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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INTELLIGENCE

Deep Dive

Category Reports

Cost Models, Price

Forecasts

SOURCE

Category

Dashboards, Best

Practices

China, India, SEA

Eastern Europe,

Western Europe,

N.A

Latin America,

Middle East,

Africa

SUPPLY RISK

Supplier Risk

Assessments

Supply Chain Risk

Enterprise Risk

Management

ETHICAL RISK

Social

Responsibility

Endangered

Species

Illegal

Sourcing

GREEN

Environmental

Footprint

Agenda

3

Global Crude

Oil Demand

Scenario –

Emergence

of Asia

Rising

significance of

Indian E&P

sector

Trends in

Petrochemicals

& Refinery

sector in India

Rise of

exports of

petroleum

products

Adoption of world

class operational

best-practices and

KPIs for

downstream

Industries

Global Oil & Gas Scenario Asia constitutes a significant part of Global spend, while India constitutes a important

part of Asian spend

4

Oil & Gas Spend in 2012 (in USD billion)

Global ASIA INDIA

Exploration | Development

Upstream

1230 238 80

Refining | Petrochemical 770 160 60

Downstream

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

5

Strategic Shift in Demand of Crude Oil

4.1 %

By 2035

Demand 1.9 %

By 2035

Demand

1.2 %

Source: IEA, World Energy Outlook, 2012

By 2035

Demand 1.6 %

By 2035

Demand

1 %

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.

Global

Demand

By 2035

0.5 %

Comparing India’s O&G Sector with Similar Developing

Economies

6

2613

267 559

3835

421

1464 1.61%

1.92%

4.09%

0%

1%

2%

3%

4%

5%

0

1000

2000

3000

4000

5000

China Brazil India

CA

GR

(%

)

Cru

de

Oil

Dem

an

d (

mto

e)

Crude Oil Demand & CAGR of China, Brazil & India (2011 & 2035)

2011 2035 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

India’s Energy Consumption – Overview India's Energy Consumption is an indicator of its status as a developing economy

showing continuous growth.

• .

7

Coal 41%

Petroleum 23%

Solid Biomass &

Waste 23%

Natural Gas 8%

Renewable Sources

5%

Source: EIA, Beroe Analysis

Major Constraints:

• Poor penetration of civil infrastructure

• Bureaucratic inertia

• Development not being even among

regions

Major Drivers:

• Steady Industrial and economic growth

• Easing FDI norms, resulting in increased

investment

• Higher standards of living

• Expected to rise to about 20% by

2025

• Will result in comparatively

cheaper feedstock for

petrochemical

• Usage of Biomass is slowly

decreasing as urbanization is

increasing

• Power sector continues

to dominate the coal

usage

• Having steady growth

due to increased

demand from across

industries

Indian Upstream Scenario

8

Indian Upstream Sector – On Upward Growth

9

18%

13%

10%

9% 6% 6%

17%

17%

4%

India Crude Oil Import - 2012 Saudi Arabia

Iraq

Kuwait

UAE

Iran

Other Middle East

Africa

Western Hemisphere

Other

56%

16%

14%

12% 1% 1%

India Crude Oil Production by Region

Offshore

Gujrat

Rajasthan

Assam/Nagaland

Andhra Pradesh

Other

80% Imported 20% Domestic

0

1000

2000

3000

4000

1980 1984 1988 1992 1996 2000 2004 2008 2012

Th

ou

sa

nd

ba

rre

ls /

day

India - Crude Oil Production vs. Consumption

Crude Oil Production Crude Oil Consumption

Net Imports

80% • Rapid Industrialization

• Growing economy

• Easing Government regulations

Increasing Oil Consumption

60% Imports from

Middle East

Source: MoPNG, Beroe Analysis

Increase in Exploration Activities

10

56% 23%

17% 3% 1%

Crude Oil Reserves in India - 2008

West Offshore

Assam

Gujrat

East Offshore

Tamil Nadu

45%

22%

18%

11% 4%

Crude Oil Reserves in India - 2009

West Offshore

Assam

Gujrat

Rajasthan

East Offshore

Present Past

44%

22%

22%

12%

Indian Basins - Status of Exploration (2012)

Exploration Initiated

Moderately Explored

Poorly Explored

Unexplored

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

Source: DGH, Beroe Analysis

Indian Downstream Scenario – Potential Export Hub

11

India – Asia's Leading Producer of Products

12

26%

49%

11%

1% 3%

3% 7% Production Pattern

Light Distillates

Middle Distillates

Total Fuel Oils

Lubes

Bitumen

Others

RBF & Losses/inventories

0

50

100

150

200

250

2004 2005 2006 2007 2008 2009 2010 2011

mill

ion

To

nn

es

Petroleum Products Throughput - By Type

Light Distillates Middle Distillates Heavy Ends

• 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

• 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

Source: MoPNG, Beroe Analysis

Indian Refineries – Key Highlights

13

0

10

20

30

40

50

60

0

500

1000

1500

2000

2500

3000

3500

4000

2004 2005 2006 2007 2008 2009 2010 2011 2012

India Product Carrier Tonnage & No of Tankers

DWT('000' tonnes) No. of tankers

28%

26% 10%

9%

7%

7%

7% 6% 1%

Petroleum Products - Share by Manufacturer (2012)

RPL IOC

BPCL EOL

HPCL MRPL

JV CPCL

NRL

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

The products exported in last 6 years have become

1.5 times

Source: MoPNG, Beroe Analysis

In last 3 years India refineries had more than 100%

utilization rates

Private players are using the latest technology in

modern refineries & public players revamping the

older ones

Product Consumption Trend in India

14

Power 51%

Transport 17%

Process heat 11%

Feedstock 11%

Others 10%

Product Consumption in India

40%

30%

20%

10%

Commercial

Agriculture

Domestic

Industry

40%

20%

15%

15%

10% Kerosene

LPG

PNG

Other Liquid Fuel

Domestic Coal

Products in bold indicates

subsidized by government

Total Petroleum Products Consumption in India (2012): 510 mtoe

60%

25%

10% 5% CNG

ATF

Petrol

Diesel

Source: MoPNG, Beroe Analysis

Total Under recovery due to subsidy:

USD 30 billion

Gradual deregulation is decreasing

the losses

Increasing Exports of Petroleum Products

15

16%

15%

11%

10% 8%

7%

7%

6%

20%

India Product Export - 2012

Singapore

UAE

Indonesia

Bahamas

Taiwan

Japan

South Korea

USA

Other

Recent capacity additions

Use of latest technology

Entrance of private players

Investment in port infrastructure

Oil & Gas industry contributes 64% of gross

revenues of Government through Taxes

0

50

100

150

200

250

1980 1984 1988 1992 1996 2000 2004 2008 2012

mm

tpa

Indian Petroleum Refining Capacity

0

100

200

300

2004-05 2006-07 2008-09 2010-11

Th

ou

sa

nd

to

ns/y

ea

r

India - Petroleum Products Exports Vs. Imports

Imports Exports

Net Exports

Excess Capacity

Source: EIA, Beroe Analysis

40 mmtpa

80%

Downstream Sector – Risks & Mitigation Methods

16 16

Risk Impact Reason Latest Practice Risks Mitigated

Land Acquisition

Preventing project delays

Cost over runs avoided

Quality Concerns The FEED stage technical

consultants are now

selected on Quality-Cum-

Cost-Basis instead of L1

approach

Procurement

Cost Savings

Consolidating of categories

Labor Availability Collaborating with agencies

Proper Training

Availability of reserve labor

Cost

Schedule

Legal Disputes

Cost

Schedule

Rework

Costly Material

Quality Concern

Quality Concern

Work Stoppages

Legal Disputes

Under Valuation of Land

State Government

Dependence

Ambiguity in ROU &

ROW

Project plans are of poor

quality, leading to scope

changes and variations.

Most of the public sector

firms source locally

produced materials and

do not consider Chinese

materials.

Government employment

scheme reduces

migration of labor.

30 % reduced skilled

labor

Projects now go out

for tendering with 50-

60% acquisition of

land

To reduce the overall

cost in house team

works on most of the

projects.

Most of the sourcing

for executing projects

in India is done

locally.

Escalation is Indexed

More labor is

deployed in sites to

complete work.

10 – 15 % escalation

used as a benchmark

for planning.

Following risks are now being effectively mitigated using the latest practices

Risk Impact Reason Latest Practice

KPIs for Oil & Gas Downstream Projects

17

The KPI helps to monitor, rate and report the performance of the supplier in

proactively managing the project.

Export Oriented Enablers for Indian Products Market

Low cost of construction and local sourcing for greenfield &

brownfield projects

Investments in ports infrastructure along the East & West coast – Proximity to Gulf

Increasing Investment from Public & Private Sector

18

Cheap and Easy Availability of Labor

Low and favorable export duties on petroleum products

20-25% over capacity of refining products due to recent capacity

addition

2006-07 (mmtpa) 2012-13F

(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% Naphtha required for Fertilizer & Power

to reduce by 2.5 mmtpa Power 2 40%

Net Exports 1.5 Exports will potentially rise

Indian Petrochemical Scenario

19

Projected Feedstock Availability (2012-13)

Note: Naphtha supply assumed 10% of refined products

Per Capita

Consumption

of Plastics

7 kg

45 kg

65 kg

Source: Beroe Analysis

Appendix

20

Features of the Indian Petrochemical Sector

21

• 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

Drivers & Constraints – Downstream Sector

22

Recovering Economy:

Peaking out of Interest Rates

Investment:

Huge allocation of funds by government

Fiscal Deficit Issues,

Persistent Inflation

Increasing Input Costs (Coal, Diesel, etc.)

End User:

Steady Industrial growth is supported

by oil and gas investment

High

Procurement:

To improve quality, Government planning to introduce

department of procurement

Low

High

Imp

ac

t

Low

High

Drivers

Restraints

Escalation

The Labour Wage rate and material price escalation

Average Project Planning

Imp

ac

t

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