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OIL & GAS
As per IEA's December 2010 outlook, the demand for crude oil has
increased due to exceptional cold winter weather in Q3FY11 leading prices
to two year highs at over USD$90/bbl.
EIA's Demand Outlook: Global oil product demand is revised up by 130
kbopd to 87.4 Mn bopd in 2010, and by 260 kbopd to 88.8 Mn bopd in
2011, on stronger data from OECD North America and non-OECD Asia.
Growth in 2010 (+2.5 Mn bopd y-o-y) is largely driven by buoyant gasoil
demand, notably in 3Q10, but expansion should slow to +1.3 Mn bopd in
2011 as temporarily supportive factors fade.
EIA's Supply Outlook: Global oil supply rose by 0.4 Mn bopd to 88.1 Mn
bopd in November 2010, largely due to increased non-OPEC production,
notably from Canada, Kazakhstan and Brazil. Non-OPEC supply now
averages 52.8 Mn bopd in 2010 and 53.4 Mn bopd in 2011, representing
growth of 1.1 Mn bopd and 0.6 Mn bopd, respectively. OPEC NGLs output is
seen averaging 5.3 mn bopd this year and 5.8 Mn bopd in 2011.
In November 2010, OPEC crude oil production inched higher, by 45 kbopd
to 29.2 Mn bopd. Effective spare capacity stands at 5.6 Mn bopd. The 'call
on OPEC crude and stock change' for 2011 is raised by 100 kbopd
(December 2010), to an estimated 29.5 Mn bopd, on higher demand
projections.
On Inventory front, October 2010 OECD industry stocks built by a modest
0.7 Mn bbls to 2,745 Mn bbls, or 60.1 days, as crude builds balanced out
product draws in Europe and North America. Preliminary data point to an
8.4 Mn bbls decline in November 2010 OECD inventories, but oil held in
floating storage rose.
Key highlights
We expect upstream oil and gas exploration companies to report strong growth in
revenues in Q3FY11 mainly on account of rising crude oil price. In Q3FY11, the average
Brent crude oil price has surged by 16 percent (YoY) and 13 percent (QoQ) to
USD$ 92.9/bbls leading to better realizations and margins. However, partly it will
be mitigated by strong rupee.
n Cairn India Ltd. We expect, the Company to report strong growth on QoQ
and YoY basis both on account of volume and realization growth. Cairn India is
a private exploration company so it will reap full benefits of rising crude oil
prices. However, due to delay in getting approvals from JV partners and other
stake holders for additional production from Rajasthan block the production will
be suppressed to that extent.
Gas Companies
n Indraprastha Gas (IGL). We expect IGL will show strong volume growth YoY
basis mainly due to common wealth games. However on QoQ basis the volume
performance will be flat and the margins are expected to be under pressure due
to sourcing of costlier gas and marginal increase in operating cost.
Recently, the Company has increased the price of compressed natural gas
(CNG) by Rs 1.25 per kilogram (Rs 1.50 a kg in Noida, Greater Noida and
Ghaziabad) to Rs.29/kg and the price of piped natural gas (PNG) by Rs 2 to
Rs.18.95/scm (up to the consumption of 90 SCM in four months) in Delhi. Beyond
the consumption of 90 SCM in four months, the applicable rate in Delhi
will be Rs 26/SCM.
n Petronet LNG (PLNG). We expect the Company to show strong volume
growth on QoQ basis mainly on account of higher gas demand and lower KG-6
gas production. The Company filled the supply-demand gap by importing
higher LNG.
n GSPL. We expect PLNG to report de-growth in profits mainly due to tariff adjustments.
However, there may be marginal improvement in volumes in
Q3FY11.
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