Indian Products Market, India as an Export Hub: Myth or reality?
Argus East of Suez Products Conference 2013, Singapore
26th June 2013
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Agenda
Global Crude Oil Demand Scenario – Emergence of Asia
Adoption of world class operational best-practices and KPIs for downstream Industries Rise of exports of petroleum products
Rising significance of Indian E&P sector Trends in Petrochemicals & Refinery sector in India
3
Global Oil & Gas Scenario Asia constitutes a significant part of Global spend, while India constitutes a important part of Asian spend Oil & Gas Spend in 2012 (in USD billion) Global
ASIA
INDIA
1230
238
80
770
160
60
Upstream Exploration | Development
Downstream Refining | Petrochemical
4
Emerging Demand Pattern in Asia China & India are leading the way in consumption of crude oil, as demand in these regions are forecasted to be 4-8 times the global average Strategic Shift in Demand of Crude Oil By 2035
1.6 %
Demand
By 2035 Demand
1.2 % 1% By 2035 Demand
By 2035 Global 0.5 %
By 2035
Demand
1.9 % 4.1 %
Demand
By 2035 Demand
•
Asia is steadily emerging as the global leader in crude oil consumption, primarily due to the fast growing economies like China, India, Indonesia and Middle East Countries.
•
Going forward crude oil dynamics would be dictated by the demand patterns in Asia, as it gains significance both in supply and demand of crude oil. Source: IEA, World Energy Outlook, 2012
5
Comparing India’s O&G Sector with Similar Developing Economies
5000 3835
4000 3000 2000
4.09%
5% 4%
2613
3%
1.92%
1.61%
1464
1000
267
559
421
2% 1%
0
CAGR (%)
Crude Oil Demand (mtoe)
Crude Oil Demand & CAGR of China, Brazil & India (2011 & 2035)
0% China
Brazil 2011
2035
India Growth Rate
China’s economy will mature at a faster rate than India India’s Growth: Rapid industrialization, increasing purchasing power and regulatory changes The per capita energy consumption is one of the lowest in India, growing at a very rapid pace Source: BP Statistical report, Beroe Analysis
6
India’s Energy Consumption – Overview India's Energy Consumption is an indicator of its status as a developing economy showing continuous growth. • . Natural Renewable
• •
•
Expected to rise to about 20% by Gas 8% 2025 Will result in comparatively cheaper feedstock for Solid petrochemical Biomass &
Sources 5%
•
Coal 41%
Waste 23%
Usage of Biomass is slowly decreasing as urbanization is increasing
•
Petroleum 23%
Major Drivers: • Steady Industrial and economic growth • Easing FDI norms, resulting in increased investment • Higher standards of living
Power sector continues to dominate the coal usage
Having steady growth due to increased demand from across industries
Major Constraints: • Poor penetration of civil infrastructure • Bureaucratic inertia • Development not being even among regions
Source: EIA, Beroe Analysis
7
Indian Upstream Scenario
8
Indian Upstream Sector – On Upward Growth 20% Domestic
80% Imported India Crude Oil Import - 2012 4%
18%
17%
13% 17%
Thousand barrels / day
6%
4000
10% 6%
9%
India Crude Oil Production by Region
Saudi Arabia Iraq Kuwait UAE Iran Other Middle East Africa Western Hemisphere Other
12%
1% 1%
Offshore Gujrat
14%
Rajasthan 56%
Assam/Nagaland Andhra Pradesh
16%
India - Crude Oil Production vs. Consumption
Other
60% Imports from Middle East
3000 80%
2000
Net Imports
1000
• • •
Rapid Industrialization Growing economy Easing Government regulations
0
1980 1984 1988 1992 1996 2000 2004 2008 2012
Crude Oil Production
Crude Oil Consumption
Source: MoPNG, Beroe Analysis
Increasing Oil Consumption 9
Increase in Exploration Activities Past
Present
Crude Oil Reserves in India - 2008 3% 1% West Offshore 17% Assam 56% 23%
Gujrat
Indian Basins - Status of Exploration (2012) 12% Exploration Initiated 22%
Assam 45%
18%
East Offshore Tamil Nadu
44%
Crude Oil Reserves in India - 2009 4% 11% West Offshore
Moderately Explored Poorly Explored Unexplored
Gujrat Rajasthan
22%
East Offshore
Increased E&P expenditure: • NELP, CBM Policy, Shale Policy • Increasing participation of private players • Easing FDI norms, leading to global E&P majors brining in latest technology • Moving from shallow to deep and ultra deep-water exploration
22% Source: DGH, Beroe Analysis
10
Indian Downstream Scenario – Potential Export Hub
11
India – Asia's Leading Producer of Products
• •
World’s 6th largest refining capacity India has a huge geographical advantage The refinery capacity addition recently has been instrumental in India being a top exporter in Asia New refineries match the global stringent environmental and quality norms Introduction of PCPIR initiative by Government
million Tonnes
• • •
Petroleum Products Throughput - By Type 250 200 150 100 50 0 2004 2005 2006 2007 2008 2009 2010 2011 Light Distillates
3% 3% 1%
7%
Production Pattern 26%
Light Distillates Middle Distillates
11%
• •
Total Fuel Oils Lubes Bitumen Others 49%
•
Middle Distillates
Heavy Ends
In the last 10 years that the change in mix of products has not changed significantly Middle distillates, dominated by diesel and industrial fuels comprise of about half of the petroleum products, due to robust economic growth The entry of private players have been instrumental in this growth
RBF & Losses/inventories
Source: MoPNG, Beroe Analysis
12
Indian Refineries – Key Highlights
Nelson Complexity Index amongst the highest globally Refineries being integrated to also produce petrochemicals
Modern refineries being built with large capacities, leading to competiveness by economies of scale
4000 3500 3000 2500 2000 1500 1000 500 0
India Product Carrier Tonnage & No of Tankers
60 50 40 30 20 10 0
2004 2005 2006 2007 2008 2009 2010 2011 2012 DWT('000' tonnes) No. of tankers
The products exported in last 6 years have become 1.5 times
Petroleum Products - Share by Manufacturer (2012) 7% 7%
6% 1% 28%
7% 9% 10%
26%
RPL
IOC
BPCL
EOL
HPCL
MRPL
JV
CPCL
NRL
Source: MoPNG, Beroe Analysis
Private players are using the latest technology in modern refineries & public players revamping the older ones In last 3 years India refineries had more than 100% utilization rates 13
Product Consumption Trend in India Total Petroleum Products Consumption in India (2012): 510 mtoe 10%
Kerosene
Others 10%
15%
LPG
15%
PNG
20%
OtherLiquidFuel DomesticCoal
Product Consumption in India Feedstock 11%
40%
Total Under recovery due to subsidy: USD 30 billion Gradual deregulation is decreasing the losses Power 51%
Process heat 11%
CNG
ATF
5% 10%
Transport 17%
10% 20%
25% 30%
Petrol Diesel 60%
Products in bold indicates subsidized by government
Source: MoPNG, Beroe Analysis
40%
Commercial Agriculture Domestic Industry
14
Increasing Exports of Petroleum Products
India - Petroleum Products Exports Vs. Imports 80%
Net Exports
200
250 200 150
mmtpa
Thousand tons/year
300
Indian Petroleum Refining Capacity
Excess Capacity
100
100
40 mmtpa
50
0 2004-05
2006-07 Imports
2008-09 2010-11 Exports
0 1980 1984 1988 1992 1996 2000 2004 2008 2012
India Product Export - 2012 Recent capacity additions Use of latest technology Entrance of private players
16%
20%
6%
15%
Investment in port infrastructure 7%
Oil & Gas industry contributes 64% of gross revenues of Government through Taxes Source: EIA, Beroe Analysis
7%
11% 8%
10%
Singapore UAE Indonesia Bahamas Taiwan Japan South Korea USA Other 15
Downstream Sector – Risks & Mitigation Methods
Following risks are now being effectively mitigated using the latest practices Risk Risk
Impact Impact
Latest Latest Practice Practice
Under Valuation of Land State Government Dependence Ambiguity in ROU & ROW
Cost Schedule Rework
Project plans are of poor quality, leading to scope changes and variations.
To reduce the overall cost in house team works on most of the projects.
Costly Material Quality Concern
Most of the public sector firms source locally produced materials and do not consider Chinese materials.
Most of the sourcing for executing projects in India is done locally. Escalation is Indexed
Cost Savings Consolidating of categories
Quality Concern Work Stoppages Legal Disputes
Government employment scheme reduces migration of labor. 30 % reduced skilled labor
More labor is deployed in sites to complete work. 10 – 15 % escalation used as a benchmark for planning.
Collaborating with agencies Proper Training Availability of reserve labor
Procurement
Labor Availability
Projects now go out for tendering with 5060% acquisition of land
Risks Mitigated
Cost Schedule Legal Disputes
Land Acquisition
Quality Concerns
Reason Reason
Preventing project delays Cost over runs avoided
The FEED stage technical consultants are now selected on Quality-CumCost-Basis instead of L1 approach
16 16
KPIs for Oil & Gas Downstream Projects The KPI helps to monitor, rate and report the performance of the supplier in proactively managing the project.
17
Export Oriented Enablers for Indian Products Market
Low cost of construction and local sourcing for greenfield & brownfield projects
Cheap and Easy Availability of Labor
Investments in ports infrastructure along the East & West coast – Proximity to Gulf
Increasing Investment from Public & Private Sector
Low and favorable export duties on petroleum products
20-25% over capacity of refining products due to recent capacity addition
18
Indian Petrochemical Scenario Projected Feedstock Availability (2012-13) 2012-13F (mmtpa)
2006-07 (mmtpa)
2012-13F Change
Refining Capacity
135
230-245
+95-110
Naphtha Supply
13.5
26-28
+11-13
Trends in Naphtha Usage Petrochemicals
7
Fertilizers
3
60%
Power
2
40%
Net Exports
1.5
Naphtha required for Fertilizer & Power to reduce by 2.5 mmtpa Exports will potentially rise
Note: Naphtha supply assumed 10% of refined products
7 kg Per Capita Consumption of Plastics
45 kg 65 kg
Source: Beroe Analysis
19
Appendix
20
Features of the Indian Petrochemical Sector •
The close linkages between the international and domestic market prices
•
Adoption of the state-of-the-art technology and high investment in the R&D High elasticity of demand
•
The country has 5 naphtha, 4 gas cracker and 4 aromatic production facilities
•
The export duties on petrochemical products are one of the lowest
•
Feedstock availability
•
Recent Economic Slowdown
•
Capital intensive
21
Drivers & Constraints – Downstream Sector
Drivers
Impact
High
Investment: Huge allocation of funds by government End User: Steady Industrial growth is supported by oil and gas investment
Recovering Economy: Peaking out of Interest Rates
Procurement: To improve quality, Government planning to introduce department of procurement
Low
Impact
Low
HighHigh
Fiscal Deficit Issues, Persistent Inflation
Escalation The Labour Wage rate and material Increasing Input Costs price escalation (Coal, Diesel, etc.)
Average Project Planning
Restraints 22
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