Oil and gas industry v1.2

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  • 03/22/12
  • Oil is one of the most heavily traded commodities in the world OPEC: Together, the 12 member-nations control nearly 80% of the world’s oil reserves, and 44% of the world’s daily production they manipulate supply of oil in the market, in hopes of keeping prices, and profits, high by producing less oil than the market needs—in effect, driving up prices and keeping them high Saudi Arabia: This oil giant had 266.8 billion barrels of total proven oil reserves and produced 9.2 million  barrelsper day . Saudi Arabia exported 8.04 million barrels per day, which accounted for 14% of the world’s total  oil production . 03/22/12
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  • India accounts for over one-third of total global imports Solution to Oligopoly: Buyer’s cartel with Importers agreeing to fix a price with exporters Mutual agreement among importers to tax the oil consumption
  • Less Indian growth As India grow, they rely heavily on oil, which is part of the reason for the spike in prices. However, they’re shooting themselves in the foot because the higher prices go, the less they can afford, and their growth is slowed. They also use energy less efficiently, so the prices are exacerbated. Impact of Inflation India’s crude oil import bill may cross USD100 billion if the global price stays firm at USD 100-USD 120 a barrel. If that happens, it will upset the delicate fiscal balance, expand deficit, increase the subsidy bill that continues to bloat year after year and fuel in­flationary expectations. Rising crude oil prices will impact inflation whether the government absorbs the burden or passes it to the consumer by increasing prices of petroleum products. If the government acts as a buffer, the oil subsidy bill will rise and affect fiscal deficit. This will indirectly fan inflation. India's oil import bill in the first 11 months of 2010-11 was USD 85 billion. For the whole year, it is reported to have reached USD 90 billion. India, which imports nearly 80 percent of its crude oil re­quirement, spent USD 79.55 billion in 2009-10.   The recent strengthening of crude oil prices could impact economic growth momentum in the country for the current fiscal. The main factors that would be responsible for economic growth moderation in 2011-12 would be crude oil prices and RBI's tightening of monetary policy in response to oil prices. Rising crude price will lead higher inflation and higher inflation attracts monetary tightening. Monetary tightening would lead to a squeeze on aggregate demand, impacting economic growth. Government subsidies fail : Some governments subsidize fuel, and higher oil prices put pressure on them. The subsidies interfere with supply and demand, as consumers continue to demand more while prices stay relatively flat Interest rates go up : As higher oil prices lead to inflation and rigidities in government expenditures, interest rates rise. The travel sector suffers : Hotels, cruises, airlines, and others in the travel industry are affected negatively by high oil prices because t Alternative energy grows : As oil gets more expensive, alternative energy becomes much more attractive. Investment and employment in clean technology goes up right along with high oil prices.ransportation costs are higher, and consumers are spending less because of stress on their budgets. 03/22/12
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  • *    VAT as per Delhi.  It varies from 33 %  to 15 % from State to State ** Petrol Price is decontrolled with effect from 26 th  June, 2010. The price break up is as per IOC. * VAT as per Delhi.  It ranges from 26 % to 9.08 % from State to State 03/22/12
  • 03/22/12
  • Oil and gas industry v1.2

    1. 1. Oil and Gas industry
    2. 2. Introduction Major activities divided into Upstream, Midstream and Downstream Types of companies: National and International Types of crude: Light Sweet and Heavy Sour Major benchmark crudes: Brent and WTI Market structure: Collusive Oligopoly An industry driven by prices
    3. 3. Pricing – Demand and Supply Production - OPEC Financial/Commodity Markets Demand (India-China)
    4. 4. Pricing – Demand and Supply Highly Inelastic demand and supply Short Term Dynamics
    5. 5. Pricing - Speculation Is price of crude oil in accordance relation of supply to demand ? Who has a say in Oil prices? Who isUS speculator? of Energy’s Energy Information The a Department Administration (EIA) recently forecast that in the next few What is an Oil future? years global surplus production capacity will continue to grow Nymex in New 3 and and the ICE Futures in day by 2010, thereby to between York 5 million barrels per London today controlglobal benchmark oil prices regulated? set most of the freely Can Future market be the surplusturn “substantially thickening which in capacity cushion.”traded oilis impact of speculation on oil prices What cargo. Enron Loophole allowed the Intercontinental Exchange to install terminals in the Perhaps 60% of oil prices today pure speculation United States That would mean today that at least $50 to $60 or more of today’s $115 a barrel price is due to pure hedge fund and financial institution speculation.
    6. 6. Import and Export – Net Exporters Top 10 Oil Exporting NationsCOUNTRY QTY(BBL/Day) in Million1. Saudi Arabia 8.732. Russia 5.433. UAE 2.74. Iran 2.45. Kuwait 2.356. Nigeria 2.327. EU 2.198. Venezuela 2.189. Norway 2.1510. Canada 2.00
    7. 7. Import and Export – Net Exporters
    8. 8. Import and Export - New Plays Shale Gas  Deals with Economic feasibility of oil shale extraction  USA, Estonia, China, Brazil  Production cost of a barrel ranges from US$12 to US$ 95 Coal Bed Methane  Form of natural gas extracted from coal beds  USA, Canada and Australia Oil Sands  Typeof unconventional Petroleum deposits  Canada and Venezuela
    9. 9. Import and Export – India’s Imports India has significant coal Country Imports resources USA 13.5 mbod India’s reserves 5.9 billion China 5.3 mbod barrels (.5% of world) Japan 4.4 mbod Current dependence at South Korea 3 mbod 75% to grow to 91.6% India 2.9 mbod Demand expected to rise to 250 MMT by 2015 Germany 2.8 mbod Netherlands Exported 50.974 mmt of 2.7 mbod petroleum products against France 2.4 mbod the imports of 23.49 mmt Italy 2.2 mbod Singapore 2.1 mbod
    10. 10. Import and Export – India’s Imports Oil import by India India’s Sources Saudi Arabia 23% Iran 17% Nigeria 11% Iraq 10% Kuwait 9% UAE 9% Malaysia 4% Yemen 3% Others 14%
    11. 11. International Business Oil’s effect on Economy  Less Indian growth  Impact on Inflation  Consumer Spending  Auto Sales  Government subsidies fail  Interest rates go up  The travel sector suffers  Alternative energy grows
    12. 12. International Business Economy’s effect on Oil  Positiveoutlook tends to increase oil prices  Negative outlook reduces prices due to low demand  US credit downgrade reduced oil prices  Negative US employment numbers reduced oil prices  India, China growth will cause increase in oil prices  Recessions exert downward pressure on oil prices
    13. 13. Government Policies – Price Ceilings Reliance KG D6 Case  Gas price fixed at $4.2 per mmBtu till 2014  Production declined to 45 mmscmd against plan of 80  Well complications blamed
    14. 14. Government Policies – Tax and Subsidies  Subsidy component by theas on 01.08.2011 has remained Diesel price after taxes government PetrolPrice paid constant since 2004-05 at Rs 22.58 per LPG cylinder to refinery @ Trade Parity 35.39 37.46Inland Freight Rs 0.82 per litre of kerosene. and + 0.65 0.69MarketingIn Case Margin  Cost and of Liquefied petroleum gas (LPG) there is a loss 1.39 + 1.47Excise Duty (including cess etc.) over INR 350. on each cylinder of + 2.06 +14.78Total price after Price before VAT andTotal Desired Excise duty and kerosene accounted for 87% of 52.29  Electricity, LPG = 41.60Dealer Commission absorbed byLess: Under-recovery total subsidies in India in 2009, or 1.9% of the GDP.Less: Under recoveryOMCs (-) 00.71 (-) 6.06  Nationally, the richest 30% of households consumePrice Charged to Customer - Depot PricePrice Charged to Customer - Depot Price = 51.58 72% of all liquefied petroleum gas, or cooking gas, +35.54Dealer Commission = 1.50Dealer Commission poorest 30% consume just 2%. while the + 0.91Value added Tax (Including VAT onVAT (Including VAT on dealer + 10.62dealer commission.) * + 4.84commission.) *Retail Selling Price * *Retail Selling Price = 63.70 = 41.29
    15. 15. Government Policies – Tax andSubsidies The government is likely to pay an additional around Rs30,000 crores ($6.8 billion) than budgeted in 2011-12 to state refiners as compensation towards selling fuel at subsidized rates The government, which plans to raise Rs40,000 crores through its divestment programme in 2011-12, is planning to sell shares in Oil India Ltd now instead of Indian Oil Corp. The Indian government has said that gasoline and diesel prices will now be market-determined. The deregulation will lead to a INR3.5 per liter increase in the price of gasoline, while the price of diesel will go up by INR2 per liter as of now.
    16. 16. Advertising Policies International Oil Companies  BritishPetroleum  Shell Oil  Chevron
    17. 17. Q&A

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