Oil and Gas industry

IntroductionIntroduction

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

Pricing – Demand and Pricing – Demand and SupplySupply Production - OPEC Financial/Commodity Markets Demand (India-China)

Pricing – Demand and Pricing – Demand and SupplySupply Highly Inelastic demand and supply

Short Term Dynamics

Pricing - SpeculationPricing - Speculation

Is price of crude oil in accordance relation of supply to demand ?

Who has a say in Oil prices? Who is a speculator? What is an Oil future? Can Future market be regulated? What is impact of speculation on oil

prices

The US Department of Energy’s Energy Information Administration (EIA) recently forecast that in the next few years global surplus production capacity will continue to grow to between 3 and 5 million barrels per day by 2010, thereby “substantially thickening the surplus capacity cushion.”

Nymex in New York and the ICE Futures in London today control global benchmark oil prices which in turn set most of the freely traded oil cargo. Enron Loopholeallowed the Intercontinental Exchange to install terminals in the United StatesPerhaps 60% of oil prices today pure speculationThat 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.

Import and Export – Net Import and Export – Net ExportersExporters

Top 10 Oil Exporting Nations

COUNTRY QTY(BBL/Day) in Million

1. Saudi Arabia 8.73

2. Russia 5.43

3. UAE 2.7

4. Iran 2.4

5. Kuwait 2.35

6. Nigeria 2.32

7. EU 2.19

8. Venezuela 2.18

9. Norway 2.15

10. Canada 2.00

Import and Export – Net Import and Export – Net ExportersExporters

Import and Export - New Import and Export - New PlaysPlays 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 Type of unconventional Petroleum deposits Canada and Venezuela

Country Imports

USA 13.5 mbod

China 5.3 mbod

Japan 4.4 mbod

South Korea 3 mbod

India 2.9 mbod

Germany 2.8 mbod

Netherlands 2.7 mbod

France 2.4 mbod

Italy 2.2 mbod

Singapore 2.1 mbod

Import and Export – India’s Import and Export – India’s ImportsImports

India has significant coal resources

India’s reserves 5.9 billion barrels (.5% of world)

Current dependence at 75% to grow to 91.6%

Demand expected to rise to 250 MMT by 2015

Exported 50.974 mmt of petroleum products against the imports of 23.49 mmt

Oil import by India

Import and Export – India’s Import and Export – India’s ImportsImports

India’s Sources

Saudi Arabia 23%

Iran 17%

Nigeria 11%

Iraq 10%

Kuwait 9%

UAE 9%

Malaysia 4%

Yemen 3%

Others 14%

International BusinessInternational 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

International BusinessInternational Business

Economy’s effect on Oil Positive outlook 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

Government Policies – Price Government Policies – Price CeilingsCeilings 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

Government Policies – Tax and Government Policies – Tax and SubsidiesSubsidies

Subsidy component by the government has remained constant since 2004-05 at Rs 22.58 per LPG cylinder and Rs 0.82 per litre of kerosene.

In Case of Liquefied petroleum gas (LPG) there is a loss on each cylinder of over INR 350.

Electricity, LPG and kerosene accounted for 87% of total subsidies in India in 2009, or 1.9% of the GDP.

Nationally, the richest 30% of households consume 72% of all liquefied petroleum gas, or cooking gas, while the poorest 30% consume just 2%.

Petrol price after taxes as on 01.08.2011

Price paid to refinery @ Trade Parity 35.39

Inland Freight + 0.65

Marketing Cost and Margin + 1.47

Excise Duty (including cess etc.) +14.78

Total price after Excise duty = 52.29Less: Under-recovery absorbed by OMCs (-) 00.71

Price Charged to Customer - Depot Price  = 51.58Dealer Commission + 1.50

Value added Tax (Including VAT on dealer commission.) *

+ 10.62

Retail Selling Price * * = 63.70

Diesel price after taxes as on 01.08.2011

Price paid to refinery @ Trade Parity 37.46Inland Freight + 0.69Marketing Cost and Margin   + 1.39Excise Duty (including cess etc.) + 2.06Total Desired Price before VAT and Dealer Commission

= 41.60

Less: Under recovery (-) 6.06

Price Charged to Customer - Depot Price = 35.54Dealer Commission + 0.91VAT (Including VAT on dealer commission.) *

+ 4.84

Retail Selling Price = 41.29

Government Policies – Tax and Government Policies – Tax and SubsidiesSubsidies 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.

Advertising PoliciesAdvertising Policies

International Oil Companies British Petroleum Shell Oil Chevron

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