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The price of crude oil

The price of crude oil in the international market have risen to unprecedented high level due to sustained high demand, geo-political uncertainties, production decline in aging fields, supply concern, speculative trading and weakening of US dollar. The demand remained encouraging eventhough the crude oil price was above US$ 100/bbl. The oil industry has withstood slower economic growth and rise in crude price. The global demand for oil grew from 84. 90 million bpd to 86 million bpd. In spite of the demand the global refining capacity grew marginally from 85. 1 bpd to 85. 3 bpd in 2007.

On an average Gas fulfil 24% of the worlds energy needs. The global demand for LNG will grow to around 330 mtpa by 2015, basically outstripping the supply. Russia has largest gas reserve, but they are unable to use it due to lack of capital. The spot/short term availability in 2008 is very tight due to sudden increase in demand from Japan. Because of the shutdown of their nuclear plant due to earthquake they are buying additional tankers. In last 10 years, the world’s LNG trade has risen, on an average, by 7. 4%. Demand in India for oil and gas exceeds the

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production in country.

India has GDP exceeding US$ 1 trillion. Compound annual growth rate more than 8. 5% in last four year and the GDP growth is anticipated at least 8% over the next decade. India is one of the fastest growing continental economies bettered only by china. Petroleum and natural gas constitutes more than 60% of GDP of the country, including transportation, refining and marketing of petroleum products and gas. The consumption of petroleum products increased by 6% yoy in fy07. The average growth in consumption of petroleum grew by 3. 4% in last 5 years. India is 6th largest consumer and 9th largest importer in the world.

The demand for petroleum products have grown about 10% in 2007-08. Oil and gas forms 45% of the total energy consumption in India. The crude oil imports have been increasing by 7% per annum over last 5 years. India is relatively unexplored with potential resources in excess of 205 billion barrels. To reduce the impact of high crude price, the Government of India has been continuing to regulate the retail prices of petrol, diesel, kerosene and domestic LPG. This is resulting in substantial under-recoveries on sale of the above product Oil Marketing Companies.

The appreciation of Rupee to US Dollar and a small rise in price of petroleum product have helped to a limited extent in reducing the under-recoveries. The remaining under-recoveries is bridged by issuing oil bonds, asking upstream companies to bear some burden of subsidies and even asking the oil marketing companies to bear some burden of subsidies. Natural gas forms 8% of total energy consumption in India. India’s current annual demand for gas is 1. 12 million barrels of oil equivalent per day (bopepd) against production of 0. 55 million boepd. Out of the total gas consumed 36% is used by Power industry and 29% by fertilizer industry.

The demand of natural gas in India is expected to grow from 196 mmscmd in 2008-09 to about 279 mmscmd in 2011-12. The natural is being used more in power and other sector because it does not produce any harmful and toxic gas and also it is cheaper than oil. Indian oil is a downstream company. Indian Oil is implementing projects of over Rs. 50,000 crore currently. Major ones among them are: a crude oil pipeline system from Paradip to Haldia (330 km); capacity augmentation at Panipat Refinery (from 12 to 15 million metric tonnes per annum or MMTPA) and Haldia Refinery (from 6 to 7.

5 MMTPA); MS quality improvement projects at Panipat and Mathura refineries; residue upgradation and MS/HSD quality improvement project at Gujarat Refinery; a Naphtha Cracker at Panipat; a 15 MMTPA integrated refinery-cum-petrochemicals complex at Paradip; and new product pipelines from Koyali to Ratlam (265 km), Chennai to Bangalore (290 km), Panipat to Jalandhar (275 km LPG pipeline), and Mathura to Bharatpur (21 km) and also its first gas pipeline from Dadri to Panipat (130 km). Cairn India is an E&P as well as midstream company. Cairn has 14 exploration blocks in India.

The company is confident that it will deliver its first oil from Mangala, Rajasthan by second half of calendar year 2009. The company believes that it will start producing oil from Bhagyam and Aishwariya in Rajasthan by 2010. Its proved plus probable hydrocarbon across India is now estimated at 3. 05 billion boe. To transport oil from Rajasthan Cairn India is constructing a 600 km pipeline from Barmer in Rajasthan to a coastal location near Salaya in Gujarat. The pipeline will also be completed in second half of calendar 2009, aligned to first oil production.

It is estimated that cairn India will account for 20% of India’s oil production by 2010. The Company is expecting to drill 10 to 15 wells in current year. GAIL is an E&P, Processing, Transmission, Distribution, and Marketing company. The company is adding more 5000 km of pipelines by 2011 to its network of 7000 km of natural gas pipeline and 1900 km of LPG pipeline. The company wants to pursue City Gas Distribution in India. This includes providing CNG for automobiles and Piped Natural Gas (PNG) for domestic and commercial purpose in 230 cities in phased manner.

The company is also planning to strengthen E&P capability and resources by participating as a major partner or operator in domestic E&P/CBM bidding. The company is aggressively pursuing gas sourcing option from domestic as well as international supplier through pipeline or LNG. The company is operator of the first and largest LNG terminal in India. The expansion of the terminal from 5 MMTPA to 10 MMTPA is near completion and will be ready for commercial use in this financial year.

The company is also building a stand by LNG berth at Dahej. A solid cargo port is being implemented in two phases. The Phase I is likely to be completed by November 2009 and the Phase II will be completed by September 2010. The company is also setting a LNG port at Cochin having capacity of 5 MMTPA. Highlights of first quarter of the FY 2009. > During the quarter, the company processed and sold 78. 82 TBTUs against 78. 62 TBTUs in last quarter ending June 30, 2006 achieving 130% capacity utilization.

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