Pure fuel manufacturing stays a loss-making proposition for many fields for the Indian upstream producers as government-dictated fuel worth stays at its lowest stage, score company Icra has mentioned.
The home fuel worth notified at USD 1.79 per million British thermal unit for the six months starting April 1 stays the bottom because the establishment of the modified Rangarajan system.
Moreover, the ceiling on worth for fuel produced from deep water, extremely deepwater, excessive temperature and high-pressure fields has additionally been introduced at USD 3.62 per mmBtu for April-September 2021-22 which is 10.eight per cent decrease than the value ceiling of USD 4.06 for October-March 2020-21 which might dampen the event of such initiatives.
“Whereas that is unfavourable for home producers, it is going to profit fuel shoppers. The shoppers will even profit in the long term from the expectations of continued provide overhang,” Icra mentioned commenting on the fuel worth notified by the federal government earlier this week.
As per an Icra word, at such low fuel costs, fuel manufacturing stays a loss-making proposition for many fields for the Indian upstream producers however some decline in oil area companies/tools prices.
Nevertheless, the depreciation of Indian Rupee towards US greenback, would support the realisations of the fuel producers however solely to an extent.
Sabyasachi Majumdar, Senior Vice-President & Group Head, Company Sector Scores, Icra, mentioned, “Going ahead, the provision glut is predicted to maintain costs of home fuel low within the close to to medium time period resulting in poor returns at the same time as home fuel producers similar to ONGC and Reliance Industries Ltd (RIL)-BP ramp up fuel manufacturing considerably.”
The absence of a flooring and sustained low costs as has been seen prior to now few years publish implementation of the modified Rangarajan system make exploration and manufacturing unviable even for benign geologies, Icra famous.
“Accordingly, low pure fuel costs stay damaging for the upstream sector adversely impacting revenues, profitability and money accruals and the incumbents have petitioned the Authorities of India to supply a flooring worth for fuel costs.”
Spot LNG costs had breached USD 30 per mmBtu in February 2021 resulting from enhance in oil costs, unplanned outages at export services in a number of nations, a number of chilly waves, excessive delivery charges and delays within the Panama canal.
Although spot costs have come all the way down to USD 6-6.5 per mmBtu ranges, low stock ranges as winter ends are set to assist costs, in addition to demand, as North Asia and Europe look to refill fuel storage.
However, the provision overhang stays with about 37.6 million tonnes every year liquefaction capability added in 2019 and 27.eight MTPA in 2020, apart from which capability additions until 2025 can be in extra of incremental demand which can weigh on fuel costs, Icra mentioned.
From the shoppers’ perspective, the low home fuel worth is a constructive.
“The continuation of the low home fuel costs would result in a aggressive price of technology for the home gas-based energy technology initiatives,” it mentioned.
Given the cost-plus nature of the facility buy agreements tied up by the gas-based energy initiatives, the profit is predicted to be handed on to the shoppers, primarily the state distribution utilities (discoms).
Nevertheless, the extent of the profit can be restricted for the discoms, given the subdued utilisation of the gas-based energy vegetation within the nation with annual common plant load issue (PLF) of 22-25 per cent for the gas-based capability at all-India stage, amid the insufficient provide of home pure fuel.
Throughout first 11 months of 2020-21, the fuel provide from home sources remained low at 22 per cent of the allotted amount for gas-based energy technology items as per the information from Central Electrical energy Authority.
Furthermore, with the uptick in spot LNG costs, the spot LNG consumption by gas-based energy initiatives has lowered from the 11.85 million commonplace cubic meters per day in October 2020 to 2.62 mmscmd in February 2021.
For each USD 1 per mmBtu variation in fuel worth, the price of technology would differ by 60-65 paise per unit for gas-based energy technology initiatives at prevailing rupee greenback trade price.
For the fertiliser sector, almost 36 per cent of the fuel requirement of the fertiliser sector is met via home fuel whereas the remaining is met via R-LNG imports. Furthermore, the trade is provided fuel at pooled pricing, which takes under consideration the weighted common of the home and R-LNG costs.
With no change within the home fuel worth, the pooled fuel worth is not going to witness any upward bias though time period LNG costs have risen over the past couple of months with the strengthening of the crude oil costs, Icra mentioned.
Nevertheless, the general pool worth is predicted to stay within the vary of USD 9.5-10 per mmBtu for 2021-22 if the crude oil costs maintain at present ranges.
As per Icra estimates, for each USD 1 rise within the pooled worth, the subsidy requirement for the urea sector rises by round ₹4,500-5,000 crore.
With pooled costs at these ranges, the subsidy price range for the urea sector shall be enough to fulfill the subsidy requirement for urea in 2021-22, it mentioned.
As regards the affect on the town fuel distribution (CGD) sector, Prashant Vasisht, Vice President and Co-Group Head, Company Scores, mentioned “Gross sales volumes for CGD gamers have reached pre-Covid ranges in Q4FY2021 supported by sturdy development in CNG volumes. This has been supported by resumption in financial exercise in addition to the rising costs of auto-fuels which have resulted in larger choice of CNG autos.”
Graduation of recent CNG stations in not too long ago awarded cities can be contributing to development.
“Amidst all this, the continuation of low fuel costs is a constructive. CGD gamers are prone to maintain costs unchanged for his or her CNG and home piped pure fuel shoppers,” he mentioned.