M Veerappa Moily -The Union petroleum minister
The Union petroleum minister speaks to Vivek Law, editor, Bloomberg TV India, on diesel price decontrol by June 2014, how a depreciated rupee hurts and India's growing oil refining capacity.
The automobile industry runs on fuel. What is your own assessment? What are your advisers telling you? How do you see global prices moving? We saw a lot of activity around Iran recently. Do you see fuel prices remaining subdued or could 2014 throw up some more shocks?
According to the assessment made by a number of agencies including McKinsey, I think in the future fuel prices will come down for various obvious reasons. In fact, shale gas is the biggest contributor to the gas sector. Canada and the US could do it within five to six years. Forty to fifty percent of the gas requirement is provided by them.We have also found that in many areas where we had not seen oil or gas, we did find oil fields. For example, the Barmer desert in Rajasthan. Everybody had ruled it out. When I convened a meeting of our companies and experts that I would like to have a big refinery in Barmer, the prompt reply was, “No, we can’t go for 100 percent import and establish a refinery of the capacity of 9 million metric tonnes.” I called the next meeting, the third meeting.You will be surprised to know that it is totally 45 percent of the contribution of the indigenous oil but ultimately when the refinery will be commissioned within 2-3 years, the oil found will be more than enough to sustain 9 million metric tonnes. Ultimately, you may have to plan for the next level, that is 15 million metric tonnes. I had gone to the north-east the other day for a review and I found that the north-east is abundant in gas and oil.We have plenty of resources of shale gas and there are new players coming up like Mozambique, Nigeria and coming out of Antarctica. Iran is also likely to open up now, which will provide that kind of quality crude. That’s why I’m telling you now that in the years to come, within a decade or so, oil products will become a buyer’s market instead of a seller’s market which it has been for so many decades.
Do you believe that oil prices will remain subdued for a better part of 2014? Is that your assessment?
That is not only our assessment but also the assessment of many of the people which I have mentioned already, like McKinsey and other agencies.
When we last spoke, you told me that the fall in the rupee upsets you as much as it does anyone else. What is your own understanding? I’m sure this is an issue which has been discussed at various levels of the government and I know you don’t run the finance ministry, but do you believe the worst is over as far as the rupee is concerned?
I feel so because it is because of the extraneous factor, like the US Fed taking some abrupt decisions. Despite that, our country has got its own strength but at the same time, oil is an important factor for the rupee appreciation or depreciation. You all know that for every one rupee which depreciated, India lost Rs 9,000 crore. This is the casualty which we had to suffer, face and combat.I think we need to build our own exploration; we need to build our own stock. That is why we are working on strategic reserves in the country. For the first time, we are planning this in Asia. We have commissioned it in Vizag. The other two will be in Udipi and Mangalore.
You addressed one of the very contentious issues about hiking gas prices. You just did it the other day. What are the implications of that?
You know affordability and accessibility, these are the questions before the country because ours is an inclusive economy. When we increase the gas price, it will naturally affect the price of fertilizer, price of power and of course fertilizer is totally subsidised. When power is concerned, that subsidy is not extended but at the same time, suppose we need to invite investors both within the country and outside the country. Even in the PSC (production sharing contract) which is the agreement we had in the NELP (New Exploration and Licensing Policy) procedures, we had promised that ultimately, we are going from the gas to the market price. We have now taken the weighted average of our import and also our domestic production and we have hope that in the days to come, prices of petroleum products may stabilise and even come down and to that extent the benefits will be passed over to the consumers.We need to produce oil and all the gas. When gas will be produced within our country, it will be about $13-14 whereas production now is $4.2 and then when it’s increased as on today, if we take the weighted average, it will be around $6.5. Maybe that will get stabilised because now gas resources are available in the country and outside the country it will get stabilised.
Let’s talk about your passion — deregulation and decontrol. By when do you think you are going to decontrol diesel?
I think the complete process may be over may be within 5-6 months’ time. I would have done it by December, as I told you. But for the rupee depreciation, I came down to Rs 2.45, then suddenly it went up to Rs 14. Now, as of today (December 20), it may have come up to Rs 7.50.
But you are very clear that diesel prices will go up, going forward?
Our total capacity in the refinery is 217 million metric tonnes. Within 2-3 years’ time, it will go up to 275 million metric tonnes. Instead of becoming a net importer, we are becoming a net exporter as well as far as the petroleum products are concerned. We are capable of producing our own diesel out of the crude. The only question is that we need to go for competitive rates in our crude purchase.At present, we have only one country – Qatar – where we have a longstanding agreement. That is also going to expire by the end of this month (December 2013). Thereafter, we are left with no longstanding agreements and we only have to go in for spot purchases.Spot purchases is a debatable point sometimes because of the competitive reservoirs and exploration in various countries across the globe. Possibly, gas and oil prices are likely to come down (in the near future).With that hope perhaps, we don’t want to get into a long-range agreement immediately. We need to watch for January and ensure that whether we can go in for long-range agreements with various countries.
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