Outlook on the Indian energy sector - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Outlook on the Indian energy sector

Jan 14, 2008

India is a highly under-explored country in terms of hydrocarbons and the recent huge discoveries in the KG, Mahanadi and Cauvery basins are just a tip of the iceberg. They add to the mounting evidence of the success of the NELP rounds. Upstream majors ONGC and RIL are more aggressive than earlier in moving ahead with their exploration activities and joint ventures. With NELP VII underway, more acreage will come under exploration and the participation of global majors enhances the chances of discovery. The deployment of deepwater and ultra deepwater technologies along with development of marginal fields has become viable as the crude oil (Brent) price records new highs at around US$ 98 per barrel. Efforts in commercialising alternative sources, such as coal bed methane (CBM), also present a potential upside. However, the ad-hoc subsidy sharing agreement makes it difficult to gauge the impact of the same for state owned upstream players like ONGC. Although realisation per barrel for the company has increased indicating the company's participation in the upward movement of crude, the subsidy-sharing formula caps the topline growth.

There exists immense demand for the bulk natural gas in the country, especially from the fertiliser and power sectors. Enhanced supplies of the same will lead to significant growth in volumes transmitted. GAIL, by virtue of being the largest player in the segment is set to benefit from the same. However, we expect the government regulated transmission tariffs to remain sluggish because the wellhead price for KG basin gas is already higher than what the fertiliser industry can absorb.

As far as imported LNG is concerned, its economic rationale will get weaker as and when further domestic discoveries of natural gas are made and come on stream.

Expansion of the user base (from conversion of private cars) in the city gas distribution (CNG segment) is expected to propel existing players like IGL and the upcoming joint ventures in the space. The companies will also stand to gain from the benefits of scale on the back of higher CNG volumes expected to accrue in the future. The PNG segment is also likely to grow, at least in the major urban centers, due to the greater convenience over LPG delivered in cylinders.

The crack spread (the spread between the price of crude oil and final products extracted) will remain the key variable for refining companies. Refinery complexity and a superior product mix will help achieve better gross refining margins. Economies of scale will also play a decisive role. Towards these ends, state refiners are increasing the complexity and capacity of their units. However, RIL and RPL have head starts in these parameters.

PSU oil marketers will continue to be sandwiched between high input costs and government intervention in selling prices in the form price cap and subsidies. The regulated prices provide consumers with little incentive to drive less even as the oil price surges and as a result, artificially inflate the demand for fuel. Although positive noises are being made about a price hike; it's likely to be a case of too little too late with the general elections approaching. Companies will look towards exporting petroleum products to escape the situation.

Equitymaster requests your view! Post a comment on "Outlook on the Indian energy sector". Click here!


More Views on News

CASTROL INDIA Share Price Up by 5%; BSE OIL & GAS Index Up 0.5% (Market Updates)

Nov 24, 2020 | Updated on Nov 24, 2020

CASTROL INDIA share price is trading up by 5% and its current market price is Rs 130. The BSE OIL & GAS is up by 0.5%. The top gainers in the BSE OIL & GAS Index is CASTROL INDIA (up 5.0%). The top losers are GAIL (down 0.3%) and HPCL (down 0.3%).

GULF OIL LUBRICANTS Share Price Up by 5%; BSE OIL & GAS Index Up 0.3% (Market Updates)

Nov 24, 2020 | Updated on Nov 24, 2020

GULF OIL LUBRICANTS share price is trading up by 5% and its current market price is Rs 830. The BSE OIL & GAS is up by 0.3%. The top gainers in the BSE OIL & GAS Index is GULF OIL LUBRICANTS (up 5.2%). The top losers are HPCL (down 0.5%) and GAIL (down 0.6%).

More Views on News

Most Popular

This One Smallcap Stock is a Must Have in Your Portfolio (Profit Hunter)

Nov 11, 2020

Investing in this smallcap could open doors of huge, long-lasting wealth.

This Diwali Consider Richa's #1 Stock Pick for 2021 (Profit Hunter)

Nov 13, 2020

Why I admire the approach that Richa uses to zero in on stocks with huge upside potential.

Should You Buy Gold Now? (Fast Profits Daily)

Nov 11, 2020

Pfizer has announced a vaccine for covid-19. In response, gold prices have fallen. Should you buy? Find out in this video..

Don't Let Brokerages Fool You into Buying HUL & Nestle. The Real Money is in These Stocks Right Now... Views On News (Views On News)

Nov 12, 2020

Rahul Shah discusses why he preferred a little known stock over Nestle Ltd and how he was proven right.

US Elections: Won a Battle, Now the War (The Honest Truth)

Nov 13, 2020

Ajit Dayal on the urgent need to fix the disparity between the rich and the poor in the US.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Nov 24, 2020 (Close)