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India Oil and Gas
Libyan crisis stokes under-recoveries
Event
The Libyan crisis that has reportedly affected 1mbpd of its 1.5mbpd exports
(i.e. 33% of global spare capacity) has exacerbated Middle East problems,
causing crude (especially Brent) to jump by >US$12-15/bbl.
Cairn India main beneficiary: Among Indian stocks, Cairn India is the only
pure oil-play, and is significantly levered to crude prices (FY12E PAT jumps
by 13% for a ~10% increase). GAIL also benefits from increased prices for
petchem products (levered to crude) which it makes from fixed price gas.
Impact
Libya in the throes of a crisis: As the country descends into what is
increasingly being termed by media as a civil-war, it is highly unlikely that the
1mbpd of affected production would return to world supply any time soon.
Even if Gaddafi does accede control, it could be to a fragmented and volatile
rebel regime, which can hardly be termed as good for the stability-dependent
and confidence-reliant oil industry.
India not exposed to Libyan oil exports directly: While only 13% of Libyan
exports flow to the East of Suez and most of Asia (except China) has little
exposure to them, larger concerns around Algeria and Saudi Arabia (a prime
exporter to Asia) are also stoking crude prices.
Indian import bill to surge: China, Japan and India are the #2, #3 and #4 in
global oil consumption. Overall, Asia (ex-Middle East/Russia) consumes 30%
of the world’s oil, and its thirst is growing at a 5-year CAGR of 1.4%. Hence,
we expect Asian economies to be hit hard by the burgeoning oil import bill.
Given that India imports 81% of it’s crude requirements and is the world’s 4th
largest importer, India’s import bill is poised to rise sharply.
Indian complex GRMs correlated 60% to crude prices: While refiners may
feel the pinch in the short-term due to increased working capital requirements
on account of high oil prices, in the long run they largely benefit from because
the demand pull/supply concern for crude (the prime reason for a sustained
rise) is felt through the higher demand/lower inventory for products (primarily
auto-fuels, gasoline and diesel). Indian complex GRMs (equivalent to RIL’s
refinery) are positively correlated to the extent of ~60% with crude prices.
Under-recoveries ballooning: With the Govt not raising product prices for
the sensitive fuels (Diesel, Kerosene and LPG), under-recoveries on these
products have ballooned in the past few weeks. Diesel under-recoveries, the
most worrying factor, are of the order of Rs12/l now. In case the crude price
average for FY12 goes up by US$10/bbl (~10%), the gross under-recovery
estimates for FY12E balloon from ~Rs955bn to Rs1221 bn, a jump of ~28%.
Outlook
While increased oil prices are positive in general for unregulated companies,
most of Indian players operate in a highly regulated environment even with
regard to pricing. PSU upstream players (ONGC, Oil India) earnings are
mostly capped at such high oil prices, as the benefits get taken away through
increased discounts. Similarly, PSU downstream players (IOCL, BPCL,
HPCL) don’t bear an increased risk of a higher subsidy burden, but they move
further away from hopes of free pricing, which enhances investor concerns.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Oil and Gas
Libyan crisis stokes under-recoveries
Event
The Libyan crisis that has reportedly affected 1mbpd of its 1.5mbpd exports
(i.e. 33% of global spare capacity) has exacerbated Middle East problems,
causing crude (especially Brent) to jump by >US$12-15/bbl.
Cairn India main beneficiary: Among Indian stocks, Cairn India is the only
pure oil-play, and is significantly levered to crude prices (FY12E PAT jumps
by 13% for a ~10% increase). GAIL also benefits from increased prices for
petchem products (levered to crude) which it makes from fixed price gas.
Impact
Libya in the throes of a crisis: As the country descends into what is
increasingly being termed by media as a civil-war, it is highly unlikely that the
1mbpd of affected production would return to world supply any time soon.
Even if Gaddafi does accede control, it could be to a fragmented and volatile
rebel regime, which can hardly be termed as good for the stability-dependent
and confidence-reliant oil industry.
India not exposed to Libyan oil exports directly: While only 13% of Libyan
exports flow to the East of Suez and most of Asia (except China) has little
exposure to them, larger concerns around Algeria and Saudi Arabia (a prime
exporter to Asia) are also stoking crude prices.
Indian import bill to surge: China, Japan and India are the #2, #3 and #4 in
global oil consumption. Overall, Asia (ex-Middle East/Russia) consumes 30%
of the world’s oil, and its thirst is growing at a 5-year CAGR of 1.4%. Hence,
we expect Asian economies to be hit hard by the burgeoning oil import bill.
Given that India imports 81% of it’s crude requirements and is the world’s 4th
largest importer, India’s import bill is poised to rise sharply.
Indian complex GRMs correlated 60% to crude prices: While refiners may
feel the pinch in the short-term due to increased working capital requirements
on account of high oil prices, in the long run they largely benefit from because
the demand pull/supply concern for crude (the prime reason for a sustained
rise) is felt through the higher demand/lower inventory for products (primarily
auto-fuels, gasoline and diesel). Indian complex GRMs (equivalent to RIL’s
refinery) are positively correlated to the extent of ~60% with crude prices.
Under-recoveries ballooning: With the Govt not raising product prices for
the sensitive fuels (Diesel, Kerosene and LPG), under-recoveries on these
products have ballooned in the past few weeks. Diesel under-recoveries, the
most worrying factor, are of the order of Rs12/l now. In case the crude price
average for FY12 goes up by US$10/bbl (~10%), the gross under-recovery
estimates for FY12E balloon from ~Rs955bn to Rs1221 bn, a jump of ~28%.
Outlook
While increased oil prices are positive in general for unregulated companies,
most of Indian players operate in a highly regulated environment even with
regard to pricing. PSU upstream players (ONGC, Oil India) earnings are
mostly capped at such high oil prices, as the benefits get taken away through
increased discounts. Similarly, PSU downstream players (IOCL, BPCL,
HPCL) don’t bear an increased risk of a higher subsidy burden, but they move
further away from hopes of free pricing, which enhances investor concerns.
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