CRUDE OIL PRICES

Oil Industry Future Challenges by Shri. B.K. Bakhshi 1 Oil - Price Peaks & Effect on Indian Economy Sr No 1. 2. 3. Year 1973 1979 1990 GDP Inflation Growth (+/-) - 0.3 % - 5.2 % + 1.3 % 20 % 17 % 14 % Event Yom Kippur War oct 73 Iranian Revolution 1st Gulf War 4. 2008 - From expected 9% to less than 8% 12 % + From Katrina Onwards 2 CRUDE OIL PRICES (Indian Basket) Sr No. Year 1. March 2003 2. 3. 4. 2005 2006 2007 Price ($/BBL) 23 52 63.35 70.06 5. 2008 (avg 1st 6 months) 110.52 • Peak – July 08 - $142/BBL 3 VERTICAL INTEGRATION HELPS OIL MAJORS • Integrated International Majors profits go down when crude price go down and profits go up when crude price are up. Examples: • The slump in crude prices to less than $15 per bbl in 1998 led to mergers – such as Exxon Mobil, Philips Conoco, etc. • When crude prices rose from $33 per bbl in April 2004 to 70.25 per bbl in Aug 2005 – 2 weeks after Katrina Hurricane. Gasoline prices in USA peaked to $3.06 per USG. The combined net income of Exxon Mobil, BP, Royal Dutch, Shell & Conoco Philips totaled $ 32.8 Billion during the quarter ending Sept 2005 on a revenue of $ 378 Billion. * Source Black Gold by George Orwell, page 147 4 Journey so far Government’s liberalization drive hastened the pace of hydrocarbon market development in India . 1950 1 2 3 4 5 6 7 8 9 Population (bn) GDP Growth Rate (%) Crude Production (MMT) NG Prodn (MMSCMD) Refining Capacity (MMT) Crude import (MMT) Pipelines (kM) Product Consumption (MMT) Product Export (MMT) 0.36 3.9@ 0.26 NA 0.25 3.05* 37^ 3.3 0 NA *1955 figure 1990 0.84 5.58$ 32.6 49.3 51.85 20.7 9,945 55 2.6 14,264 2007-08 Comments 1.13 2nd most populous country Around 9 >8% for last four years 34 91 149 122 31,061 129 39.3 34,696# Almost stagnant since 1990 Bulk production from Mumbai High field 6th largest refining capacity in world 29% & 44% of total import & export in value World’s longest operating LPG pipeline >11% growth in MS/HSD & 14% in ATF last yr 20.2% growth in POL export over 2006-07 (32.7 MMT) 10 Retail Outlets @1950-60 Avg Catering to more than 80 mn motor 5 vehicles #As on 1.4.07 $1990-200 Avg ^Product pipeline Sectoral Overview – Upstream Upstream sector in India is a relatively unexplored market with reserves estimated in only 15 of the 26 sedimentary basins. Key Facts • 26 sedimentary basins: 3.14 mn sq kM (44% onland and 56% offshore) • Prognosticated Hydrocarbon reserves: 28 BTOE (<25% established) ~ 200 bn barrels • Crude oil production - 34 MMT • Upstream NOCs dominate production/acreage • Directorate General of Hydrocarbons (DGH) vested with upstream regulatory functions • New Exploration Licensing Policy (NELP) 6 Sectoral Overview – Upstream NELP rounds have opened up large sedimentary areas for exploration to private and JV companies leading to decrease in unexplored or poorly explored areas from 67 to less than 37% Out of total 205 bn bbl of prognosticated resources in 15 basins, 66 bn bbls have been established since 1947. 15 bn bbl in-place reserves were added during last 7 years •Exploration Acreage – April ’96 Poorly Explored 18% •Exploration Acreage – April ‘07 Poorly Explored 21% Unexplored 15% Sedimentary Area Yet to offer 32% Moderate to well explored 16% Unexplored 49% Moderate to well explored 20% Exploration initiated 17% Exploration initiated 44% Area under License 68% Source: Directorate General of Hydrocarbon 7 Overall Demand-Supply Gap (MMSCMD) Natural Gas 2008-09 2009-10 2010-11 2011-12 Supply Domestic LNG Total Demand GAP MMSCMD MMT 120 34 154 197 43 14.9 140 52 192 222 30 9.9 147 70 217 265 48 15.84 170 70 240 282 42 13.9 8 LNG Terminals Rated Capacity Company/Location 2008-09 2009-10 2010-11 2011-12 Petronet-Dahej Shell-Hazira RGPPL-Dabhol Total 5.00 2.50 7.50 10.00 3.50 2.90 16.40 10.00 3.50 5.00 18.50 10.00 3.50 5.00 18.50 9 Expected Share of Natural Gas in the Energy Basket in India (Hydrocarbon Vision 2025) Year Coal Oil Gas Nuclear 2006-07 50 32 15 1 2011-12 53 30 14 1 2024-25 50 25 20 3 Hydel 2 100 2 100 2 100 10 Sectoral Overview – Downstream India’s downstream sector is dominated by NOCs. Major Downstream Players as on April 1, 2008 Refining capacity (MMTPA) Essar, ONGC, 10.5, 7% 9.8, 7% IOC, 60.2, 40% Key Facts • 19 refineries with 149 MMTPA installed capacity • 105% capacity utilization in 2007-08 • Refined product consumption – 129 MMT • Refined product consumption: 7% annual growth • Refined product net exports – 39 MMT, Gross HPCL, 13.0, 9% BPCL, 22.5, 15% RIL, 33.0, 22% exports $26.8 bn 07-08 (50% growth over 2006-07) Source: MoPNG • Product pipelines stretch over 9,500 km • New entrants in the oil marketing business include Market Share of sale of Petroleum Products (in Vol sales excl. CNG & LNG) Pvt Other 10% (PSUs) 2% RIL, Shell, EOL, MRPL and NRL • Domestic auto sales 14.1% CAGR (’06-07 over ’01- HPCL 19% BPCL 21% 02); petroleum products consumption jumped by 7% from last year • Over 34,000 retail outlets Source: Monthly IPR IOC 48% 11 Sectoral Overview – Downstream Refining industry in India is poised for rapid growth with additional investments planned over the next decade supported by GoI’s intention to promote India as an integrated refining and petrochemical export hub. Developments • • • • • Refining Capacity Vs. Crude Import in MMT as on April 1 225.88 210.21 194.7 170.41 148.9 120.37 107.27 150.51 195.49 240.96 241 MMTPA refining capacity by 2012 38 MMTPA addition in the Pvt sector Private investments from Chevron/Mittal RIL/Essar/IOC venturing abroad (Kuwait, Africa, Turkey etc.) Crude import and product exports expected to jump Investments • • Investment of over $22 bn estimated for creating new refining capacity Refinery upgradation projects to require investments of the order of $2.5 bn 2008 2009 2010 2011 2012 12 Source: XI FYP, MoPNG Oil Companies Under Recoveries 2007-08 – On price controlled products Sr. 2007-08 No. 1. 2. 3. LPG MS SKO UnderRecovery (Rs Crs) 15,000 7,000 2. 19,000 3. This is BORNE By Sr. Agency No. 1 Upstream Companies OIL Bonds OIL Companies Total (Rs Crs) 26,000 35,000 16,000 77,000 13 4. HSD Total 35,000 77,000 High Taxes on Transport Fuel Sr. Item No 1. Basic Price (Rs/KL) MS Percentage HSD Percentage 23,149.33 50.9% 23,241.11 73.18% 2. Custom/Exchange 22,370.67 Sales/Other Taxes (Rs/KL) Total Retail Price Rs/KL 49.1% 8518.89 26.82% 3. 45,520.00 100% 31760.00 100% 14 SHARE OF OIL REVENUE IN TOTAL REVENUE IN 2002-05 Year Accrued to Oil Revenue (Rs. Crs) 64595 32156 96751 69195 35180 104375 Total Revenue (Rs. Crs.)* 236936 178001 414937 263027 203746 466773 Share of Oil Revenue in Total Revenue (%) 27.3 18.1 23.3 26.3 17.3 22.4 2002-03 Centre States Total 2003-04 Centre States Total 2004-05 Centre States Total 77692 43254 120946 300904 235283 536187 25.8 18.4 22.6 *Centre’s revenue is taken as net of transfers to States. States’ revenue is the total receipts of own tax and nontax revenue. Source: Report of the Standing Committee on Petroleum & Natural Gas in Parliament, Government of India; State 15 Finances, A study of Budget of 2004-05, RBI, Government of India; Budget documents, Government of India. Renewable Energy Sources Potential Source/ Technology Biogas Plants Units Potential/ Availability 12 Potential Exploited Units 3.2 Percentage 26.8 Million Biomassbased Power. Efficient wood stoves. Solar Energy. Small Hydro Wind Energy. Energy Recovery from Wastes. Hydel. MW Million MW/Sq. Km MW MW MW 19,500 120 20 15,000 45,000 1,700 384 33.9 1.7 1,398 1,367 16.2 1.9 28.2 8.7 9.3 3.0 0.9 MW 148,700 16,083 10.8 16 * Table 7.3.3/7.3.16 10th plan document Biofuels Activities • JV under formation with Chhattisgarh Government to produce 30,000 MTPA Biodiesel • 2000 ha revenue wasteland allotted by Government of M.P. In Jhabua district for energy crop plantation. Investment approval being obtained • 10% ethanol blends in MS by 2012 (The end of the 11th plan) • Discussions with U.P. and Rajasthan Government for creating Biodiesel units. 17 Status - Hydrogen Activities of IOC  IOC R&D had set up the India’s first Hydrogen Dispensing Station in October, 2005 which is being used for fueling test vehicles.  A similar Hydrogen-CNG Dispensing Station is being set up at Delhi in Dwarka by IndianOil which will be commissioned by end of 2008.  IOC R&D working closely with SIAM members under an MNRE project for optimisation of various vehicles to Hydrogen-CNG.  IOC R&D planning further projects related to Hydrogen production, development of codes & standards etc. 18 Planning Cycle – Key Corporate Activity Perspective Plan Long Term Plan Vision Annual Plan 5 Year Plan 19 Knowledge Explosion • Knowledge Doubling Rate of Change of Everything is Hyperbolic itself every 5-7 years • The importance of R&D escalating exponentially Years 20 Formula for Organisational Perpetuity 1. Creativity – Without which no new Technologies products goods & services can emerge. Continuity – Without which in a changing environment the sense of purpose and/or directions may get lost and develop aberrations. Discontinuity – The essence of discontinuity / change is to discard the irrelevant / obsolete on a continuous basis. Without it no forward progress can take place. 21 2. 3.