The Hindu Business Line : High crude prices haunt oil sector in 2007

The year that was
The Govt announces package in October for oil marketing companies to offset rising global prices.
The Govt launched NELP VII, where 57 exploration blocks have been put on offer.
LN Mittal group company joins hands with HPCL for Bhatinda refinery project.

Richa Mishra

New Delhi, Dec. 28

The volatility in international crude prices haunted the oil sector during the better part of 2007, with political compulsions forcing the Government to tread cautiously as regards the retail selling prices (RSP) of petroleum products.

With crude flirting close to $100 a barrel, the oil marketing companies (OMCs) felt the brunt of selling these products below the cost price as the Government continued to insulate consumers from a hike in retail prices.

To offset the revenue loss suffered by the state-owned OMCs from the spurt in global crude prices, the Government announced a package to share this burden in October. The package envisaged that the Central Government will issue oil bonds to the tune of 42.7 per cent of the total under recoveries and 33 per cent of the burden by way of price discounts. The price discounts would be shouldered by upstream PSUs – ONGC, GAIL and OIL. Further, the Government decided to extend Central subsidy on PDS kerosene and domestic LPG. The Indian crude basket on Thursday stood at $91.32 a barrel.

In February, the Government had reduced petrol and diesel prices to pass on benefit of the lower global crude prices to consumers. However, the subsequent months witnessed a phenomenal increase in global prices of crude oil with the Indian basket touching an all time high of $92.13 per barrel on November 26.

As in the second fortnight of December, the desired increase in the retail selling price of petrol was Rs 8.20 per litre, diesel Rs 9.25 per litre, kerosene Rs 21.20 per litre and cooking gas (LPG) Rs 262.35 per cylinder. To consider the prices of essential commodities, the Government has recently constituted a group of ministers (GoM), which is expected to meet sometime in January 2008.

The year 2007 also courted its own share of controversies for the sector including the issue of gas price from the Reliance Industries Ltd’s (RIL) Krishna Godavari Basin find. After much deliberation, the Government approved a formula as well as a mechanism to be adopted for Government approval for the price of gas discoveries under NELP.

The Empowered Group of Ministers (EGOM) decided that the price discovered on arms-length basis through bidding will be adopted under NELP and upheld the sanctity of legally binding contracts.

To accelerate domestic production of oil and gas, the Government launched NELP VII, where 57 exploration blocks have been put on offer. The bid closing date is April 11, 2008.

The year also saw one of the largest foreign direct investment (FDI) in the Petroleum refining sector with L N Mittal Group company joining forces with state-owned Hindustan Petroleum Corporation Ltd (HPCL) for the 9 million metric tonne per annum (MMTPA) Bhatinda Refinery project. The investment is the second largest FDI in the energy sector and the third largest that the country has received.

The Government announced the national launch of five per cent ethanol blended petrol programme (EBP). The programme had its own teething problems. At present, OMCs are procuring ethanol at a basic price of Rs 21.50 per litre. Against a requirement of 1.80 million KL of ethanol for three years, OMCs have contracted for 1.32 million KL. So far, 0.17 million KL has been procured. The Government has also decided to expand the ethanol content to 10 per cent.