Even as fortunes of the petroleum industry remain clouded, natural gas is entering a golden phase
IF YOU consider the Sensex’s roller-coaster ride during 2008 as dramatic, then reversal in the fortunes of energy companies was nothing less than unprecedented. The spurt in energy prices in the first half of the year turned into a disaster in the second half, as crude oil lost nearly three-fourths of its value. In the process, crude once again became a commodity from being one of the hottest asset classes in ’07 and early ’08. The booming refining industry also came to a sudden halt as gross refining margins (GRMs) shrank after the Beijing Olympics in September ’07. Refining margins in the US Gulf — which were ruling above $15 per barrel in September ’08 — crashed subsequently and turned negative by the first week of November ’08. The price reversal in crude also had a dramatic effect on the domestic petroleum industry, which is dominated by state-run oil companies. These companies continue to suffer due to the government’s control on retail fuel prices, even as private refiners mint money, with their GRMs touching historic highs. PSU Navratna companies, which were once cash-rich, are likely to end the year with net losses. These companies, which paid over Rs 3,400 crore as dividends in FY07, had to cut that figure down to a mere Rs 900 crore in FY08. And 2009 could well be the first dividend-less year for them. However, the domestic natural gas industry tells a different story. India’s long-standing gap between demand and supply may narrow, as gas supplies begin from reserves of RIL, GSPC and ONGC on the east coast.
FUTURE OUTLOOK:
2008 is set to emerge as the first after 1983 to witness a fall in consumption of crude oil. Average global consumption is likely to remain at 85.8 million barrels per day (mbpd) compared to 86.1 mbpd in ’07. In the near term, crude prices are likely to stay at the current low levels. But towards the end of ’09, they should move above $60 per barrel. Until that revival, profitability of ONGC and Cairn India will remain under pressure. The fortunes of the refining industry continue to remain clouded in the short and medium term, which will affect Essar Oil, Reliance Petroleum, MRPL and CPCL. While existing refineries are running on low capacities, several new ones will be completed in ’09. So, we may see closure of old and simple refineries.
However, India’s natural gas industry is entering a golden phase with the availability of natural gas expected to double in two years. This will help gas transportation companies like Gail, Gujarat Gas, GSPL and Indraprastha Gas, as well as ancillary industries such as CNG cylinder manufacturers. This section of the industry will witness healthy profit growth in the near term.
IF YOU consider the Sensex’s roller-coaster ride during 2008 as dramatic, then reversal in the fortunes of energy companies was nothing less than unprecedented. The spurt in energy prices in the first half of the year turned into a disaster in the second half, as crude oil lost nearly three-fourths of its value. In the process, crude once again became a commodity from being one of the hottest asset classes in ’07 and early ’08. The booming refining industry also came to a sudden halt as gross refining margins (GRMs) shrank after the Beijing Olympics in September ’07. Refining margins in the US Gulf — which were ruling above $15 per barrel in September ’08 — crashed subsequently and turned negative by the first week of November ’08. The price reversal in crude also had a dramatic effect on the domestic petroleum industry, which is dominated by state-run oil companies. These companies continue to suffer due to the government’s control on retail fuel prices, even as private refiners mint money, with their GRMs touching historic highs. PSU Navratna companies, which were once cash-rich, are likely to end the year with net losses. These companies, which paid over Rs 3,400 crore as dividends in FY07, had to cut that figure down to a mere Rs 900 crore in FY08. And 2009 could well be the first dividend-less year for them. However, the domestic natural gas industry tells a different story. India’s long-standing gap between demand and supply may narrow, as gas supplies begin from reserves of RIL, GSPC and ONGC on the east coast.
FUTURE OUTLOOK:
2008 is set to emerge as the first after 1983 to witness a fall in consumption of crude oil. Average global consumption is likely to remain at 85.8 million barrels per day (mbpd) compared to 86.1 mbpd in ’07. In the near term, crude prices are likely to stay at the current low levels. But towards the end of ’09, they should move above $60 per barrel. Until that revival, profitability of ONGC and Cairn India will remain under pressure. The fortunes of the refining industry continue to remain clouded in the short and medium term, which will affect Essar Oil, Reliance Petroleum, MRPL and CPCL. While existing refineries are running on low capacities, several new ones will be completed in ’09. So, we may see closure of old and simple refineries.
However, India’s natural gas industry is entering a golden phase with the availability of natural gas expected to double in two years. This will help gas transportation companies like Gail, Gujarat Gas, GSPL and Indraprastha Gas, as well as ancillary industries such as CNG cylinder manufacturers. This section of the industry will witness healthy profit growth in the near term.
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