Policy
What Next After ‘Tit For Tat’ Over Farzad B Field?
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Indian PSU Refiners Plan Aggressive Foray Into Petrochemicals
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Oil Major Total Prefers A Cautious Approach Towards India
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Crude Oil Storage: Does India Need More?
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Time For Indian Firms To Step On The Gas In Bangladesh?
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Regulation
Hardy Moves Arbitration Tribunal Against PY-3 JV Partners
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ONGC’s Capex Utilization In Seismic, Drilling Short Of Target
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Dirok Field In Assam To Boost HOEC’s Finances
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Predictions About Petro Products Consumption Wide Of The Mark
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Alternative Energy / Fuel
Primary and Potential Feedstocks in Asia Pacific Countries
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India Makes Progress In Tapping Non-Conventional Energy Sources
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New Projects
SAGE Proposes Undersea Iran-India Gas Pipeline
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ONGC To Set Up Gas Dehydration Units In Andhra Pradesh
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CPCL To Invest Rs 14.95 Bn On Expansion Project
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New Crude Oil Pipeline From Chennai Port Trust-Manali Refinery
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IOC To Complete Paradip-Durgapur LPG Pipeline By Mar 2018
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Market Watch
GP Petroleum Aims At 5 % Share Of Automotive Lubricants Market
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Companies
Nynas AB
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Oil India Becomes A 5 MMT Company
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Swan Energy Ties-Up With Hyundai Heavy Industries
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Aegis Logistics Reports Healthy Rise In Profits
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Press Release [FREE Access]
Petro Intelligence » Will Rosneft-Trafigura Succeed Where RIL Failed?

by R. Sasankan

P. RaghavendraWhen Reliance’ patriarch Dhirubhai Ambani decided to diversify his business empire to downstream petroleum by setting up a refinery at Jamnagar in the state of Gujarat, the first thing he did was to pick P. Raghavendran of Indian Oil Corporation (IOC) to guide the fortunes of the division. Raghavendran was a batch mate of Subir Raha and M. S. Ramachandran – both stalwarts in the petroleum industry who eventually headed two of the largest public sector oil companies in the country. Raghavendran was acknowledged to be the best in that batch of IOC trainees and he would have definitely risen to the top in the public sector if he hadn’t been lured away by RIL midway through his career.

Reliance Industries’ foray into the closed world of domestic petroleum retailing – which until the early nineties was a fiercely protected fief of the public sector – had caused a lot of excitement because everyone was fed up with the unethical practices like adulteration of fuel and short selling at the petroleum pumps that received supplies from the PSU giants. (In recent weeks, petroleum minister Dharmendra Pradhan has ordered raids on a few retail outlets).

Shashi RuiaRIL and Raghavendran had great dreams and went on to open a string of retail outlets. Oil giant Shell received a licence at the same time to open 2000 retail outlets on the strength of its investment in its Hazira LNG terminal. RIL moved at deliberate speed to set up 1500 outlets. Ruias’ Essar Oil, which subsequently set up a refinery at Vadinar in the same state, also started its retail outlets. Essar was even more aggressive and established as many as 3500 retail outlets and intended to open another 500.

The retail venture of RIL and Essar soon turned into trouble as global crude prices surged, forcing the government to re-introduce a subsidy on transportation fuels. It decided to limit the subsidy to sales from the outlets of PSU oil companies. Neither Raghavendran’s business expertise nor RIL’s legendary business shrewdness could foresee such a risk. As a result, these retail outlets had to be mothballed for more than a decade. They have since been opened once again.

Vikram MehtaIn comparison, Shell, which is a foreign company that operates in almost all major and minor economies of the world, decided to go slow in opening its retail outlets. Its original tally was only 15 retail outlets against RIL’s 1500 and Essar’s 3500. This has subsequently been raised to 100. BP, which invested $ 7.2 billion in RIL’s Production Sharing Contract (PSC) blocks, applied for permission to market jet fuel but ended up getting a licence to retail all transportation fuels. The BP management, which recently announced the decision to invest $ 6 billion along with its partner RIL in three fields of KG-D6, is silent on its retail marketing strategy. This shows that the top management of foreign companies such as Shell and BP understand India and its politicians better than India’s domestic business geniuses.

I have recalled this history to remind our readers that the entry of the Rosneft-Trafigura combine into the Indian market, by acquiring Essar Oil’s refinery and its marketing outlets, will not make much of a difference to the plight of the consumers. The subsidy issue will not re-surface as a problem again with crude price unlikely to move up significantly. Even if it does, the political leadership may find it difficult to re-introduce the subsidy on transportation fuels.

Russia’s Rosneft has crafted a strategy to rope in the Geneva-based Trafigura as a minority partner (with Russian bank UCP Igor Sechinas the third partner). Trafigura, like Vitol and Glencore, is a past master in devising smart international trade practices. It can source crude and products at cheaper price. But India is a very different market.

The financial clout and business expertise of the formidable combine will not be able to influence the Indian retail market as long as the three state-owned Oil Marketing Companies (OMCs) -- IOC, BPCL and HPCL – control the marketing infrastructure. Together, these OMCs enjoy a virtual monopoly over the infrastructure such as pipelines, tankages and port facilities.

RIL with its political clout failed to convert the existing marketing infrastructure into common carrier facilities despite a recommendation to this effect by an official team headed by then petroleum secretary Vijay Kelkar. This is perceived to be a politically sensitive issue. These OMCs own and operate close to 55,000 retail outlets. Even if reactivated, the 3500--odd retail outlets of the Rosneft-Trafigura combine is unlikely to make a big difference in the present market.

Jeremy WeirBut nothing can be ruled out. In my view, if the Rosneft-Trafigura combine succeeds in harnessing the marketing infrastructure of one of the oil PSUs, it will have a significant impact on India’s petroleum retailing market. This does not require a policy decision by the government and can be worked out at the level of the concerned PSU management. The petroleum market the world over is witnessing swift developments. Who on earth could have predicted that Russia’s Ural crude would enter the Indian market? The kickback–induced Asian Premium is starting to show signs of collapse which will reduce India’s dependence on the Middle East for crude. US crude, unthinkable considering the transportation costs on account of the great distance between the two countries, is being purchased by India’s PSU refineries. Both IOC and BPCL, which have already bought a few cargoes, will be purchasing more US crude in the coming months. HPCL has also announced its decision to import US crude. It won’t be long before US LNG supplies start flowing to India.

True, the US Senate is furious with Russia and is tightening the screws. If implemented, the sanctions can affect the oil market. But the bond of friendship between Putin and Trump still remains strong. Indian Prime Minister Narendra Modi has excellent relations with both Trump and Putin, with a seemingly slight tilt towards the former. The present political bosses in India are less inclined to interfere with market forces. That could create a favourable environment for Rosneft-Trafigura. Its success could prompt Shell and BP to reconsider their retail marketing strategy for the Indian market.



To download the latest issue 'Volume 24 Issue 11 - September 10th 2017', click here
Petro Intelligence [FREE Access]
Ennore Terminal: Ego Battle Looms
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PLL To Be IOC’s LNG Operator?
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Will Rosneft-Trafigura Succeed Where RIL Failed?
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Asian Premium: Will It Crack As Supply Basket Widens?
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Foreign Investment
UK-Based Firms To Invest In Waste-To-Energy Projects
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Overseas Investment
PLL To Form JV With Japanese Co To Set Up LNG Terminal In Sri Lanka
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Essar Oil UK To Upgrade Stanlow Refinery
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Gas Scene
Gas Pipeline Under Execution / Construction as on 31st March, 2017
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LNG Imports In July 2017
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Domestic natural gas price and gas price ceiling
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Domestic Gas Scene: July 2017
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SAGE-EIL Presentation: Middle East to India Deepwater Pipeline
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ONGC Gas Flaring for FY 2016-17
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Petronet LNG Ltd looks set to expand its wings
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Update: CGD Factsheet as of June 2017
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Source-Wise Imports of LNG In June 2017
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Sector-wise utilisiation of domestic gas and RLNG
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The GST Double Whammy For Gas Sector
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ONGC, OIL step up drilling shale wells in the fourth quarter FY 2016-17
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Update: Gas Production / Consumption / Imports
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Gas pipeline network update as on 31st March, 2017
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Assessment & Status: Shale Gas / Oil Resource
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In search of areas to increase share of natural gas in energy mix
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Gas for Power- No inclusion in Policy
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Recoverable Coal Bed Methane Reserves as on 1st April, 2016
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Estimated Potential Gas Demand - Diesel & Petrol Replacement
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Data Section
Monthly Upstream Data
Monthly Downstream Data
Historical database
Data Archives
Special Database
Tax Element in Retail Selling Price of Petrol & Diesel: Developed Countries vis-a-vis India
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ONGC Rigs position as on April 1, 2017
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Petrochemical Import by India -2015-16
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ONGC: Drilling Cost
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ONGC’s Finding Cost
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High Sulphur (HS) & Low Sulphur (LS) crude oil processing
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LPG Coverage As On 1st July, 2017
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Power Situation In July 2017
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Petcoke Global Data: Imports & Exports
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Global Pet Coke statistics for key countries
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Break-up of consumption of products from PSU and Private refineries
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Applications of petroleum coke / using industries
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A 40 % Increase In Petroleum Coke Import “Alarming”, “Disturbing”
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India’s Story of Petroleum Products Surplus
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Petroleum products demand & Gross Domestic Product (GDP)
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Distillate yield of PSU refineries
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No Significant Variations In Import Of Crude & Products in June 2017
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Weightage of petroleum products in Wholesale Price Index (WPI)
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Update: Crude Price - Indian Basket
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Contribution of petroleum sector to exchequer
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Revised Hydrocarbon Reserves in India
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Status of blocks under NELP as on March 31, 2017
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Retail Selling Price (RSP) of major products in India & neighbouring countries
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Ethanol Demand Projection For Asian Countries
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Petroleum Coke Continues Relentless Surge In Indian Market
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Tenders [FREE Access]
GAIL
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Reliance Industries Ltd.
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