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New Delhi: The government does not regard the recent plunge in oil and gas prices as a normal market-driven fluctuation that should determine the economics of domestic producers, petroleum minister Dharmendra Pradhan said, responding to mounting concerns about viability of Indian fields as their prices are linked to global benchmarks.
“Normally prices respond to demand-supply imbalance, but the current situation is highly abnormal with unheard of low demand. The price is now moving towards normalcy. It will stabilise at $40-$45. We have to wait for that,” he told ET in an interview.
Domestic gas producers are worried about the impact of the abnormally low prices on the formula that determines local gas rates. Pradhan said he does not want Indian fields to become unviable although weak global prices would have an impact. “Producers should not make a loss. Companies like ONGC should not be hit … However, overall low gas prices in the market will impact the finances of all gas projects, including that of deep water,” he said.
Pradhan said there were also a positive aspect of the oil price crash. State refiners and oil marketing firms had deftly used the crash in crude prices to quickly tank up 20% of annual requirement that will save Rs 25,000 crore in the oil import bill, he said. India’s crude import bill would be $79.3 billion in FY21 against $101.38 billion for FY20 if the average price comes to $45, he said.
He also said the petroleum sector would aggressively contribute to the strategy of public spending to rev up the economy as state oil firms will spend this year’s approved capex of over Rs 1 lakh crore in the remaining 10 months of the fiscal.
Pradhan said state oil marketing firms had operated admirably during the crisis situation when everything was shut, and provided fuel at a steady price. However, they will revert to daily price revision as the demand returns towards normal.
The Covid crisis would not impact the valuation of BPCLNSE 2.18 %, the minister said. “BPCL is a well-established company with nearly 24% market share in transportation fuels and 26% share in LPG business. As such, the valuation of the company is independent of the transient conditions,” he said.
The minister said the government would keep encouraging the private sector as it believes in combining welfare initiatives with respect for wealth creation. “Private investment has a significant role in India’s energy security and economic development,” he said.
“There is unanimity on getting more capital and technology. People want more job opportunities. The government should be a facilitator in getting more and more investment. It should generate more revenue, which should be used for social welfare,” Pradhan said.
On India’s oil imports, Pradhan said refiners had tried to maximise purchases using all their tanks and available floating storage. “The crude requirement is expected to drop from 238.3 MMT in FY20 to about 224 MMT in the current financial year. If $45 per barrel is estimated as average price of crude for FY21, the crude import bill will be $79.3 billion as against crude import bill of $101.38 billion for FY20,” he said.
The government is also optimistic about Saudi Aramco’s plans to build a refinery in Maharashtra, Pradhan said. “For the West Coast Refinery, the government of Maharashtra is trying to earmark another suitable site, after the original location did not work out. The decision in this regard is with the state government and keeping in view the economic revival required in the country post-Covid-19 lockdown, it is expected that a favourable decision regarding land allocation would be taken by the state soon,” he said.