Project Report On Petroleum Industry Commerce Essay Example

this project is to analyze the economic growth in the Indian market and its impact on the country's development. The petroleum industry represents India's energy needs and holds significant importance in both public and private sectors. With recent investments in refineries from both sectors, India is expected to surpass Singapore as Asia's largest exporter of refined products by 2012.

Additionally, India is projected to remain one of Asia's top two exporters of refined products in the future. This sudden growth has positioned India as a global hub for crude oil production, resulting in increased product flows and strengthened supply chains focused primarily on clean transportation fuels and high-end industrial products.

The developments in India's large-scale export-oriented refining sector will have significant implications for regional product markets.The global refining industry is concerned about the increasing reliance on production hubs in Asia and the Middle East by growing economies. In India, the petroleum industry encompasses various activities such as extraction, exploration, refining, transportation (often through pipelines and oil tankers), and marketing of petroleum products. Key products in this industry include gasoline and fuel oil, which are vital for producing chemicals like solvents, pharmaceuticals, pesticides, fertilizers, and plastics. The roots of India's oil and gas industry can be traced back to the late 19th century when oil was first discovered in Digboi, Assam in 1889. Recognizing its significance for overall economic growth, the Government of India declared it a core sector industry in 1954. Initially controlled by government-owned National Oil Companies (NOCs) like Oil India Private Ltd (OIL) and Oil & Natural Gas Corporation (ONGC), exploration and production activities have seen substantial growth over the past 13 years alone. Reliance

Industry established the first refinery industry in Jamnagar, India in 1999 with an installed capacity of about 193.5 million tpa as of April 2011. The refinery capacity is expected to continue expanding in India, reaching 255 million tpa by 2012-13 and eventually reaching approximately 302 million tpa by 2017-18 due to various projects announced by both private and public sector companies.Currently, the private sector accounts for approximately 39.5 percent (76.5 million tpa), while public sector oil companies account for around 60.5 percent (117 million tpa) of India's crude oil refining capacity.

The table below shows the growth in India's domestic petroleum oil production over the past five years:

Domestic petroleum oil production [million tpa]

2005-06

2006-07

2007-08

2008-09

2009-10 (Provisional)

Total consumption:
113.2
120.7
128.9
133.6
138.4

Products from indigenous petroleum:
26.6
28.4
28.27
27
27

Indigenous petroleum processing:
28
30
30
29..
29

Products from fractionators:
4..4..
4..
44

Total indigenous production:
30..
32..

Import dependence (%):
72..8
73..3
75...0
76....7
77....

Self-sufficiency (%):
27....27...0
25.....0
23......3
22......

Furthermore, the table below illustrates the capacity utilization of Indian refiners in recent years, indicating their efficiency compared to regional/global counterparts.

Importantly, due to stable domestic petroleum oil production, there has been a shift in imports within the refining industry in India.

Overall, GDP growth rates and crude oil consumption are closely linked and have shown moderate growth recently due to improved roads, more fuel-efficient vehicles, advancements in mass urban transportation, and increased availability of natural gas for the industrial sector.
Indian refineries are currently achieving higher Gross Refining Margins compared to regional benchmarks, demonstrating their competitiveness in refining operations. If all planned projects are implemented, India is expected to have a surplus of approximately 100 million tpa of crude oil products by 2012 and 140 million tpa in the future. This section also provides a brief description of the

technology and production process in the industry, which is crucial for understanding its structure.

Crude oil is a liquid mixture containing hydrocarbon chemical compounds primarily made up of carbon (C) and hydrogen (H), both of which serve as fuels. Additionally, petroleum oil contains small quantities of salts, sulfurs, oxygen, metals, and nitrogen. The main products derived from petroleum oil include gasoline, liquefied petroleum gas (LPG), kerosene, jet fuel, naphtha, lubricating oil, petroleum coke, and high-speed diesel oil.

Gasoline:

Gasoline is predominantly used as fuel for internal combustion engines with a particular focus on vehicles. Its original purpose as an insecticide has completely vanished.

Liquefied Petroleum Gas (LPG):

LPG essentially consists of propane and butane mixtures. It possesses greater density than air and transforms into a liquid state under pressure. LPG finds application as household cooking fuel along with being used as vehicular fuel and refrigerant.Approximately 4 million vehicles worldwide are estimated to be powered by LPG.

Kerosene:

Kerosene, also known as paraffin, is used for illumination and cooking fuel in impoverished countries and as a space heating fuel in industrialized nations.

Jet Fuel:

Jet fuel is closely related to kerosene and is used in jet planes.

Naphtha:

Naphtha has various uses such as producing additives for high-octane gasoline and manufacturing polymeric plastics and urea, a nitrogen-based fertilizer.

Lubricating Oil:

Lubricating oil consists of oils that lubricate moving parts in cars, industrial machinery, railway engines, passenger cars, and marine engines.

Petroleum Coke:

Petroleum coke primarily serves as fuel but also has applications in the production of dry cell batteries and electrodes.

High-Speed Diesel Oil:

High-speed diesel oil is widely used in diesel-powered vehicles with engines running at 750 revolutions per minute (RPM) or higher.

Light Diesel:

Light

diesel is mainly used in diesel engines running at lower velocities found in irrigation pumps and generators.

Furnace oil:

Furnace oil is produced by thinning residual fuel oil from polishing using intermediate distillations like diesel oil. It finds use in sand traps, boilers, furnaces,warmers or as fertilizer feedstock.< h 2 >Demand finding of the Industry:< / h2 > In recent years, significant changes have occurred within the petroleum industry in the state.The state now exports more crude oil products due to the globalization of the Indian economy and high international oil prices. This has led to improvements in energy efficiency and a shift from liquid fuels to natural gas (LNG) as demands change. The advancements in infrastructure and vehicles have also influenced the demand for transportation fuels. Moreover, factors such as the expansion of city gas distribution networks like compressed natural gas (CNG) have resulted in reduced demand for fuels like high-speed diesel (HSD) and motor spirit (MS). In determining demand, two main approaches are used: the top-down approach, which considers overall energy demands and the share of different fuels in the primary commercial energy basket by linking GDP with energy elasticity, and the bottom-up approach, which takes into account end-use factors' impact on gas demand in India.Gas demand in India is determined by a variety of factors, including the expansion of Metro rail and CNG, high oil prices, conservation efforts, government policies regarding aviation and railway cargo, growth in passenger and cargo traffic, airline fleet expansion programs, road construction projects by NHAI, cargo corridor construction, plans for electrifying railway tracks, increase in vehicle population, advancements in engine designs for fuel efficiency improvement and impact of

LPG on vehicles. The cost economics compared to alternative fuels also play a role in influencing gas demand across different sectors. The power sector consumes 29% of natural gas while the fertilizer sector accounts for 40%. The Ministry of Power has set a target of generating 70,000 MW capacity over the next five years until 2012. Petrochemicals/Refineries and Internal Consumption sectors anticipate an annual economic growth rate close to 7%, as does the iron/steel sector. The demand for petroleum products is currently at 131.8 MMT (million metric tons) in 2011-12 and projected to reach 160.2 MMT by 2016-17. This demand is influenced by availability and prices of various products such as gasoline, diesel, kerosene, naphtha etc., with crude oil refineries needing to consider both price parameters and export parameters based on past experiences.In the crude oil industry, competition comes from both government and private sector entities. Most crude oil companies have large balance sheets, but the government-owned companies control the production and distribution of oil and gas, with Reliance Industries being an exception due to less regulation. However, some government-owned companies like OIL India, ONGC, and GAIL have shown impressive growth.

On the other hand, private sector companies such as Aban Great Offshore, Essar, and Reliance have achieved varying levels of success. In India specifically, Indian Oil Corporation Ltd (IOCL) and GAIL India are major players in the crude oil market.

IOCL covers various aspects of the hydrocarbon value chain including pipeline transportation, selling petroleum products, exploration and production of oil and gas, selling natural gas and petrochemicals, as well as refining. In 2009-10 alone, IOCL had a sales turnover of Rs 271074 crore with net profits

of Rs 10221 crore. With an extensive network spanning over 10,899 kilometers for petroleum pipelines alone , IOCL aims to meet energy demands efficiently while prioritizing environmental concerns.GAIL India is a comprehensive Natural Gas company in India that specializes in clean fuel industrialization and aims to establish green energy corridors connecting consumption centers with gas fields in India. In the fiscal year 2009-10, GAIL generated a gross revenue of Rs 24k crore, with a net profit of 11%. Reliance Industries is the largest private crude oil company in India, expanding its presence internationally while managing high competitive barriers domestically.

RelianceA Industries: -

Over the past decade, Reliance Industries has experienced significant growth and expansion into the retail industry. It currently holds the title of India's most valuable company with a market capitalization exceeding $30 billion. Furthermore, it serves as a major exporter of crude oil in India and operates one of Jamnagar's largest oil refineries and petrochemical complexes.
Bharat Petroleum Corp.Ltd (BPCL) plays an essential role as a distributor of crude oil, cooking gas, and diesel within the Indian market. Despite government control leading to low margins and poor stock performance, BPCL generates revenue worth Rs 36,000 crore with a net income of 0.5%. The company often sells products below cost due to these challenges but continues to face significant losses despite liberalization efforts and increased global petroleum prices. Additionally, BPCL manufactures various petrochemicals, solvents, aircraft fuel, and specialty lubricants that are marketed both internationally and domestically.Hindustan Petroleum Corp.Ltd (HPCL) is responsible for operating India's largest refinery, which meets international standards for oil production. This refinery alone contributes to 40% of India's overall oil production. HPCL operates

two major refineries located in Mumbai and Vishakhapatnam that produce various types of crude oil fuels and specialties.

These companies have an extensive selling network that includes zonal and regional offices, supply and distribution infrastructure like terminals, air power service stations, retail stores, pipeline networks, and LPG distributorships. Combined, these companies account for approximately 20% and 10% of the country's refining capacity.

In 2010, the Mumbai-based company had a gross earning of Rs 34,000 corer with a net profit margin of 0.65%. On the other hand, ONGC Corporation based in Vishakhapatnam is ranked third in the crude oil Exploration & Production industry. It produces 803 Million Metric Tones of petroleum and 485 Billion Cubic Meters of Natural Gas from 111 fields.

ONGC is the largest multinational company in this industry and has operations in fifteen different countries with forty oil and gas projects. In that same year (2010), ONGC earned Rs.20,000 corer with a net profit margin of 34%. Additionally, it holds the largest share of hydrocarbon resources in India - contributing over 79% to the country's oil and gas productionThe crude oil distribution segment is rapidly embracing various supply chain solutions, encompassing multiple stages from crude oil selection to retail distribution of petroleum products. However, these companies face challenges such as refinement margins, lead times for key functions like product trading and crude purchasing, and volatility in oil prices, which complicates the entire process. The industry closely monitors the implementation of solutions to address aggregation issues. Integration and execution skills play a critical role in maximizing value from different distribution channels within the crude oil industry.

In terms of infrastructure at gas stations, modernization includes larger tanks for

super unleaded and regular (midgrade) fuel compared to regular tanks. Each tank features an electronic level check that provides real-time status information through a cable connection to the station's management system. This system then links with the main inventory management system of the supplying oil company. The sector is transitioning from a distribution channel push approach to a demand pull approach. Previously focused on securing favorable deals for petroleum purchases, there is now a shift towards meeting customer demands.The refining and distribution sectors are key components of the crude oil industry. Currently, major oil companies are closely monitoring inventories of crude oil and other petroleum products. The refinement process involves decisions on which products to produce and in what quantities, as well as selecting the appropriate petroleum and determining operational units.

On the customer-facing side, gas stations face simpler issues such as fuel shortages and refining problems. Distribution plays a crucial role in optimizing transportation methods, predicting demand, implementing refilling strategies to prevent shortages or excesses, and ultimately scheduling dispatch.

In India, public sector oil selling companies like Hindustan Petroleum Corporation Ltd. (HPCL), Indian Oil Corporation Ltd. (IOCL), and Bharat Petroleum Corporation Ltd. (BPCL) primarily handle the selling and distribution of petroleum products. Private participants like Shell, Essar, and Reliance Industries Ltd. (RIL) have also entered the market for selling petroleum products as they enter the retail sector.

The infrastructure for selling and distributing petroleum products includes LPG distributorships, petrol/diesel stations, and lubricant stores. IOCL is currently the leading company in terms of selling and distributing petroleum products in India.
India has the widest network of retail mercantile establishments (ROs) in the country, with 19,057 ROs as of January

2011. The number of ROs has increased from 31,650 in April 2006 to 40,819 in January 2011. In addition to this growth, there has also been an increase in the number of LPG distributors from 6,477 in 20011 to 9,686 in 2010.

However, India's Navratna oil selling companies - Indian Oil (IOCL), BPCL, and HPCL - are facing heavy losses due to not receiving compensation from the government for selling fuels below cost. These companies sell Diesel, LPG for domestic usage, and kerosene through the public distribution system at prices below their costs. While they receive some discounts from upstream companies like ONGC and Oil India to cover a portion of their losses, the majority is covered by the government.

In just the June '12 quarter alone, these three oil sellers collectively reported a net loss of Rs40,536 crore as they did not receive their government dues. Despite these challenges though, IOCL expects that most demand for Piped natural gas will come from domestic and commercial consumer sectors. Furthermore,the limitation on subsidized LPG cylinders is anticipated to benefit its Piped natural gas business as consumers may choose it due to its affordability compared to LPG cylinders.

Not only is Piped natural gas more economical with approximately a10% lower running cost than LPG but it is also a safer and more eco-friendly fuel option.
Oil companies are actively working on reducing their distribution channels for LPG cylinders, resulting in limited choices for consumers in the near future. However, these oil companies are facing challenges in maintaining positive margins in a volatile market with increasing distribution costs, as well as preparing for fluctuating pricing scenarios ahead. Therefore, it is crucial for

oil companies to have real-time visibility of sales and inventory to accurately forecast demand. By integrating different systems and data, they can provide unified and consistent information to management for effective decision-making.

Key issues and current trends:

- Issues in crude oil industries: Despite high energy costs, the global economy continues to grow, leading to increased demand for petrochemicals. However, supply is not adequately meeting this demand, resulting in persistently high costs. The operating rates of major petrochemical merchandise sections are currently high.
- Challenges faced by the petrochemical industry in India: Outdated engineering methods used in constructing units, the need for equipment modernization, excise duty imposed on man-made fiber, concerns about reserves for small-scale units, recycling of plastic waste, and discouraging littering habits.
- Importance of having an advantage regarding feedstock and reducing import costs for India.Access to primary infrastructure facilities is crucial for the oil and gas industry. While predicting future market prices can be challenging, futures prices in exchanges provide some indicators. To manage risks, certain companies engage in paper trading as a form of hedging. The forward price is essential for optimizing processes and maximizing products based on their price. Recent trends in the crude oil industry show that petroleum plays a vital role as a versatile fuel source in today's industrial economy.

However, despite its strength, the industry faces significant strains due to various factors. Industry consolidation has led to 24 mergers and acquisitions since 1997, causing oil companies to revise their business practices. This transformation arises from global industrial growth, which leads to increased demand for crude oil. Additionally, there are limited economically accessible oil reserves, concerns about political instability and terrorism, rising per-barrel

prices that accelerate alternative energy development efforts, prioritization of worker safety in hostile environments while swiftly entering new markets, and distributing infrastructure risk among competitors.

These challenges have an impact on how companies handle their real estate assets and accommodate their scientists and engineers within the industry.The management of real estate holdings has shifted to include facilities as an integral part of operations. Recognizing the strategic value of installations for organizational goals has implications for the workplace. Petroleum, including gasoline, oil, diesel fuel, kerosene, refined cleaners, and solvents, is a crucial resource. Upstream and downstream activities related to petroleum products yield high profitability for companies involved. Participants in the oil industry must navigate significant issues and trends regardless of ownership type. The global industrial expansion increases demand for petroleum products, challenging both public and non-state-owned oil companies. To extract "conventional" oil from underground reservoirs, companies invest in technology and equipment. Additionally, investments are made in producing unconventional oils like oil sands, shale oil, and heavy crude oil that require additional processing. Joint-venture partnerships are formed to distribute infrastructure risk among competitors and minimize investment risks associated with costly technology and equipment for the benefit of the industry as a whole.Some companies have chosen to merge or acquire other companies in order to expand their resources for technical exploration and innovative production methods. Additionally, the rising prices of oil and gas have led several companies to take a broader approach to their business strategies by investing in alternative energy sources such as solar power, wind power, biomass energy, geothermal energy, and fuel cell technology. These companies recognize that these alternative fuels and renewable energy technologies will play

a crucial role in bridging the gap between current focus on hydrocarbons and clean hydrogen-based solutions that are both environmentally friendly and cost-effective.

In order to improve productivity levels within their operations, it is essential for oil companies to effectively utilize technology. Management relies on reliable standard metrics to justify investment decisions in technological advancements. Over the past few years, India has emerged as a significant player in the global petrochemical market due to its growing economy. Specifically, the country has become a major producer of petrochemical products in Asia.

The industry faces challenges that can be analyzed using PESTEL analysis - Political, Economic, Social, Technological, Environmental,and Legal analysis. PESTEL analysis is a model used to examine macro-environmental factors that impact strategic management.When considering politics, various factors such as government intervention in the economy, tax policies, labor laws, trade regulations, and political stability are taken into account. Governments also have control over areas like healthcare, education, and infrastructure development within a country.

Economic factors play a significant role in businesses as well. These factors include growth rates, levels of investment involvement, exchange rates, and price increases. They can greatly impact firms in different ways - for example, interest rates can affect a firm's cost of capital and its ability to grow, while exchange rates can impact exporting costs and the availability of imported goods.

Social factors encompass cultural aspects, wellness consciousness among individuals, population growth rate, age distribution of the population, career attitudes among people and an emphasis on safety. These social factors influence both product demand for companies as well as how they operate. For instance, if there is an aging population in a country which results in

a smaller workforce that may be less willing to work or demands higher wages due to labor scarcity; this increases labor costs leading companies to adapt by hiring older workers or adjusting their management strategies accordingly.

Technological factors involve considerations related to ecology and environment protection measures being taken by companies or governments; research and development activities undertaken by organizations; automation technology incentives provided by governments; and the pace at which technological advancements are taking place.

It is important to note that should be kept intact while and unifying the text as they have the ability to establish obstacles for entering a market, define the lowest level of production that is cost-effective for businesses while affecting decisions regarding outsourcing.Moreover, advancements in technology can impact costs, quality, and inspire innovation. Environmental aspects include weather and climate conditions. Legal factors encompass regulations and laws that promote sustainability and tackle climate change. The growing recognition of climate change is influencing corporate strategies and the range of products available, leading to the emergence of new markets while causing existing ones to decline or vanish.