Economics Essays – Indian Refinery Industry

Indian Refinery Industry

Energy is an of import gas pedal for growing of economic system and at present oil and natural gas is the chief beginning of energy India has limited oil and natural gas so it is dependent on Arbian and African Countries for supply of the energy Indian industry is at present intransformation period and is turning at around 14 % per annum which is non sufficient to run into the increasing demand of energy.

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India has 18 refineries — 17 in the populace sector and one in the private, with an installed capacity of 127.37 mmtpa. During balance period of the tenth Plan, it is estimated that another 26.33 mmtpa capacity would be added, raising it to 153.7 mmtpa in entire. It includes HPCL Mumbai: 2.4, HPCL Visakh: 0.83, BPCL Mumbai: 5.1, IOCL Panipat: 6.0 and Essar Oil Jamnagar: 12.0. The information was disclosed in a recent meeting of the Consultative Committee of the Members of Parliament for the ministry of crude oil & A ; natural gas.

India mostly imports the rancid assortment. The overall basket is much cheaper than Brent. Environmental criterions in India license higher sulfur content in gasoline and Diesel.

The mean monetary value of Brent per barrel in October was $ 50, of Dubai petroleum was $ 38.

Approximately 72 million barrels per twenty-four hours. ( 7.33 barrels make one metric ton. )

For petro merchandises manufactured by them, oil refineries in India are paid the ‘import para price’ , the international monetary value plus the insurance and cargo cost plus the imposts responsibility. Therefore, higher the imposts responsibility, higher will be the gross refinement border.

If the imposts responsibility is cut, say, to 10 per cent, the domestic company would cut down its monetary value from 15 per cent above the landed cost to 10 per cent above the import para monetary value. In instance it does non make so, the client, that is the selling company, will import the merchandise. India does non import gasoline, but a cut in imposts responsibility on gasoline reduces the domestic monetary value of gasoline.

Higher responsibilities on merchandises are imposed to promote the growing of the refinement industry. In this instance, the purpose is to promote the domestic refinement industry, by ‘‘protecting’’ it.

Today petroleum has a imposts responsibility of 10 per cent, but the imposts responsibility on petro merchandises is 15 per cent. The value add-on in the refinery concern is about 10 per cent ; the responsibility derived function of 5 per cent means that the ERP is really approximately 50 per cent. When the imposts responsibility was 20 per cent, before the recent cuts, the effectual rate of protection was even higher.

Cuting responsibilities merely on rough oil will non cut down the domestic monetary value of crude oil merchandises. It will merely increase the net income border of domestic refineries.

The first measure should be to extinguish rate scattering by conveying down the responsibilities on petro merchandises. When the imposts responsibility on petroleum oil and crude oil merchandises is equal, so this anomalous profitableness of Indian refineries would be removed.

Duties on oil and petro merchandises still involves punishing Indian consumers owing to the presence of duties. Hence, for the consumer, the best thing is zero imposts responsibilities. In this instance, Indian refineries would hold to vie with international refineries.

Refineries in India are already major exporters of petro merchandises. This shows that they already have the technology capableness to vie with the best refineries of the universe. However, if after decennaries of protection, refineries in India are still non efficient, there is no ground why consumers should bear the load of their inefficiency.

About 50 per cent of the monetary value of gasoline that we pay at the gasoline pump goes to the Government as excise and gross revenues revenue enhancement. For Diesel, about one-third goes as revenue enhancement. The disagreement is because the excise on gasoline is 63 per cent of import para monetary value ( 23 per cent + Rs 7.50 per liter ) and on Diesel is 16 per cent ( 14 per cent + Rs 1.50 per liter ) .

No. The Government will non lose any imposts gross as India does non import gasoline or Diesel. The custom responsibilities below the belt protects the refinery and penalises the Indian consumer, who has to pay monetary values higher than in the remainder of the universe.

Government Policy

Petroleum geographic expedition & A ; production was controlled by the Government-owned National Oil Companies ( NOCs ) , ONGC and OIL, in pursuit of the Industrial Policy Resolution, 1954. In the early 70s, they supplied about 70 % of the domestic demand. However, by the terminal of the 80s, they had reached the phase of decreasing returns. Oil production had begun to worsen whereas there was a steady addition in ingestion and today the two NOCs are able to run into merely approximately 35 % of the domestic demand. This was further compounded by the resource crunch in the beginning of the 90s. The Government had no money ( FE ) to give to the NOCs for the development of some of the so freshly discovered Fieldss. While some of these Fieldss could be developed by ONGC ( Gandhar, Neelam, Bombay High, Lakwa, Heera, Geleki etc. ) , for others there was no money available for indigenously developing the Fieldss. The job had elements such as the administered oil monetary value, non-availability of appropriate engineering, logistics etc.

Petroleum Sector Reforms, 1990

The Government launched the Petroleum Sector Reforms ( PSR ) in 1990. Till so, three unit of ammunitions of geographic expedition command had been gone through with no success in happening new oil/gas sedimentations by the foreign companies who merely were allowed to offer. Under the PSR, the Fourth, Fifth, Sixth, Seventh and Eighth Rounds of geographic expedition command were announced between 1991 and 1994. For the first clip Indian companies with or without old experience in E & A ; P activities were permitted to offer get downing with the Fourth Round.

The Government so announced the Joint Venture Exploration Program in 1995. The geographic expedition blocks were in those countries for which the Petroleum Exploration License was with the NOCs and they were required to hold a 25 % to 40 % Participating Interest from twenty-four hours one.

Foreign Companies in Exploration in India

Foreign companies entered the Indian E & A ; P scene since early 1950ss ( Indo Stanvac Project- A Joint Venture between Government of India and Standard Vacuum oil Company for West Bengal onland in early 1950ss, Carlsbons Natomas for Bengal offshore in early 1970ss, Assamerc for Cauvery offshore and Reading and bates for Kutch offshore besides in early 1970ss and subsequently since the first unit of ammunition in 1980 ; Shell for Kerala offshore and Chevronn- Texaco in Krishna – Godavery Offshore ) . This was surely non every bit much as elsewhere in the universe.

Exploration and Production:

I ) To get down with, the authorities in early 1890ss has changed the much anticipated legal position of the Oil and Natural Gas Commission ( ONGC ) by change overing it into a Corporation at that place by giving it more autonomy. Oil and Natural Gas Corporation Ltd ( ONGCL ) – a limited company governed by the Indian Company Acts was formed. Earlier, ONGC was governed by the Acts of the Parliament.

two ) As the authorities decided in favour of more engagement of private sector in geographic expedition and production, there was a demand to set up an independent regulative organic structure that could efficaciously oversee the activities of all the companies – private and public. Thus the Directorate General of Hydrocarbon ( DGH ) was set up in April 1993.Since so, the denationalization procedure of the geographic expedition and production activities have been accelerated.

three ) The most notable policy displacement was the determination of the authorities to affect private and foreign companies in the development of already discovered fields.In the first offer of such Fieldss in August 1992, contracts for 5 medium sized and 13 small- sized Fieldss have been awarded. Enron Oil and Gas Company, Reliance Industries Ltd, Command Petroleum, Videocon Petroleum Ltd, Ravva Oil Pte Ltd were few such major foreign and Indian private companies. ONGCL and OIL ‘s portion in those JVs were limited to 40 % only.The estimated oil and gas production from these Fieldss were 360 billion barrels and 50 billion three-dimensional metres respectively.The most promising Fieldss of Panna, Mukta and Mid & A ; South Tapti which had been successfully explored earlier by ONGC were offered to Enron -Reliance pool without reimbursing the past geographic expedition disbursals to ONGC.More over the authorities agreed to buy the produced petroleum from the pool at the international monetary value plus a premium of $ 4 per barrel as the sulfur content was low.

In the 2nd offer for the development of 8 medium and 33 little size Fieldss, dialogues for the award of contracts are at an advanced phase.

four ) From 1991 to 1996, the authorities had held five unit of ammunitions ( 4th, 5th, 6th, 7th and eighths ) of command for geographic expedition land areas offering every bit many as 126 blocks, runing in sizes from a few hundred square kilometres to over 50,000 sq kilometers.11 contracts have been awarded. Some of the of import companies which have been either awarded contracts or participated in the geographic expedition unit of ammunition were: Shell, Occidental, Amoco, Enron ) . However, all these attempts could non better the petroleum and gas modesty of India. In 1990-91, the petroleum oil modesty was 739 MMT which has declined to 658 MMT in 1999-2000.The corresponding natural gas modesty figures were 686 bcm and 628 bcm severally. In that period, the petroleum production besides declined from 33.02 MMT to 31.95 MMT and in 1999-2000, India had to import 44.99 MMT petroleum. The above figures clearly indicates that the authorities policy of affecting the private parties- both Indian and foreign offering broad footings did non assist the upstream crude oil sector. On the contrary, militias and production have drastically fallen in the station liberalization period.

Some of the inducements announced by the authorities were:

  • No usage responsibility on imports required for crude oil operations.
  • No minimal outgo committedness during the geographic expedition period.
  • No compulsory province engagement.
  • No carried involvement by National Oil Companies
  • Freedom to sell rough rough oil and natural gas in domestic market at market related monetary values.
  • Acquiescent cost recovery bound upto 100 %
  • No Ce on rough oil production
  • Royalty payment: 12.5 % for onland areas,10 % for offshore and 5 % for deep H2O countries.
  • Broad depreciation commissariats
  • Seven old ages revenue enhancement holidays from the beginning of production.

Polishing

In the 1880ss, the authorities decided to ask for private companies in the refinement sector.

The private company Reliance Petroleum Ltd ( RPL ) has become the 2nd largest participant in oil refinement sector with 27 MMTPA province of the art refinery at Jamnagar, Gujarat. Apart from O.K.ing new refineries in the private and joint venture ( affecting Indian and foreign companies ) at that place has non been any major policy alteration in the constitution of new refineries in the 1890ss. However, from June 1998, the refinement sector has been delicensed. Furthermore, private and joint sector refineries have been permitted to import rough oil freely without import licence for existent usage in their ain refineries. This will hold inauspicious consequence on the operating cost of public sector refineries should international petroleum monetary value falls below the domestic petroleum monetary value.

Selling

In India the market of refinery is oligopoly and there is monetary value rigidness

In the 1890ss, major policies as under in the selling of crude oil merchandises with far making deductions have been announced by the authorities.

I ) To pull private investing in geographic expedition, the authorities has announced that any company puting about US $ 400 million ( Rs20 billion ) in geographic expedition and production or other specified avenue, would be eligible for marketing rights for crude oil merchandises in India. This will let the international oil big leagues to come in into the moneymaking selling sector.

two ) In September 1997, the authorities has decided to level Administrative Pricing Mechanism ( APM ) in phased manner.By April, 2002 it will be to the full dismantalled and monetary values of crude oil merchandises will be determined on the footing of import para system.

The bing system of crude oil pricing which is besides called APM ( natural gas was kept out of this pricing mechanism ) has its roots in the early 1970ss when Transporting Corporation of India ( SCI ) took loan from the World Bank to buy oil bearers. The World Bank so recommended a ‘cost plus ‘ pricing expression to SCI for freight computation. The same rule in the name of ‘retention construct ‘ was subsequently ( 1976 ) introduced to crude and crude oil merchandises pricing system. Consequently, the monetary value of autochthonal petroleum was based on operating cost plus 15 % station revenue enhancement return on capital employed. And oil refineries and selling companies calculated the monetary value of their merchandises on the footing of operating cost plus 12 % station revenue enhancement on net worth.

Decision

In India the demand of energy is lifting by 20 % specially in car industrial and farm sector so refining capacity is necessary although the state has extra capacity so authorities should seek to hike the exports by taking disciplinary and prevent stairss through the public and private sector engagement giving maximal financial and budgetary support.

KOCHI REFIENERY LIMITED

It is a subordinate company of Bharat crude oil and was stabilised with object of polishing the petroleum oil for Domestic demands

The Government of India has wholly dismantled the Administered Pricing Mechanism in the crude oil sector with consequence from I April 2002. Company being a base entirely refinery, the pricing of merchandises continued to be on the footing of import para rule. The ingestion of crude oil merchandises in the state rose by 3.6 % over the old twelvemonth.

The current twelvemonth witnessed crisp addition in the international monetary values for rough oil and crude oil merchandises due to the tense state of affairs in the Persian Gulf part and uncertainnesss about oil supplies However, after the war, the monetary values of rough oil and crude oil merchandises in the international market are easy coming back to the pre-war degree. The upward tendency in petroleum and merchandise monetary values had a positive consequence on the Company’s borders and to a great extent, this was responsible for the quantum leap in net income during the current twelvemonth. The betterment in the distillate output, decrease in fuel & A ; loss, efficient sourcing of rough oil and grasp in the stock list value during the current twelvemonth besides helped in recognizing better border during the twelvemonth.

Government of India de-canalised petroleum oil imports in May 2006 and attendant to this, rough oil is being imported by your Company along with Bharat Petroleum Corporation Limited ( BPCL ) , the keeping company since April 2002 with significant benefits accruing.

Strength and Weaknesses

Strength

  • Strong fiscal place
  • Advanced engineering
  • Professional direction
  • Swerve employees
  • Good location

Failings

  • Political intervention
  • Higher grade of competition
  • Gap between demand and supply
  • Changing authorities policies

Opportunities & A ; Menaces:

Opportunities:

  • Projected Gross Domestic Product ( GDP ) growing rate of 8 % during the 10th program period and attendant growing of demand for crude oil merchandises.
  • Continued shortage for LPG and MS in the KRL supply Envelope.
  • Expected growing of primary energy demand in the Asia-Pacific part at a significantly faster rate that universe demand.
  • Extra chances due to the particular Global investing Meet organized by the Government of Kerala.
  • Locational advantage of being a coastal Refinery.

Menaces:

  • Increased competition in the crude oil sector.
  • Reduced handiness of Mumbai High Crude oil.
  • Significant investing of works installations for car fuel quality upgradation.
  • Handiness of Natural Gas for Fertilisers and Power Plants. This could impact Naphtha and Furnace oil offtake.
  • Incidence of entry revenue enhancement in neighvbouring States

Your Company has formulated the capacity expansion-cum modernisation undertaking that is to be implemented in stages, to work the aforesaid chances and extenuate the menaces. The major aim of the Undertaking are choice up-gradation of car fuels, enlargement of the petroleum oil refinement capacity commensurate with the merchandise demand and modernisation of the refinery to cut down the operating cost. The puting up of rough oil reception installations is besides proposed to cut down the transit cost of rough oil. Export of merchandises and other growing chances are besides being focused upon.

Selling of Merchandises:

BPCL markets bulk of the Company merchandises.

With the support of the keeping company, your Company has straight sold 418 thousand Metric Tonnes ( TMT ) of crude oil merchandises [ Furnace Oil ( FO ) , Low sulphur Heavy stock ( LSHS ) , Naphtha and Bitumen ] and has realized an extra border of Rs. 169 million during the twelvemonth. The direct gross revenues effected by the Company accounted for 7.6 % of the entire gross revenues volume of 7.088 MMT. The net income earned by the company o direct gross revenues of merchandises is higher at Rs. 327 Million during the twelvemonth every bit compared to Rs. 238 Million during the twelvemonth 2001-02.

Outstanding characteristics on Direct Marketing activities of your company during the fiscal twelvemonth 2002-03 are as given below:

  • Export of seven packages numbering 175 TMT of furnace oil valued at USD 24 Million ( Rs. 1,185 Million ) .
  • Entire aromatic gross revenues of 82217 MT against the MoU mark of 77000 MT for the fiscal twelvemonth.
  • MTO Gross saless for the fiscal twelvemonth is an all clip record toughing 27829 MT.
  • BPCL branded –Retail Outlet ( COCO-RO ) adjacent to the refinery premises in land owned by the company, for which investing was besides made by the company, was inaugurated by the president, Shri S Behuria on 17 September 2002. with a position to leave exposure to your company on retail selling, this retail mercantile establishment is being operated by the company.
  • With consistent attempts taken by the company in supplying quality service in the retail mercantile establishment coupled with the continued support from the clients, the retail mercantile establishment at Amblamugal has already been able to accomplish the position of being one of the high volume retail mercantile establishments in Kerlala. The mercantile establishment has late been accredited as “ pure for Certain ” mercantile establishment.

Research & A ; Development:

In chase of its corporate purpose to stay at the technological head, your Company agreements top precedence to Research & A ; Development ( R & A ; D ) activities. Set up in 1988 and recognized by the Department of Scientific and Industiral Research ( DSIR ) , authorities of India, company’s Natural gum elastic modified Btiument is the latest popularized value added merchandise developed by this centre. The R & A ; D works in coaction with honored establishments like Indian institute of Petroleum, Deharadn and Indian institute of Technology, Chennai. Optimization and advanced betterments in the procedure operations and set abouting explorative research to happen out new avenues for growing and variegation are the other aims of R & A ; D Centre. Apart from other crude oil proving installations R & A ; D centre is equipped with installations for rating of rough oil and FCC accelerator. The FCC pilot Plant and FCC Offline simulation package have been extensively utilised for the rating of new improved accelerators and additives.

Mentality:

The Indian economic system is expected to register an existent GDP growing rate during the twelvemonth, which is less than the jutting 8 % per annum during the full ten percent program period.it is expected that the demand for crude oil merchandises would reflect the growing of the Indian economic system. In add-on to providing to domestic demands, oil companies would besides look towards the export market your company would besides hold to see merchandise export possibilities to surge over any domestic merchandise off-take restrictions.

PROJECTS COMPLETED

  • Additional Reactor for DHDS unit
  • Augmenting the Production Capacity of NRMB

ONGOING Undertaking

  • Revamp of Electrical distribution System
  • LPG Bottling Plant
  • Pull offing Transformation ( Project MANTRA )

Exports

During the twelvemonth, the company has exported Furnace Oil for a Value of Rs. 1,319 Million as against Rs. 498 Million during the old twelvemonth.

Overview

Kochi Refinery a unit of Bharat Petroleum Corporation Limited, embarked on its journey in the twelvemonth 1966 with a capacity of 50,000 barrels per twenty-four hours. Once known as Cochin Refineries Limited and renamed as Kochi Refineries Limited, the refinery was originally established in coaction with Phillips Petroleum Corporation, USA. Today it is a frontline entity as the unit of the Fortune 500 company, BPCL.

With a broad spectrum of activities, Kochi Refinery redefines the benchmarks in engineering and market penchants. With a turnover of around USD 2500 million, the refinery aims to beef up its presence in refinement and selling of crude oil merchandises and farther grow into the energy and petrochemical sectors.

Kochi Refinery is engaged in refinement and selling of crude oil products.· Get downing with a capacity of 50,000 barrels per twenty-four hours ( bpd ) , today the Refinery has a refinement capacity of 150,000 bpd. The Company entered the petrochemical sector with benzine and methylbenzene in 1989.

Kochi Refinery produces all fuel based refinery merchandises viz Liquefied Petroleum Gas, Naphtha, Gasoline, Kerosene, Aviation Turbine Fuel, Gas Oil, Fuel Oil and Asphalt. The raid into direct selling began since 1993 through marketing its aromatic products- Benzene and Toluene.

The company entered the International Petroleum concern watercourse when its first package of Fuel Oil was exported in January 2001. Since so the company has non looked back and has exported around 100 packages. In the last fiscal twelvemonth the refinery exported merchandises worth over USD 280 million.

Kochi Refinery, today, has earned the repute as a dependable participant in the International Trade, by virtuousness of superior merchandise quality and client service.

Forte merchandises for domestic markets

Benzene, Toluene, White Spirit, Poly Iso Butene and Sulphur.

Our niche. Export Capability

Kochi Refinery offers supplies of any grade Fuel Oil ( both 180 Central Time and 380 Central Time ) and Low Aromatic Naphtha ( High Paraffinic ) to the international market.

The Fuel Oil has been bench marked in the Singapore and Dubai Fuel Oil markets.

Decision

On the footing o analysis of Kochi refinery limited in concluded that company is acquiring economic systems of steel and range it is a deferent paying company and it is working for economic and societal growing of state it is successful upto abstained but following of import factor should be incorporated

  • Cost Control
  • Entire Quality Management
  • Merely in clip and Inventory control
  • Hike the explode
  • creative activity of higher grade of specialisation in production selling etc.

Major Players

ONGC

It is a public sector crude oil company in India, lending 77 % of India’s petroleum oil production.

Gross ( 2006 ) : $ 10.5 billion

Employees: 41000

Recent intelligence:

  • India ‘s ONGC lags in planetary oil race. ONGC ‘s reverses in geting major oil resources are made worse by the Indian authorities ‘s order to assist shoulder the load of subsidized fuels earlier this twelvemonth, which pushed the state ‘s biggest refiners into the ruddy.
  • ONGC has gained junior portions in a host of undertakings, from Russia ‘s Sakhalin-1, Iran ‘s Yadavaran Field and Sudanese belongingss abandoned by Western investors.
  • But it has yet to take a lead function that would give it more say and a bigger portion of future production. The race is deriving urgency both for India and ONGC as Chinese and other Asiatic rivals snap up plum belongingss in the face of stagnating domestic production.
  • The 50-year-old house has acquired involvements in 16 abroad undertakings since it started looking abroad in 2001.
  • ONGC has non met the most basic step of an adventurer ‘s success: determination more oil than it pumps out. For three old ages in a row, the house has failed to replace the militias it produced. Its last major oil find was in 1974.
  • Government functionaries say ONGC must hike its reserve-to-production ratio – the figure of old ages its militias will last with the current degree of end product – by bettering its boring engineering and direction patterns. ONGC ‘s ratio is 22 old ages. In some onland countries the ratio is 57 old ages.
  • ONGC lost a major offshore platform at Bombay High, India ‘s largest oilfield, cut downing the company ‘s end product by 123,000 barrels per twenty-four hours ( bpd ) after an errant rig crashed into the installation during the monsoon, puting it on fire. It has since restored half that production.
  • Oil Minister Mr Aiyar has pushed for Indian and Chinese houses to collaborate non compete, for abroad assets, but his attempts appear to hold met with small involvement in Beijing, where the oil big leagues are deriving land abroad, despite some hiccoughs.

IOCL

It is India ‘s largest commercial endeavor, with a gross revenues turnover of US $ 36.537 billion.

  • A entirely owned subordinate company, IndianOil Technologies Ltd. is the 19th largest crude oil company in the universe
  • IndianOil ‘s world-class R & A ; D Centre has developed over 2,100 preparations of SERVO trade name lubricators and lubricating oils for virtually all imaginable applications meeting rigorous international criterions and bearing the cast of blessing of all major original equipment makers.
  • IndianOil is besides beef uping its bing abroad selling ventures and at the same time reconnoitering new chances for selling and export of crude oil merchandises to new energy markets in Asia and Africa.

BPCL

It is the 3rd largest oil company in India owned by the Government of India.

Gross ( 2005 ) : $ 17.613 billion

Employees: 12400

In 1976, the Burmah Shell Group of Companies was taken over by the Government of India to organize Bharat Refineries Limited.

  • In 1977, it was renamed Bharat Petroleum Corporation Limited.
  • It was the first refinery to treat freshly found autochthonal petroleum ( Bombay High ) , in the state.

Global Oil Monetary values

  • From the foundation of the Organization of Petroleum Exporting Countries in 1960 through 1972 member states experienced steady diminution in the buying power of a barrel of oil.In March 1971, the balance of power shifted.
  • Arab Oil Embargo: The Yom Kippur War started with an onslaught on Israel by Syria and Egypt on October 5, 1973. The United States and many states in the western universe showed strong support for Israel. As a consequence of this support several Arab exporting states imposed an trade stoppage on the states back uping Israel. Arab states curtailed production by 5 million barrels per twenty-four hours ( MMBPD ) . Monetary values increased 400 per centum in six short months.
  • Events in Iran and Iraq led to another unit of ammunition of rough oil monetary value additions in 1979 and 1980. The combination of the Persian revolution and the Iraq/Iran War resulted in rough oil monetary values more than doubling.
  • The higher monetary values besides resulted in increased geographic expedition and production outside of OPEC. From 1980 to 1986 non-OPEC production increased 10 million barrels per twenty-four hours. OPEC was faced with lower demand and higher supply from outside the organisation. Crude oil monetary values plummeted below $ 10 per barrel by mid-1986.
  • The monetary value of rough oil spiked in 1990 with the uncertainness associated Iraqi invasion of Kuwait and the resulting Gulf War, but following the war petroleum oil monetary values entered a steady diminution until in 1994 rising prices adjusted monetary values attained their lowest degree since 1973.
  • From 1990 to 1997 universe oil ingestion increased and the monetary value rhythm so turned up. The United States economic system was strong and the Asian Pacific part was dining.
  • Until the March 28, 2000 acceptance of the $ 22- $ 28 monetary value set for the OPEC basket of petroleum, oil monetary values merely exceeded $ 23.00 per barrel in response to war or struggle in the Middle East.
  • With limited trim production capacity OPEC has abandoned its monetary value set and for near to three old ages was powerless to stem a rush in oil monetary values which was reminiscent of the late seventiess.
  • During much of 2004 and 2005 the trim capacity to bring forth oil has been less than one million barrels per twenty-four hours. A million barrels per twenty-four hours is non adequate trim capacity to cover an break of supply from about any OPEC manufacturer. In a universe that consumes over 80 million barrels per twenty-four hours of crude oil merchandises, that adds a important hazard premium to crude oil monetary value and is mostly responsible for monetary values in surplus of $ 40 per barrel.
  • 2004 to 2006:
  • Supply: Oil bargainers felt that oil supplies might be reduced because of turbulency in the Middle East ( war in Iraq, Iran ‘s atomic plan, and internal instability in Saudi Arabia ) and issues outside Middle East like political jobs in Venezuela and possible instability in West Africa. Another of import cause is the US dollar ‘s slack against the Euro. Since oil is traded in dollars, the monetary value must increase for OPEC to keep buying power in Europe.
  • Peak Oil Theory and Speculation: Peak oil refers to a remarkable event in history, the extremum of the full planet ‘s oil production. Some argue that the addition in monetary value is due to oil guess widening into the long term. A July 14, 2005 Morgan Stanley study suggests that sentiments of the oil market could split merely like a bubble if indicants of worsening Asiatic demand continue.
  • Demand: Global petroleum supply is non run intoing ever-increasing demand, as witnessed by oil deficits in Africa, India, and China.
  • Today: Oil Monetary values went into a downward spiral of more than 20 per centum since the center of July. While energy monetary values remain high, they have non risen to highs that many analysts had feared, in portion because of a light hurricane season this summer, the armistice between Israel and Hezbollah and the fact that UN has non imposed countenances on Iran. While there is no sense of urgency about oil monetary value additions, some members of Opec are get downing to show anxiousness about farther monetary value diminutions

How is India Combating Price Hike?

  • The oil monetary value is increased without which the Oil companies would endure a gross loss of Rs 73,512 crore in 2006-07 financial.
  • Recent intelligence like that of the failed geographic expedition effort in Rajasthan has caused a major panic within Indian Government. The hope was that adequate oil will be found so that the unreal subsidy that the Government provides for domestic Petroleum merchandises can be maintained.
  • India ‘s ONGC Videsh has teamed up with Spanish Oil Company Repsol YPF and Norway’s Norsk Hydro to research six offshore blocks in Cuba.
  • India ‘s ONGC Videsh Ltd and GAIL together hold 30 per cent interest in A-1 field operated by Daewoo of South Korea. Myanmar has agreed to sell gas from offshore A-1 field to India through a land path short-circuiting Bangladesh.
  • India is sing fall ining a Central Asian gas grapevine that originates from Turkmenistan.
  • China National Petroleum Corporation ( CNPC ) and India ‘s Oil and Natural Gas Corporation ( ONGC ) , the two largest oil companies in the several states, jointly won a command to get 37 % of Petro-Canada ‘s interest in Syrian oilfields for US $ 573 million. ONGC and CNPC, both state-owned, will hold equal bets in the al-Furat oil and gas Fieldss.
  • India is seeking the resurgence of Iran-Pakistan-India grapevine trade which reached a reverse on July 16, 2006 when Iran demanded a monetary value of 7.2 dollars per mBtu of gas against India ‘s offer of 4.2 dollars per mBtu.
  • Reliance Petroleum Ltd. ( an 80-per cent subordinate of Reliance Industries ) is working on a new 29-million-tonne ( 5,80,000 barrels-a-day ) refinery which will be housed in a particular economic zone adjacent to the bing Jamnagar refinery of Reliance Industries and provide entirely to the export market, specifically the United States and Europe. This undertaking is designed to capitalise on the duplicate facets of lifting demand in the West for high quality fuels that meet rigorous emanation criterions and the broadening monetary value gulf between heavy and light petroleum oils.
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