companies such as Reliance Industries and Cairn in bid rounds since 1990s.

“Ease of doing businesses is one of the focus areas of the government in exploration and production (E&P) sector, with the objective to increase investment and production,” the DGH said in the April 25 order.

“Simplification of procedures and processes make the system transparent and faster which facilitates investments in the sector.”

The areas or blocks awarded under New Exploration Licensing Policy (NELP) since 1999 such as RIL’s KG-D6 or fields given away in pre-NELP bid rounds like Cairn’s Rajasthan oil block will benefit from the easing of rules.

One of the critical aspects of the PSCs signed under pre-NELP and NELP, which also tends to be one of the most contentious, relates to cost recovery: the extent of cost recoverable by the operator from revenue generated in the oil and gas field.

Another important area of dispute is the investment multiple (IM) that determines profit sharing between the government and the contractor.

India has seen a large number of disputes between the private contractors and the government, most of them around cost recovery claims of contractors and IM.

The DGH said a review of processes for various approvals and submission of documents for the same under PSCs for NELP/pre-NELP was undertaken.

Following this, the processes have been divided into three categories – process where documents shall be accepted on self-certification basis and no approval is required; processes where approval will be deemed on expiry of 30 days of submission of documents under self-certification; and processes where approval shall be required.

The 22 processes where documents will be accepted on self certification basis and no approval is required include information of discovery, potential commercial interest, bank guarantee, notification of discovery confirmation test, inventory report, submission of data, environment impact assessment report, contingency plan, appointment of auditor, notice for entering next phase or relinquishment and commercial discovery.

Work programme and budget, appraisal programme or its revisions and field development plan or its revisions are the three processes where approval will be deemed after 30-days.

A dozen processes – including extension of exploration phase, grant of petroleum exploration licenses (PEL) and petroleum mining lease (PM), unit development plan, liquidated damages on account of cost of unfinished work programme, assignment/transfer of participating interest, extension of PSC, cost and profit petroleum calculations and audited accounts – will require prior approval.

“All self-certified documents shall be as per provisions of PSC and shall be duly supported with all the relevant documents duty attested by the authorised/signatories of the contractor,” DGH said.

All self-certified documents will be submitted to petroleum ministry/DGH at any time for alignment with relevant provisions of PSC, policies/guidelines issued by government/DGH, good international petroleum industry practices (GIPIP) and other statutory requirements, it said.

“In case any material deviation is observed in facts/figures and substance submitted by the contractor during review by Ministry of Petroleum and Natural Gas/DGH, the contractor shall be notified for modification/ rectification of the same as per provisions of PSC in a time bound manner,” it added. DGH also issued standard formats for submission of various documents.

India’s fuel sales drop 18% in March; petrol demand falls 16%, diesel slips 24%

Source: LiveMint.com, Apr 09, 2020

New Delhi: India’s fuel consumption slumped by over 66 per cent in April as a nationwide lockdown halted economic activity and travel, which eviscerated demand.

Petrol and diesel demand is down 66 per cent in April, while aviation turbine fuel (ATF) consumption has collapsed by 90 per cent as most airlines have stopped flying, industry officials said.

India had consumed 2.4 million tonnes of petrol and 7.3 million tonnes of diesel in April 2019. As much as 6,45,000 tonnes of ATF was used in that month last year.

The collapse of demand in the world’s third-biggest consumer during April comes on the back of worst fuel sales in more than a decade recorded in March 2020.

The country’s petroleum product consumption fell 17.79 per cent to 16.08 million tonnes in March as diesel, petrol and ATF demand fell, according to official data released here.

Diesel, the most consumed fuel in the country, saw demand contract by 24.23 per cent to 5.65 million tonnes. This is the biggest fall in diesel consumption the country has recorded as most trucks went off-road and railways stopped plying trains.

Petrol sales dropped 16.37 per cent to 2.15 million tonnes in March as the 21-day nationwide lockdown enforced to prevent the spread of COVID-19 took most cars and two-wheelers off the road.

With flights grounded since mid-March, ATF consumption fell 32.4 per cent to 4,84,000 tonnes.

The only fuel that showed growth was LPG as households rushed to book refills for stocking during the three-week lockdown period.

LPG sales rose 1.9 per cent to 2.3 million tonnes in March.

This is the first estimate of total petroleum product consumption in the country. This includes sales by both public and private sector companies.

Previously, provisional numbers of the three public sector oil marketing companies — Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) — were released that also showed a 17 per cent drop in petrol and 26 per cent slump in diesel sales in March.

Industry officials said the pattern in fuel consumption is continuing in April as the lockdown is to last till mid of the month and there are indications that part restrictions will continue even after the lockdown is lifted.

Petrol and diesel sales in April are one-third of what they were a year ago, they said adding that demand is expected to pick up when the lockdown is lifted and restrictions on public transport lifted.

LPG sales in April is up 30 per cent, they said adding that these are provisional trends and actual numbers will only be known at the month-end.

Prime Minister Narendra Modi had announced a 21-day lockdown beginning March 25, shutting offices and factories, barring those involved in essential services. Also, flights were suspended, trains stopped plying, vehicles went off the road and cargo movement stopped as most people were asked to stay home to help check the spread of coronavirus.

March is the first month in two-and-a-half years when petrol sales have seen a negative or de-growth.

Naphtha consumption in March was up 15.7 per cent to 1.38 million tonnes, possibly because of its increased use in power plants. But, other industrial fuels such as fuel oil posted a 10.4 per cent drop to 4,82,000 tonnes.

Bitumen, used in road construction, saw a 41 per cent drop in consumption to 5,25,000 tonnes.

In the full 2019-20 fiscal (April 2019 to March 2020), petroleum product consumption was almost unchanged at 213.68 million tonnes as compared to 213.21 million tonnes of fuel consumed in the previous 2018-19.

LPG consumption saw a 5.8 per cent rise to 26.3 million tonnes, while petrol sales were up 5.9 per cent to 29.97 million tonnes.

ATF sales slipped 3.6 per cent to 8 million tonnes and diesel consumption was down 1.1 per cent at 82.6 million tonnes. Diesel sales had shown modest growth in April 2019 to February 2020.

World’s top infrastructure manager eyes India oil, gas pipeline assets

Source: LiveMint.com, Mar 25, 2020

The global slump in oil prices amid the coronavirus outbreak will push Indian state-owned firms to sell some assets, according to Macquarie Infrastructure and Real Assets, and the world’s biggest infrastructure investor is already in line.

“There is a fair bit of opportunity for the government to divest non-core oil and gas assets, like oil storage facilities, pipelines, transmission facilities,” Suresh Goyal who heads MIRA in India and Southeast Asia, said in an interview. “With our investment platforms, local teams, we are well placed on capitalizing this opportunity.”

While he declined to share investment projections, MIRA raised about $61 billion in capital globally last year — the highest in the world based on data from Infrastructure Investor –and has poured $2.5 billion into India over the past decade. Attracting foreign investment is crucial to meet Prime Minister Narendra Modi’s goal of spending $1.5 trillion on new roads, rail links and other infrastructure over the next five years as public finances deteriorate.

Canada’s Brookfield Asset Management last year acquired Reliance Industries Ltd.’s East West Pipeline via an infrastructure investment trust for 130 billion rupees ($1.7 billion). The government plans to split GAIL India’s transmission business into a separate entity that it could sell to strategic investors. GAIL owns more than 70% of the country’s 16,800 kms pipeline network.

“India’s energy consumption is likely to grow 60%-70% in the next decade and a half, leading to a significant jump in petroleum products and gas consumption,” said Deepak Mahurkar, leader, India oil and gas industry practice, at PricewaterhouseCoopers LLP. “This is an important story for investors, especially the global private equity firms and infrastructure asset managers.”

MIRA set shop in India in 2009, and so far more than half its investment in the country has gone to the road sector. It is now looking to exit several investments, Goyal said, while declining to share details or returns beyond saying that they were “profitable.”

One concern, however, is how quickly and strongly the economy will recover from the coronavirus-led disruption, Goyal said. Another is banks’ increasing unwillingness to lend to the infrastructure sector. Indian lenders are battling the world’s worst stressed-loan ratio, with much of the soured debt in the infrastructure space. Banks’ lending to the sector, which includes power, roads, telecom, contracted by 1.8% in the first 10 months of the fiscal year ending March 31 compared with 10.8% growth a year earlier. “The capital that we bring is in the form of equity but it does need the support of local banks for working capital,” Goyal said. “Hopefully measures taken by the government and the central bank will change things.”

India’s import of US oil jumps 10-fold to 2,50,000 bpd

Source: The Hindu Business Line, Feb 25, 2020

New Delhi: US oil supplies to India have jumped ten-fold to 2,50,000 barrels per day (bpd) in the last few years, visiting US Energy Secretary Dan Brouillette said on Tuesday.

Speaking at a business meeting alongside US President Donald Trump, he said Indian imports of US oil were 25,000 bpd a couple of year ago, and have now risen to 2,50,000 bpd. US is India’s sixth largest oil supplier.

India began importing crude oil from the US in 2017 as it looked to diversify its import basket beyond the OPEC nations. It bought 1.9 million tonnes (38,000 bpd) of crude oil from the US in 2017-18 and another 6.2 million tonnes (1,24,000 bpd) in 2018-19. Read the rest of this entry »

Natural gas prices in India likely to be cut by steep 25% from April

Source: Business Standard, Feb 21, 2020

New Delhi: Natural gas prices in India are likely to be cut by a steep 25 per cent beginning April, in line with the slump in global rates, sources said.

The price of most of the natural gas produced by state-owned ONGC and Oil India Ltd, which account for the bulk of India’s existing gas output, is likely to be cut to around USD 2.5 per million British thermal unit for the six-month period beginning April 1, from $3.23 as of now.

This will be the second reduction in six months and will reduce rates to the lowest in two-and-half-years. Read the rest of this entry »