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Price hikes, gas boost & more

Jun 20, 2008

China hikes fuel and power prices
China has hiked the prices of petrol and diesel by least 17% while also increasing power tariffs. The development is on the heels of similar fuel price hikes in India, Malaysia and Indonesia. The reason for such a move is to control the demand for energy in China, which has been insulated from the global price signals due to the state subsidised prices. A similar situation exists in India, another major oil consumer, where the government cushions the energy consumer by heavy subsidies on petroleum products (petrol, diesel, kerosene and LPG). So far, in both the countries, the downstream oil marketing companies have had to bear the brunt of the mounting losses. While the move will help the oil marketing companies cope with their losses, it raises the fear of inflation and hampering growth.

  • Also read - India's fuel price hike

    Airlines in India raise fares too
    Several Indian airline companies have decided to hike fares by 5% to 20% effective today. While some carriers have increased the basic fares, others have hiked the fuel surcharge. This move is on the back of the hike in aviation turbine fuel (ATF) prices by oil companies last month and the subsequent refusal of state governments to reduce sales tax on the fuel. The absolute price hike per trip is in the region of Rs 100 to Rs 1,000.

    At this juncture, the airline operators have two options. The first is to increase fares thereby reducing the market size of air travel and concentrate on snatching market share from other operators. The other option is to keep the airfares low thereby increasing market size and build sufficient volumes to make the industry profitable down the road. Something the telecom players have perfected over these years.

  • Also read - Indian aviation's earlier fare hike

    Gas will fuel India
    As per the latest figures released by the Ministry of Petroleum, domestic production at 79 million standard cubic meters per day (mmscmd) and 32 mmscmd from LNG imports met about 60% of India's gas demand in FY08. Going forward, domestic production is expected to more than double to 170 mmscmd by FY12, after Reliance Industries' K-G basin gas reaches peak output. ONGC has plans of producing 52 mmscmd by FY12, up from the 47 mmscmd it produced in FY07. Oil India will contribute 10 mmscmd.

    On the LNG front, India's import is expected to more than double to 23 m tons by FY12 from 9 m tons in FY08 due to the new terminals at Dabhol, Kochi and Mangalore and expansion in the existing terminals at Dahej. Together with 81 mmscmd of LNG, India will have gas in the region of 252 mmscmd in FY12 from 111 mmscmd in FY08. Clearly the future looks sparkling for the Indian natural gas sector, especially for the midstream companies who will be handling all the volumes.

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