Investing in Energy Rewards & Options
–
Risks,
Sanjay Gakhar
Indian Oil & Gas Scenario
Oil : India ranks amongst the top 10 largest oil consuming countries. Oil accounts for about 30 per cent of India’s total energy consumption of 2.4 million barrels per day. Imports accounts for about 75 per cent of oil consumption India had a total of 2.1 million barrels per day in refining capacity. Natural Gas: Indian consumption of natural gas has risen from a 0.6 trillion cubic feet (Tcf) in 1995 to about 0.9 tcf & is projected to reach 1.2 Tcf in 2010 and 1.6 Tcf by 2015. About 50 per cent of the country’s gas requirement were met through imports.
Government Liberalization Reforms in Energy Sector
Oil: Indian govt. officially ended the Administered Pricing Mechanism for petroleum product prices Disinvestment in Public Sector Complete deregulation of the Indian retail petroleum products sector is under progress. Natural Gas: Govt. has been considering reforms in its natural gas pricing mechanism. Coal: The government has been planning to greater liberalize the coal-sector. Electricity: The new guidelines of National Electricity Policy (NEP) allow competition Open access in distribution Foreign equity is permitted up to 100 per cent.
India’s Exposure to Crude Prices
Imports accounts for about 75 per cent of oil consumption Producers, refiners & consumers exposed to international price volatility Paradigm shift likely from ‘administered pricing’ to ‘free market’ pricing Price volatility cannot be wished away
Risk Exposures
Producers Sharp decline in oil prices Economic viability of profitable wells may turn non-profitable Refiners Change in value of inventories Volatile cash flows may lead to liquidity crunch Volatility in prices between period of buying crude & selling products
Importers / Exporters of crude oil & products are permitted to hedge their exposure to price risk
Close Relationship (All Varieties)
54.00 49.00 44.00
Global crude prices
Dollars per barrel
39.00 34.00 29.00 24.00 19.00 14.00 9.00
Mar-90
Mar-91
Mar-92
Mar-93
Mar-94
Mar-95
Mar-96
Mar-97
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Dubai Fateh Dated Brent (BFO)
Bonney light Arab Medium
WTI Cushing Kuw ait
Mar-05
MCX Crude Oil Futures
Trading successfully since 9th February 2005 Three varieties Light Sweet Crude Oil Brent Crude Oil Middle East Sour Crude Oil (Dubai & Oman Grades)
Provides a marketplace for bringing together physical
industry participants and financial investors Ideal mix of day traders & position traders as exhibited by
high liquidity & open interest respectively
MCX Rs/barrel
2000
2/9/05 3/9/05 4/9/05 5/9/05 6/9/05 7/9/05 8/9/05 9/9/05 10/9/05 11/9/05 12/9/05 1/9/06 2/9/06
2200
2400
2600
2800
3000
3200
3400
MCX NYMEX
3/9/06 4/9/06 5/9/06
MCX-NYMEX Crude Oil Correlation
MCX-NYMEX Crude Oil Correlation: 98%
46 50
NYMEX US$/barrel
54
58
62
66
70
74
MCX Energy Basket
Light Sweet Crude Oil
Brent Crude Oil
Middle East Crude Oil
Furnace Oil
Natural Gas*
Coal*
* may be launched soon
Contract Specifications for Crude Oil Futures (Light Sweet, Brent & MiddleEast)
Trading Unit:100 barrels
Quotation/Base Value: Rs. per barrel
Tick Size: Re. 1 Price Quote: Ex – Mumbai (excluding all taxes, sales tax / VAT as the case may be, levies, freight and other expenses) Daily Price Limits & Initial Margin: 4% & 5%
MCX & NYMEX Strategic Alliance
MCX through the recent exclusive Licensing Agreement with NYMEX on 05 June 2006, will shortly* launch miniversions of NYMEX energy products as follows & settle these contracts based on NYMEX settlement prices Gasoline Heating Oil Natural Gas
*subject to regulatory approvals
Thank You