Global oil giants seek inroads into retail fuel market: Govt

Global oil majors including Saudi Aramco and Total plan to tap the retail fuel market in India, its oil minister said on Friday, reflecting the expanding role of the world’s fastest-growing large economy on the global crude landscape.

The country’s fuel markets could be a lucrative prize for the world’s oil majors as they seek outlets for their gasoline and diesel.

India posted the fastest oil demand growth in the world in the first quarter of 2016 and is replacing China as the driver of growth globally, the International Energy Agency said in its latest report.

“Saudi Aramco is eager to enter in Indian market, we are finding ways to help them,” Oil Minister Dharmendra Pradhan said in Hindi in a live telecast on a government website.

India, the world’s fourth-biggest oil consumer, recently offered Saudi Aramco a stake in refineries and petrochemical projects.

Saudi Aramco wants to expand globally and is looking at potential joint ventures in several countries, including Indonesia, India, the United States, Vietnam and China, chief executive Amin Nasser told Reuters in an interview in May.

Fuel marketing in India has turned profitable after the government ended decades-old control over the retail prices of gasoline and diesel.

Pradhan said local private oil refiners Reliance Industries and Essar Oil have started opening their mothballed fuel stations and are adding new ones to expand business.

French major Total and European major Royal Dutch Shell that have a limited presence in India are also keen to strengthen their presence in the fuel retailing business, Pradhan said.

“Shell officials recently met me and informed about their plan to expand the retail network in a big way in southern India,” he said.

He said his ministry has agreed to grant a licence to BP to market jet fuel in India. “There is a possibility they (BP) may expand into the Indian retail sector,” he said in Hindi.

Essar Oil is still working to complete a deal to a sell a 49 per cent stake in its 400,000 barrel per day Vadinar refinery in Gujarat to Russian giant Rosneft.

“Rosneft, rich with oil and gas wants to join Indian markets,” Pradhan said.

Source: Business Today; 03 June 2016

URL: http://www.businesstoday.in/sectors/energy/saudi-aramco-and-total-seek-inroads-into-retail-fuel-market/story/233374.html

Oil set for longest losing streak in 16 weeks as OPEC convenes

Tokyo: Oil dropped a fifth day as Organization of Petroleum Exporting Countries (OPEC) ministers prepare to convene in Vienna to discuss production policy and industry data showed US inventories rose.

Futures fell as much as 0.5% in New York, extending its run of losses to the longest since February. US stockpiles rose by 2.35 million barrels last week, the American Petroleum Institute was said to report. Government data due Thursday is forecast to show a decline. Saudi Arabia is ready to consider a surprise deal with fellow OPEC members in an attempt to mend divisions, though no formal proposal has yet been made, according to delegates familiar with the situation.

Oil has surged about 85% from a 12-year low it touched earlier this year amid signs output from the US to China declined under pressure from OPEC’s strategy of sustaining production amid a global glut. Any new output agreement by Organization of Petroleum Exporting Countries will depend on Iran, which has so far rejected any cap on its supplies.

“There is a general expectation that there will be no change to the strategy,’’ Ric Spooner, a chief analyst at CMC Markets in Sydney, said by phone. “There seems to be no logical reason for the main players, such as Saudi, to change the course of action, particularly now that their strategy seems to be working.”

West Texas Intermediate for July delivery fell as much 24 cents to $48.77 a barrel on the New York Mercantile Exchange and was at $48.78 at 9:25am. Tokyo time. Total volume traded was about 80% below the 100-day average. The contract dropped 9 cents to close at $49.01 on Wednesday.

Brent for August settlement lost as much as 13 cents, or 0.3%, to $49.59 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a 34-cent premium to WTI for August delivery.

Source: Mint; 02 June 2016

URL: http://www.livemint.com/Industry/dNAcWANziNIRqKphxUpYMJ/Oil-set-for-longest-losing-streak-in-16-weeks-as-OPEC-conven.html

ONGC Q4 net profit jumps 12% to Rs 4,416 cr

Country’s biggest oil explorer ONCG on Thursday reported 12 per cent jump in the March quarter net profit as it reversed part of impairment losses and got back some of the fuel subsidy from the government.

At Rs 4,416 crore, Oil and Natural Gas Corp’s net profit in the January-March quarter was 12.2 per cent higher than Rs 3,935 crore net profit in the same period of the previous fiscal, Chairman and Managing Director D K Sarraf told reporters here.

The profit was mainly as it reversed Rs 800 crore of impairment taken earlier on drop in oil prices and got another Rs 633 crore from the government for excess fuel subsidy it had paid earlier. It also gained Rs 1,585 crore on dry well provisioning.

“We had in the third quarter of 2015-16 fiscal provided for an impairment loss of Rs 3,994 crore. This has now been brought down to Rs 3,142 crore after crude oil prices rebounded a bit,” he said.

Impairment is taken to reflect value of oil and gas reserves a company holds after prices have fallen.

ONGC had in the first quarter of 2015-16 paid Rs 1,133 crore to fuel retailers to subsidise LPG and kerosene and another Rs 596 crore in the July-September quarter.

The subsidy accounts have been adjusted in view of slump in oil prices to multi-year low. The April-June subsidy has been trimmed to Rs 1,096 crore and all of such payout of the second quarter has been returned, he said.

Profit rose despite crude oil production falling by 1.7 per cent to 6.34 million tons. Gas output also dropped by nearly 10 per cent to 5.24 billion cubic meters.

ONGC was exempted by the government from payment of any fuel subsidy last year, leading to the profit boost.

Sarraf said the company got $34.88 on every barrel of crude oil it sold in the January-March quarter of 2015-16 fiscal as against $55.63 a barrel in the year ago period.

The reduction in oil price realised meant that its turnover fell by 24.3 per cent to Rs 16,424 crore in Q4.

For the full fiscal 2015-16, ONGC posted a net profit of Rs 16,004 crore on a turnover of Rs 78,569 crore. This was as against Rs 17,733 crore net profit in 2014-15 on a turnover of Rs 83,094 crore.

The company has also taken an impairment of about Rs 3,000 crore on reserves of its overseas subsidiary, ONGC Videsh Ltd.

With the slump in oil prices, government exempted ONGC from paying any subsidy in the second half of 2015-16 fiscal.

Total subsidy payout in 2015-16 at Rs 1,096 crore compared with Rs 36,300 crore payout in the previous fiscal.

But for the subsidy payout, the net profit would have been higher by Rs 607 crore in April 2015 to March 2016 fiscal.

Source: Business Today; 26 May 2016

URL: http://www.businesstoday.in/sectors/energy/ongc-q4-net-profit-jumps-12-per-cent-to-rs-4416-cr/story/233045.html

Goldman Sachs surprised by sudden oil-market turn as glut vanishes

Singapore: The global oil market has flipped to a deficit sooner than Goldman Sachs Group Inc. had expected.

A decline in production driven by unexpected supply disruptions as well as sustained demand have led to a “sudden halt” to the market surplus, Goldman analysts including Damien Courvalin and Jeffrey Currie wrote in a report dated 15 May. That’s prompted the bank to raise its US crude price forecast to $50 a barrel for the second half of 2016 from a $45 estimate in March.

The unexpected outages caused by everything from wildfires in Canada and pipeline attacks in Nigeria will keep the market in deficit through the second half of this year, according to Goldman. Still, the return of some of the output and higher-than-expected US, North Sea, Iraq and Iran production means the bank predicts the shortfall will be at 400,000 barrels a day versus the 900,000 previously expected. A shift back to a surplus is seen in early 2017, it said.

“The physical rebalancing of the oil market has finally started,” the Goldman analysts wrote. The changes to forecasts “reflects our long-held view that expectation for long-term surpluses can create near-term shortages and leaves us cyclically bullish but long-term bearish.”

Oil demand

Goldman cut its crude price forecast for the first quarter of 2017 to $45 a barrel from $55 previously, but sees oil rising to $60 by the end of that year. The bank expects global oil demand to grow by 1.4 million barrels a day in 2016, versus 1.2 million predicted earlier.

West Texas Intermediate crude, the US benchmark, rose 1.9% to $47.08 a barrel by 5:10 p.m. Singapore time on the New York Mercantile Exchange. Front-month futures are up almost 80% from a 12-year low earlier this year. Brent, the marker for more than half the world’s oil, was at $48.69 a barrel in London.

While supply disruptions over the past two weeks have reduced production by 1.5 to 2 million barrels a day, prices are up only $2 a barrel, reflecting ample inventories in the market, according to Goldman. With stockpiles at historically elevated levels in several countries, the current outages have little impact on the availability of crude barrels, it said, adding that “high product stocks would even allow for lower refinery runs if necessary.”

Inventory shifts

The pace of draws in inventories is what will drive prices, as uncertainty surrounding future supply-demand balances remains “significant,” according to the bank. “The price recovery will remain anchored by near-term inventory shifts, with the oil market less forward looking than over the past two years,” the analysts wrote.

While US stockpiles of crude shrank in the week ended 6 May for the first time in more than a month, stored supplies remained close to the highest since 1929, data from the Energy Information Administration show.

Goldman’s expectation for the market to return to a surplus in 2017 reflects the view that low-cost producers will continue to drive output growth, boosted by Saudi Arabia, Kuwait, the UAE. and Russia, the bank said.

“While the physical barrel rebalancing has started, the structural imbalance in the capital markets remains large,” the analysts wrote. “The industry still has further to adjust and our updated forecast maintains the same 2016-2017 price level that we previously believed was required to finally correct both the barrel and capital imbalances, and eventually take prices to $60 a barrel.” Bloomberg

Source: Mint; 16 May 2016

URL: https://greatlakesenergy.wordpress.com/2016/05/16/ge-power-india-to-grow-50-in-2016-steve-bolze/

Govt to launch auction of 67 small oil, gas fields on 25 May

New Delhi: India will launch an auction of 67 discovered small oil and gas fields on 25 May, the country’s upstream regulator Directorate General of Hydrocarbons (DGH) said on Tuesday.

As many as 67 small fields in 46 contract areas will go under the hammer, the DGH stated on its website.

These fields will be offered under a revenue-sharing model, where the contractor will share a part of the revenue with the government as soon as the production begins.

Last year, state explorers Oil and Natural Gas Corp Ltd and Oil India Ltd had surrendered 69 fields with about 89 million tonnes of hydrocarbon resources.

Source: Mint; 10 May 2016

URL: http://www.livemint.com/Industry/q4Hm1iNZgYYD2PpcvllMdK/Govt-to-launch-auction-of-67-small-oil-gas-fields-on-25-May.html

India to gradually move to gas-based economy: Dharmendra Pradhan

New Delhi: India plans to shift to a gas-based economy by boosting domestic production and buying cheap liquefied natural gas (LNG) as the world’s third-biggest oil importer seeks to curb its greenhouse emissions, oil minister Dharmendra Pradhan said.

New Delhi has promised to shave a third off its emissions rate by 2030, partly by boosting the use of cleaner burning fuels.

“Gradually we are shifting towards a sustainable gas economy,” Pradhan toldReuters in an interview.

Gas accounts for about 8% of India’s energy mix, while oil accounts for more than a quarter.

India’s gas supply deficit is expected to widen from 78 million cubic metres a day (mscmd) this fiscal year to 117 mscmd in 2021-22, according to a government estimate.

India recently negotiated better terms for a long-term LNG deal with Qatar and importer Petronet LNG is in talks with Exxon to renegotiate pricing for gas from Australia’s Gorgon project.

“The price should be affordable to us. We respect long-term contracts but everybody has to appreciate the changing scenario,” said Pradhan. “In a bigger canvas … India has the potential of a huge market base”.

Pradhan last month visited Saudi Arabia, the United Arab Emirates and Iran to deepen ties with its main oil suppliers.

“We want to move beyond a buyer-seller relationship,” he said, adding that India was offering them stakes in its pipelines, petrochemical complexes and refineries.

India is also in talks with Abu Dhabi National Oil Co and Saudi Aramco to lease strategic oil storage.

Gas giant

Pradhan said Prime Minister Narendra Modi’s visit to Iran later this month would “certainly” deliver concrete results.

Iran has set aside its Farzad B gas field for development by Indian firms, a move that could result in the building of an LNG plant as India consumes or markets its production share, he said.

Over two years Asian LNG prices have slumped by three quarters to $4.65 per million British thermal units (mmBtu).

Pradhan expects hefty LNG investments worldwide to ensure affordable long-term prices, a trend that “will suit India as a consuming country.”

Gas connectivity

India is building import terminals on its eastern and western coasts and pipelines to boost industrial use of gas.

In the fiscal year to March, India’s gas production declined by about 4.2%, while imports rose around 15%.

India recently offered better gas pricing to boost domestic output, but its most recent investment in an LNG terminal in Kerala has been underutilised since it lacks pipelines to connect to demand centres after farmer opposition caused land acquisition problems.

Pradhan said the government was talking to the states and hoped obstacles to a pipeline connecting Kochi to Mangalore would be resolved after state elections in Kerala.

Source: Mint; 06 March 2016

URL: http://www.livemint.com/Industry/Vv12KMRJvQHXQp3h5WhDhM/India-to-gradually-move-to-gasbased-economy-Dharmendra-Pra.html

India: Hydrocarbon Exploration And Licensing Policy (“HELP”)

HELP – the Hydrocarbon Exploration and Licensing Policy, was approved by the Union Cabinet, Government of India on March 10, 2016. HELP replaces NELP – the New Exploration Licensing Policy (for exploration and production of oil & natural gas but excluding coal bed methane), and the Coal Bed Methane (“CBM“) Policy, both of which were formulated by the Government of India sometime in 1997-98.

NELP had undergone 9 rounds of international competitive bidding since 1999 with a total of 254 blocks awarded, of which, according to a 2014 Directorate General of Hydrocarbon (“DGH“) report, 148 are currently operational and 106 relinquished. There has been a total of 128 hydrocarbon discoveries (46 oil and 82 gas) made in 42 NELP blocks, of which commercial production could only commence in 6 blocks, viz. (i) Reliance-operated KG-DWN-98/3 (3 discoveries: 1 oil and 2 gas), (ii) NIKO-operated CB-ONN-2000/2 (2 gas discoveries), (iii) GSPCL-operated CB-ONN-2000/1 (1 oil discovery), and (iv) ONGC operated CB-ONN-2004/1, CB-ONN-2004/2 and CB-ONN-2002/1 (3 oil discoveries). Separately, under the CBM Policy, 30 blocks were awarded. Out of this, 14 blocks have been relinquished/under relinquishment and 16 blocks are in different stages of exploration and production (“E&P“) operations.

On the whole, while E&P activities have been significantly boosted by NELP and the CBM Policy and opened up the sector to private investment, and 100% foreign investment, the attractiveness of NELP increasingly waned with time for several reasons, resulting in challenges in increasing domestic production to meet the sky rocketing demands of India’s 21st century growth story. So far as commercial discoveries and commercial production goes, NELP has had limited success, hence HELP.

Main Features of HELP

  • Uniform license for exploration and production of all forms of hydrocarbons: Since unconventional hydrocarbons (shale gas/oil) were unknown when NELP was framed, there are different licensing policies for conventional oil and gas, coal-bed methane, shale oil and gas and gas hydrates, leading to inefficiencies in effectively exploiting hydrocarbon resources. For example, if while exploring for one type of hydrocarbon, another one is discovered, it will need a separate license, leading to delays. In addition, operators face delays in liaising with the several government agencies/Ministries for various permits and licenses, adding to costs, and resulting in stoppage of activities in certain cases. It is now proposed to have a uniform license to enable exploration and production of all forms of hydrocarbons including CBM, shale gas/oil, tight gas, gas hydrates, etc., covered under the Oilfields Regulation and Development (“ORD“) Act, 1948, and the Petroleum and Natural Gas (“PNG“) Rules, 1959.
  • Open acreage licensing policy (“OALP”): Under NELP, blocks were carved out and thereafter put up for auction under the international competitive bidding process. The limited choice [of blocks] offered by the Government restricted investors while identifying blocks for submitting bids. Further, investors had to wait for the next round of bidding in between blocks offered in a particular round and blocks in which they have specific interest. It is now proposed that a bidder can apply for exploration of any block/acreage (not already covered by exploration) at any time and without waiting for announcement of bids, by submitting an initial Expression of Interest (“EOI“).  The Government will examine the EOI and, if suitable, call for competitive bids after obtaining necessary environmental and other clearances. For OALP to be effective, a national data repository (“NDR“) is a pre-requisite. A NDR is a government sponsored data bank to preserve and disseminate upstream oil and gas information and data, and in terms of the PNG Amendment Rules 2006, every E&P operator in India is obliged to provide all data pertaining to the entire E&P value chain to the DGH. According to industry reports, a 6-year contract has been awarded to Halliburton Energy Services, covering one year to set up the NDR, and five years for operation. In any case, the modalities for the operationalization of OALP will be separately notified.
  • Revenue sharing model: A “revenue sharing model” post royalty payments will replace the erstwhile system based on profit sharing after cost recovery. The extent of cost recoverable by the operator from the revenue generated in the oil and gas field had become one of the most contentious issues of the production sharing contracts (“PSCs“) executed with contractors. The issue of cost recovery and its disallowance with respect to gas production from the KG-D6 block has been the subject of arbitration for the past several years between Reliance Industries Limited and the Government. Another issue is the investment multiple which determines the split of profit between the Government and the contractor. The Comptroller and Auditor General in its Performance Audit of Hydrocarbon PSCs, while critiquing the PSC structure, had pointed out possible manipulation of the IM, stating that “private contractors have inadequate incentives to reduce capital expenditure – and substantial incentive to increase capital expenditure or “front-end” capital expenditure, so as to retain the IM in the lower slabs or to delay movement to the higher slabs”. It is now proposed that the Government “will not be concerned with the cost incurred” and will receive a share of gross revenue from the sale of oil and gas. A draft Revenue Sharing Contract (“RSC“) was issued sometime in 2014 for comments. In terms of that model, the Government’s revenue share will be determined separately for crude oil and natural gas in accordance with a two dimensional production–price matrix (separate for on-land, shallow water, deep water areas and CBM), linked to the average daily production in a month and average oil and gas prices in a month, which will be as quoted and bid for by the contractor under the RSC. There is also an escrow arrangement to further safeguard the Government’s revenue share.
  • Marketing and pricing freedom for oil and gas: Currently, the producer price of gas is fixed administratively by the Government. Producers have been requesting a higher price for their gas, especially for gas produced from deep water, ultra deep water and high pressure-high temperature areas on account of higher costs and higher risks involved in exploitation of gas from such areas, without which it would be economical to produce from those areas. This has led to loss of revenue and, in certain cases, disputes with producers. Producers will now have the freedom to sell crude oil/condensates exclusively in the domestic market through a transparent bidding process on arms length basis. Gas can also be sold on arms length basis, subject to a ceiling price arrived at on the basis of landed price of alternative fuels, revised every 6 months. As the conditionality of exclusivity of sale in the domestic market has not been specified with respect to gas sales, producers may be able to export gas produced from these blocks, probably through a State canalising agency. For calculating the Government’s revenue share, the minimum price, in the case of gas, will be the price calculated as per the domestic natural gas pricing guidelines prevailing at the relevant point in time. In the case of crude oil, the minimum price will be the price of Indian basket of crude oil (currently comprising of sour grade (Oman and Dubai average) and sweet crude (dated brent) of crude oil processed in Indian refineries), as calculated by the Petroleum Planning and Analysis Cell on a monthly basis. In both cases (of crude oil and gas), if the price arrived at through bidding is more than the price of Indian basket of crude oil/gas price as per the domestic natural gas pricing guidelines, then the Government’s revenue shares will be calculated based on the actual price realized. However, marketing and pricing freedom is applicable only to future discoveries as well as existing discoveries which are yet to commence commercial production as on January 1, 2016. It will not apply to existing discoveries which are under arbitration or litigation until the conclusion of such arbitration or litigation.
  • Concessional royalty regime: HELP now distinguishes between on-land, shallow water (where costs and risks are lower), deep/ultra deep water fields (where risks and costs are much higher) so far as royalty payable to the Government go. A graded system of reduced royalty rates will now apply, as follows:
    Blocks Duration Royalty Rates
    Oil Gas
    On-land 12.5% 10%
    Shallow water 7.5% 7.5%
    Deep water First 7 years No royalty No royalty
    After 7 years 5% 5%
    Ultra deep water First 7 years No royalty No royalty
    After 7 years 2% 2%
  • Curtailed role of Management Committee (“MC”): Unlike under the PSC regime where the MC (constituted of representatives of the Government, DGH and the contractor) had more control over operational and crucial cost monitoring matters, and contractors perceived the Government to be “micro-managing” a range of E&P activities through its nominees on the MC, the role of the MC is now limited only to monitoring of the minimum work programme and technical aspects thereof. This is in line with the Government’s policy of “minimum Government – maximum Governance”.

In addition to the foregoing, there are other measures proposed by HELP including (i) an increased exploration phase: 8 years for on-land and shallow water fields and 10 years for deep/ultra deep water fields; (ii) no restriction on exploration activities during the entire contract period; and (iii) exemption from custom duty for machinery, plant, equipment, materials and supplies related to petroleum operations, and no levy of cess on crude oil.

Going forward, foreign and Indian companies can have 100% participating interest and there is no requirement for participation of Government nominee companies in any joint ventures.

In conclusion, HELP heralds significant and positive policy shifts – the most attractive being the OALP and the marketing and pricing freedom granted to producers. These policy shifts have been introduced against the back drop of declining oil prices which has taken a toll on exploration and development activities as global oil and gas producers are constrained to cut back on prohibitive finding costs in extreme environments. It just might be the time to buck the trend and leverage declining prices in building assets which can be monetized later. For those wanting to make such a strategic and calculated move, HELP is here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Source: Mondaq Newsletter; 27 April 2016

URL: http://www.mondaq.com/article.asp?articleid=486160&email_access=on

HPCL plans $3.8 bn refinery investment to lift capacity by two-thirds

Mumbai: Hindustan Petroleum Corp. Ltd (HPCL) plans to invest around $3.8 billion to ramp up its refining capacity by two-thirds this decade, as the country’s oil demand soars and to meet cleaner fuel standards, a company official told Reuters.

Fuel demand in India—the world’s third-biggest oil consumer—is rising at its fastest clip in more than a decade, buoyed by Prime Minister Narendra Modi’s manufacturing push and as an expanding middle class buys more cars.

State-run HPCL aims to raise its capacity to process about 500,000 barrels per day (bpd) of crude by investing around Rs.25,000 crore ($3.76 billion), refineries head, B.K. Namdeo, said in an interview.

HPCL aims to boost the capacity of its Mumbai refinery to 190,000 bpd by July 2019 from 130,000 bpd, while the Vizag refinery will ramp up to 300,000 bpd from 166,000 bpd by July 2020, he said.

“We will de-bottleneck the capacity of the two CDUs (crude distillation units) at Mumbai and replace a 46,000 bpd CDU at Vizag with a new 180,000 bpd crude units,” Namdeo said.

Alongside the expansion, HPCL will also revamp its gasoline and diesel production units to meet rules on producing cleaner fuels from 2020.

New supplies

Namdeo said HPCL, which traditionally relies on Middle Eastern crude, had for the first time signed a term contract with Nigeria’s national oil company, NNPC, to buy 32,000 bpd of oil this fiscal year ending 31 March.

Since HPCL does not process all the grades offered by NNPC, it has entered into a swap agreement with trader Vitol, he said, without specifying the terms.

HPCL, which had halted Iranian oil imports in 2012 after western sanctions, is now looking to buy 20,000 bpd from the Middle East country.

But Namdeo said obstacles remained even after sanctions targeting Iran’s nuclear programme were lifted in January.

“Insurance and banking issues have to be resolved still and there is no clarity on them (yet),” he said.

HPCL was considering using Iranian oil to replace some of the Basra crude it buys under an optional contract with Iraq’s oil marketing firm, SOMO, and Total, he said.

HPCL has an annual deal to buy 65,000 bpd of Basra from SOMO and about 25,000 bpd of Basra and UAE’s Murban oil from Total with an option to raise the quantities.

“We are maximising bitumen production and cutting fuel oil so for that we need heavy oil,” he said.

HPCL has renewed its contract to buy 50,000 bpd from Saudi Arabia and 20,000 bpd from Abu Dhabi National Oil Co. (ADNOC), he said, adding it also has an optional contract to buy 20,000 bpd from Kuwait. Reuters

Source: Mint; 19 April 2016

URL: http://www.livemint.com/Industry/LwG06ozCjqKdIWMOO8ckAJ/HPCL-plans-38-bn-refinery-investment-to-lift-capacity-by-t.html

ONGC gets 25% discount on insurance premium from United India, GIC Re

Mumbai: Oil and Natural Gas Corp. Ltd’s (ONGC) hard bargain with state-run United India Insurance Co. Ltd and General Insurance Corp. of India (GIC Re) has further brought down its annual renewal premium by almost 25% to $16 million for both insurance as well as reinsurance covers for its offshore assets valued at $34 billion.

One of the striking features of ONGC’s 2016-17 insurance renewal has been competitive bidding where the country’s only national reinsurer GIC Re has managed to outbid its international peers.

In 2015-16, two European reinsurers—Endurance and Aspen—had outbid GIC Re to be the lead reinsurer for the deal.

“ONGC has renewed its insurance account for its offshore assets worth $34 billion for a premium of around $16 million, more than 25% lower than what it had paid for last year,” a person with knowledge of the matter said on Friday.

The insurance cover, due for renewal on 11 May, has been renewed in the London markets, people familiar with the matter said.

Global general insurance prices have been heading south as claims have been lower unlike the previous year wherein claims were higher due to many catastrophes and aviation accidents. This is the second year that the state-run oil and gas major, which has the largest insurable assets in the country, has managed to get a discount.

Last fiscal, it had renewed its policies at almost 35% discount at $20 million. Given the limited capacity for risks in the country, over 80% of ONGC’s insurance cover is usually reinsured by global reinsurers.

Source: Mint; 16 April 2016

URL: http://www.livemint.com/Industry/RHebwkloxKVjx1Ky1qYSGN/ONGC-gets-25-discount-on-insurance-premium-from-United-Indi.html

Now, oil PSUs can choose firms for crude buy

In a bid to improve operational efficiency, the government on Wednesday gave freedom to public sector oil firms to have their own independent crude import policy based on their commercial requirements.

State-owned firms such as Indian Oil Corporation (IOC) have traditionally been allowed to source crude only from national companies of oil-producing nations.

On May 21, 2001, the government permitted state refiners to buy oil from top 10 foreign firms. It was long felt that the list of companies from whom the PSUs can buy crude on term contracts needs to be expanded to include global giants such as Italy’s Eni and Russian companies.

The Union Cabinet chaired by Prime Minister Narendra Modi gave its approval to replace the existing policy by vesting the oil PSUs with the power to evolve their own policies, Union Minister Ravi Shankar Prasad said at a news briefing.

This will provide a more efficient, flexible and dynamic policy for crude procurement, eventually benefiting consumers, he added, but did not elaborate.

Oil PSUs shall be empowered to evolve their own policies for import of crude oil, consistent with CVC guidelines and get them approved by the respective boards, an official statement issued after the Cabinet meeting said.

This will increase operational and commercial flexibility of oil companies and enable them to adopt the most effective procurement practices for import of crude oil, it explained.

The existing policy for import of crude oil was approved by the Cabinet in 1979.

In 2001, the Cabinet cleared amendments to permit state refiners to buy crude oil from top 10 foreign firms.

While the current policy has ensured that collective energy needs of oil PSUs are consistently met over the years, the policy needs to evolve with the changing times, the statement said.

With the changing geo-political environment, the crude oil import policy needs to be modified to bring it in tune with current needs.

The current policy for purchase of crude oil from the spot or current market has certain limitations and restrictions that limit the potential sources and methods of procurement, it said without elaborating.

Till now, refiners were allowed to buy crude oil from 10 MNCs-Exxon (which has merged with Mobil), Shell, BP, Elf (merged with Total Fina), texaco (merged with Chevron), South Korea’s SK, Chevron, USX of USA, Spain’s Repsol and Nippon Mitsubishi of Japan.

In 2014, it was proposed to include suppliers from South Korea, Spain and Japan as well as Eni, Valero Energy, Russia’s Lukoil, Conoco Phillips, Occidental and Marathon on the list. But now, they can buy as per their own plan without any restrictions.

Source: Business Today; 6 April 2016

URL: http://www.businesstoday.in/sectors/energy/oil-psus-can-choose-firms-for-crude-buy/story/230862.html