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Oil and gas - India is hungry for investments
By Dr. Uday Lal Pai
Exclusively for InvestorIdeas.com
posted October 23, 2006
Though the rising crude oil prices in recent times have been posing major challenges for the Oil Refinery and Marketing Companies, the investment potential that the country hold is simply tremendous.
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India ranks sixth in the world in terms of petroleum demand and by 2010, India is projected to replace South Korea and emerge as the fourth-largest consumer of energy, after the United States, China and Japan.
Estimated to be a US$ 90 billion industry, the Indian oil and gas industry is among the largest contributors to the central and state exchequers in India. Its share approximates US$ 13.58 billion. Most of the country's 25 refineries, with a capacity to process 2.5 million barrels per day, are run by state-run companies.
Since India is dependent on imports for nearly 70 per cent of its petroleum requirements, energy security has become a prime government concern. The major thrust still lies in searching for hydrocarbons in onshore and offshore blocks in India.
The government of India is working on increasing the country's investment potential to US$ 250 billion. And with the current investment wave, it appears that day would not take long in arriving. With clear policies in place, India is becoming an attractive destination for global companies in the oil and gas sector.
Few months back, a group of non-resident Indians (NRIs) led by former Citibank Hand Victor Menezes and Purnendu Chatterjee organized a meeting on making India a petrochemical hub. And it seems to have yielded results. This has brought global giants like Exxon Mobil, BASF, Dow Chemicals and Shell to India to talk big numbers.
According to Sunjoy Joshi, Joint Secretary, Ministry of Petroleum: "more companies are willing to come to India to join the largely unexplored sector of drilling for gas and oil after clear policies have been formulated as was evident from the fifth round new exploration licensing policy (NELP)."
India expects a sizeable US$ 7-billion investment in oil exploration by 2008 from global majors like Exxon Mobil and Chevron. For the first time, these firms have shown interest in oil exploration in the country.
As many as 55 oil and gas blocks are on offer in the sixth round of the National Exploration Licensing Policy (NELP), for which bids have to be sent in by September.
In comparison, an investment of $1.7-2 billion has been committed for the 20 blocks offered during the previous NELP round last year. That round saw British Petroleum, Cairn and British Gas among 26 companies picking up blocks in the country.
"For the first time, all the major oil companies have exhibited interest in acquiring data packages of India's sedimentary basins. Transparent bidding conditions and a better regulatory framework in India with the setting up of the petroleum regulatory board for the downstream sector are important factors in this," says Petroleum and Natural Gas Minister Murli Deora. The petroleum regulatory board will be established in six months.
The government has also decided to rope in public sector oil companies to anchor the proposed investments in the country.
Companies like Oil and Natural Gas Corporation (ONGC), Indian Oil (IOCL), Hindustan Petroleum (HPCL), Bharat Petroleum (BPCL) and Gail could take a lead in the seven zones identified by the government.
According to Satwant Reddy, secretary, department of chemicals and petrochemicals, the government has identified the locations for establishing the petrochemicals, petroleum and chemicals investment regions (PCPIRs), mainly for the export market. "According to the draft policy, the anchor tenant has to be a refinery or a petrochemical feedstock unit. Since most of these oil companies are planning their refineries or petrochemical complexes near these regions, they will be asked to anchor it," he said.
India has undertaken several initiatives to improve the current 18% level of exploration of sedimentary blocks. The Government of India also plans to introduce open acreage policy that permits companies to bid for exploration of desired blocks. The companies will be let to benefit from their technical expertise vis-à-vis their competitors. They can select blocks suitable to their risk propensity, profile and also time the bids.
India aims to become the hub for export of its petroleum products. It is estimated that demand for petroleum products in Asia Pacific region alone would be around 28Mn barrels per day in 2010.
Another interesting development is that OPEC countries are spending their petro-dollars in Asian and African nations increasingly, says the World Investment Report 2006 released by UNCTAD. Oil exporting countries like Kuwait, Saudi Arabia and United Arab Emirates are investing their petro-dollars in telecommunications, hotels and real estate.
India is among the favored destinations for petro-dollars. Portfolio investments by OPEC nations were happening earlier too in countries like India but the focus is now on FDI. The report says energy is a sector of special focus and a Saudi Arabian firm is likely to pick up stake in ONGC's refinery project in Andhra Pradesh. After 9-11, it was believed that investments from the Gulf region would flow into countries like India rather than traditional favorites like the US and Europe.
Even Asian companies are bullish on investing in India. South Korea's POSCO plans to invest an additional $ 27 billion in India over the next seven years, establishing more steel plants in Chattisgarh and Jharkhand.
Reflecting on the stock investment angle, the industry fundamentals are strong. Automobile sale have surged this year. Car sales are up by nearly 30%, heavy & medium commercial vehicle sales have climbed an even steeper 40%, and consumption of diesel and LPG are on a steep rise.
This is good news for the oil and gas industry, which is counting on surging sales and economic boom to absorb the huge refining capacity that has built up in the country. The interesting story is that oil products consumption has started picking up in line with the economic boom, though with a certain lag. In near term, India should see much larger pick- up in sales of oil products in line with the GDP growth rate, feel analysts.
High consumption has meant high profit margins for oil companies, particularly refining majors like HPCL, BPCL, IOC and a host of other smaller refining companies.
Refining margins are now ruling at their highest levels over the past decade. According to analysts tracking the sector, refining margins are now at $8 per barrel, one of the highest levels in many years. And these margins have stayed high despite a rise in prices of crude oil. For integrated refining & marketing companies, like HPCL, BPCL and IOC, the gains are even more substantial and their numbers may look very impressive.
Major Oil and Gas firms in India
Bharat Petroleum Corporation Limited
Hindustan Petroleum Corporation
Cairn Energy
Essar Oil
Prize Petroleum CO.LTD
HOECL
Jubiliant Empro
JHON ENERGY
Selan Exploration Tech.Ltd.
Gujarat Oleo Chem Ltd.
Geo Global Resources.
Petronet LNG Limited
Gujarat Gas Co. Ltd.
Charottar Gas Sahkari Mandli.
Piyush Petroleum Co. Ltd
Pankaj Petroleum Co. Ltd
ONGC
Reliance Industries Limited
Indian Oil Corporation
Oil India Limited
Disclaimer
Dr. Uday Lal Pai is an independent columnist for this web site.
Dr. Uday Lal Pai may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment. InvestorIdeas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
Dr. Uday Lal Pai is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.
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