Petro Retailing Business

Introduction to Petro Industry

PETROLEUM INDUSTRY

UPSTREAM DOWNSTREAM

❑ Exploration ❑ Refining
❑ Production of ❑ Distribution
Crude Oil & Gas
❑ Marketing of
Petroleum Products
Oil Companies in India : Categories
Exploration Refining & Pure
Pure Refining
& Production Marketing Marketing

❑ ONGC ❑ IOCL ❑ Kochi ❑ IBP

(Subsidiary
Refinery
❑ OIL ❑ HPCL of IOCL)
/ CPCL
❑ BPCL
Domestic Upstream
❖ High commercial risks
❖ Upfront financing exposure
❖ Commitments necessitating high premium on stable relationships
with Government and partners.
❖ Stagnant production level
❖ Rapidly rising oil import bill
❖ Increasing maturity of production acreage
❖ A large unexplored/less explored terrain
❖ Requirements of large investments
New Exploration Licensing Policy (NELP)
❖ Result of GOI’s reform effort in Exploration & Production
❖ Weakened ONGC Monopoly
❖ Increased Competition
❖ India has 3.14 Million square kilometer of sedimentary area (26
sedimentary basins)
❖ Before NELP : 11% of Sedimentary area was utilized
❖ Post NELP : 58% sedimentary area under operation
❖ Major states (having on-land blocks sedimentary) : Gujarat,
Assam, MP, Rajasthan, Tripura, Uttar Pradesh
Refining and Marketing Activities in Petro Industry
➢ Total 21 Refinery - 18 PSU + 3 Private (HPCL Bhatinda & Rajasthan ?)
➢ India is self sufficient on refining (Surplus now)
Some of the key areas to enhance efficiency as well as value addition would be
✓ Optimisation of crude processing ✓ Energy conversion and optimization
✓ Process control devises ✓ Optimization of Refinery configuration
Additions of value chains would be in the areas of
✓ Utilising residue for setting up power plants
✓ Conversion of naphtha to paraxylene/PTA
✓ Set up naphtha hydro-crackers for maximizing yield of LPG
Marketing Infrastructure : 70000+ ROs put all companies together
Marketing Infrastructure : 70000+ ROs
Marketing and distribution system for petroleum products in India has

passed through three different phases :

✓Phase of the dominance of the multinational companies.

✓Phase of the advent of the public sector, its growth in coexistence with
transnational companies.

✓Marketing by Government-owned companies and fulfillment of socio-

economic objectives.
Liberalization in the Marketing Sector
✓Decontrolling pricing and control over marketing structures
✓Opened up marketing rights of MS /HSD to private & foreign

companies

✓Dismantling of APM.
✓ Are marketing companies free to price their product?
The Customer
Enablers in Petroleum Chain
✓Suppliers of Crude Oil
✓ OECD (Organization for Economic Co-operation and Development)
– Consuming Countries
✓ OPEC (Organization of Petroleum Exporting Countries) – a
significant part of the crude oil supply and reserves is concentrated
in the hands
✓Refiners
✓Consumers – 2W, 4W, Car , LCV etc. (Small Consumers) and
Petrochemical Plant, Power Station (Wholesale Consumers )
Petroleum downstream industry serves
fundamentally two types of customers

✓Wholesale customers, composed by petrochemical facilities, power

plants, large fuel consumers (airlines, shipping companies) and
other industrial customers.

✓ Retail customers, who make use of the fuels essentially for

transportation and domestic heating.
Customer’s categorization and Recognition
Characteristics and Spending Patterns of Petroleum Consumers
Product and Service Development
(Fuel Based Proposition)

❑ New Competitors
❑ Site Rationalization
❑ Site Upgradation
❑ Non-Fuel based proposition
❑ Customer Loyalty Program
Customer Relationship
in
Petro Sector
Customer Relationship in Petro Sector
✓ Prepaid Petrocard
✓ Clubbing Petrol with LPG
✓ Customer service >> COCO, Large format RO
✓ Loyalty Programs run by Oil companies
✓ Automated Fuel Stations
✓ Vouchers and Reward Programs
✓ Convenience Store
✓ ATMs at RO’s
✓ Added Services – Car Wash, Lubricant top up, Internet kiosk etc.
Production & Strategy
in
Petro Industry
Petro Sector – highly regulated Industry
❑ Petroleum Production – Highly Regulated Industry
❑ Exploration and Production
✓ Exploratory Drilling
✓ Development Drilling
✓ Commercial Production
✓ Contracts and Licenses
Tools for Measuring Exploration Efficiency

International E & P companies use three different definitions of finding

costs:

✓Exploration expenses and leasehold costs divided by the reserve

addition from exploratory efforts.

✓Exploration expenses and leasehold costs divided by reserve addition

and revision.

✓Exploration, leasehold and development costs divided by reserve

additions, revision and enhanced recovery or reserve purchase.
Crude Oil Reserves
Problems and Areas of Concern

❑ A stagnant oil production level

❑ A rapidly rising oil import bill
❑ The reserve accretion has been quite low and dropping over the
last few years

➢A vast unexplored terrain,

➢Large investment requirements,
➢A lack of interest among the private sector, and
➢Energy Security.
SWOT Analysis
Case Studies

❖Trent’s Retail Success Story

❖Case at Louis Vuitton

 New Exploration
Licensing Policy – NELP
Potentials of Indian Hydrocarbon Sector
❑ Around 34% of total sedimentary area in India is still unexplored.
❑ DGH has recently carried out satellite gravity, 2D seismic and gravity,
magnetic surveys of the Eastern offshore and Andaman seas.

❑ These deepwater areas have now been opened up for exploration.

❑ It appears that resources of deep waters are likely to be several times
higher than what was anticipated.
Salient Features of NELP ……………………..(1)
❑ There will be no mandatory state participation through ONGC/OIL nor will
there be any carried interest of the state.
❑ ONGC and OIL to compete for obtaining the petroleum exploration
licenses on a competitive basis instead of the existing system of granting
them PELs on a nomination basis. At the same time, ONGC and OIL will also
get some fiscal and contract terms available to private companies
❑ Open availability of exploration acreages to provide a continuous window
of opportunities for oil companies.
❑ Companies will be able to choose and propose acreages.
❑ Freedom to the contractors for marketing of crude oil and gas in the
domestic market.
Salient Features of NELP ……………………..(2)
❑Royalty payments for crude oil at the rate of 12.5% for the on-land areas
and 10% for offshore areas and 10% royalty on natural gas both for on land

and offshore

❑ half of the royalty from the offshore area will be credited to a

hydrocarbon development fund to promote and fund exploration-related

activities

❑ To encourage exploration in deep water and frontier areas royalty will be

changed at half the prevailing rate for normal

Salient Features of NELP ……………………..(3)
❑Offshore area for deep water offshore areas beyond 400m bathymetry for
the first 7 years after the commencement of commercial production.

❑ Cess, which was earlier levied on crude production, has been abolished
for the blocks offered under NELP

❑ Companies will be exempted from payments of import duty on the goods

imported for petroleum operations

❑A seven-year tax-holiday from the date of commencement of

commercial production available for northeast region.

The New Exploration Licensing Policy involves
▪ National oil companies to compete with private sector for licenses.
▪ Exploration blocks to be allotted on open acreage system.
▪ Freedom to choose and propose with companies.
▪ No compulsory state participation or carried interest.
▪ Freedom to contractors to market crude and gas discovered.
▪ No payments of signature, discovery or production.
▪ Royalty: 12.5% for on land, 10% for offshore, 5% for deep offshore for first 7 years.
▪ Infrastructure status to E&P sector.
▪ Tax holiday for 7 years for production in North-East Regions.
▪ International prices to national oil companies under NELP.
▪ Cess on crude oil produced under NELP abolished.
The New Exploration Licensing Policy : Snapshot
NELP Terms Beneficial to National Oil Companies
▪ NOCs are exempted from payment of cess under NELP (a concession of almost
US $3.0/bbl).
▪ The maximum royalty rate under NELP is 12.5% of the international price as
against 20% of the administered price in non-NELP areas.
▪ Incentive for deep water exploration with only half of the royalty payable in the
initial seven years from the commencement of commercial production.
▪ Exemption from customs duty.
▪ NOCs to get international prices on their production of oil and gas.
▪ Seven years tax holidays from the date of commencement of commercial
production.
▪ Liberal depreciation provision will make companies eligible for further tax
adjustments.
▪ Contribution made to site restoration fund scheme is deductible in the year of
contribution as against in the year of
▪ Site Restoration as per the earlier provision of the Income Tax.
NELP Terms Beneficial to Private Investors
▪ Carried interests of NOCs at 30% have been abolished.
▪ Companies are free to have 100% participating interest as

earlier up to 40% participating interest was to be held by

NOCs. This will also provide operational flexibility to the

companies in selecting partners of their choice.

▪ A true ‘level playing field’ established as a block reserved for

NOCs.
 Demand and Supply of Petroleum Product
✓ Macro-trends are occurring in the world petroleum industry especially, oil,
natural gas and refining
✓ Notable changes are also taking place in restructuring, reform and
introduction of compilation and consolidation
✓ All this affect the demand and supply of petroleum product to a large
extent

Global Oil Demand

✓ The economic growth in the major Organisation for Economic Cooperation and
Development (OECD) industrial countries’ economies in Asia (excluding Japan)
will be the key factor in deciding global demand for oil for the next decade.
Global Oil Supply
✓ Majorly controlled by OPEC
✓ Liquids production increases by 26.6 million barrels per day from 2008 to 2035
including both conventional and unconventional (coal-to-liquids [CTL], gas-to-
liquids [GTL]).
Fuel Quality
❑ Why to Test Fuel Quality ?

❑ How to Test Fuel Quality? – lone fuel

and alcohol blended fuel ?
Indian Initiatives to Control Fuel Adulteration
▪ Filter paper test,
▪ Furfural doping of PDS kerosene
▪ Density checks
▪ Blue dyeing of kerosene,
▪ Regular/surprise inspection of retail outlets,
▪ Joint inspection of retail outlets by the industry teams
▪ Regular/surprise inspection by mobile laboratories
▪ Special vigilance drives, etc.
▪ The state Govt. authorities are empowered under the MS/HSD control
order to conduct inspections at the retail outlets
▪ MDG – by OMCs
View of the Fuel Quality in India
▪ Unleaded Gasoline : Introduced in 1995 and 100% in 2000

▪ 1% Benzene Content in Gasoline : Introduced in NCT (National Capital

Territory) afterwards extended to NCR (National Capital Region) &

Mumbai

▪ 0.05 % Sulphur content in gasoline

▪ 0.05 % Sulphur content in diesel

Present Indian Fuel Status : Bharat Stage (BS) VI

Fuel Adulteration
Committees and Task Forces Constituted in India for
Checking Fuel Adulteration
▪ BIS Study Group on Adulteration
▪ Biocode Marker System
▪ Spectrace Technique
▪ R&D Marker System – developed by IOC R&D and evaluated jointly by
IOCL & BPCL R&D.
▪ CPCB Working Group on Adulteration
▪ MoPNG Task Force on Adulteration
▪ Anti-adulteration Cell
▪ Auto Fuel Policy Report
Consumers Front: Anti-adulteration Tips

▪ Filter Paper Test

▪ Density Test

▪ Water Contamination Checks

▪ In the Case of Lubricants: The customer should check the seal of the
container, date of manufacture and name of the manufacturer. For
ease of 2/3 wheelers, Retail Outlets provide 2-T dispensers/2-T mix
dispensing units and also keep tamper-proof 2-T pouches
Recommendations
▪ Responsibility of all partners
▪ Oil Company’s Role
▪ By-product Outlet – should not be there
▪ By-product Disposal Follow-up
▪ Passport for Transport Fuel Batches
▪ Legal Framework
▪ Sample Collection & Analysis
▪ Independent Sample Testing
▪ Surprise Checking
▪ Compliance Certification/Awards
▪ Markers
▪ Research & Development
▪ Good Business Practices
▪ Awareness
Quality Management by OMCs – HPCL
▪ Club HP ▪ ATMs
▪ Vehicle Care ▪ Bills Payments
▪ Quick Care Points ▪ Communication Facilities
▪ Digital Air Towers ▪ HPCL - ICICI Co-branded
▪ ‘Good Fuel Promise’ Towers Credit Cards

▪ Vehicle Finance and ▪ Basic Amenities

Insurance Related Counsel

Forecourt Design &
Network
Sectorial usage of Petroleum Products
Primarily in three sectors, viz., household ( LPG / PNG),
Transport ( MS/HSD/CNG/LNG) and industrial ( HSD/LDO/CNG)
Market Segments and Transportation Legs
Critical Transportation Features
▪ Petroleum products are hazardous and inflammable

▪ Petroleum products are transported in bulk liquid and gas

form

▪ Petroleum products are quality sensitive

▪ Petroleum products are volatile and liquid

▪ Efficient handling of loading, unloading and transportation –

needed
Modes of Operation
Case Studies

❖Laundry Services to Fuel HLL-BPCL Retail Strategy

❖India, Nepal to Take Forward Rs 100-cr Oil Pipeline
Project
Supply Chain and
Transportation
Value Chain
Supply Chain and Logistics
✓ Suppliers of Crude Oil
Overall
✓ Refiners

✓ Consumers

✓ Oil Supply & Trading

✓ Manufacturing Downstream
✓ Distribution

✓ Sales & Marketing

Supply Chain Challenges and Opportunities
▪ In many the geographical areas, fuel demand growth is weak
▪ Product trading has increased as a result of insufficient refining capacity in
the main consuming areas
▪ Finished products start flowing from the regions with a surplus
▪ This situation creates new markets in other countries for new refineries
▪ Opportunities for increased efficiency in the overall supply chain.
▪ Quality issues are becoming especially constraining
▪ Quality compliance complexity offers an opportunity for differentiation
▪ Environmental regulations and compliance rules (greenhouse effect, gas
emission, soil pollution etc) are in increasing severely.
▪ Geopolitical factors surrounding crude oil production and the high volatility of
petroleum prices in the international markets
Marketing of Transportation Fuels in India………(1)
▪ Decanalising of imports of Superior Kerosene Oil (SKO), Liquefied Petroleum
Gas (LPG) and Furnace Oil (FO) and allowing private marketers to import and
sell these products at market-determined prices ( 1993)
▪ marketing rights for transportation fuels – MS, HSD, and ATF conditional on
owning and operating refineries with an investment of at least Rs 2000 crore
or oil exploration and production companies producing at least three million
tonnes of crude oil annually ( 1997)
▪ The India Hydrocarbon Vision – 2025 : marketing rights are also available to
a company investing or proposing to invest Rs2000 crore (about US $ 415
million), in exploration and production (E&P), refining, pipelines, or terminals.
Marketing of Transportation Fuels in India………(2)
▪ A bank guarantee of Rs 500 crore would have to be provided to the GOI,
which would be discharged on completion of the investment of Rs 2000 crore
( for future investment – time period is @ 10 years)
▪ Every eligible company would get only one authorization for marketing
transportation fuels
▪ There shall be no limit to the quantum and size of the scheme and the
number and location of retail outlets.
▪ Company will have to follow GOI/Regulatory board guidelines on retail
service obligations (to make available MS and HSD to retail consumers
throughout the specified working hours incl set up retail outlets in remote
areas and low service areas
Structural Shifts Envisaged in Transportation of
Petroleum Products
▪ April 2002 onwards, nine private companies have been permitted to

market transportation fuels, namely, petrol, diesel and aviation fuel -

ONGC,RPL, GAIL , OIL, MRPL, Essar, Cairns Energy, Petronet LNG and

Nagarjuna Group

▪ Fleet owners - Oil Companies are coming up with new customer

serving measures or loyalty programs

Pipeline Transportation
❖ Pipelines are capital intensive and technology driven
❖ The high threshold volume warrants matching infrastructure requirement at
both ends of the pipeline
❖ The hazards in pipeline transportation have two dimensions
❖ technical and social
❖ Two major types of problems with regards to technical hazards, namely,
corrosion of pipelines, and second, is generation of static electricity arising out
of frictions.
❖ Important aspect in pipeline transportation is its economics. As the fixed cost
of pipeline is huge, it has a large bearing on investment and financing
decision.
Perspective Issues in Indian Pipeline Systems
❖ India, with its vastness and peninsular size, pipeline transportation of
petroleum products is the most cost economic
❖ The network of pipelines can be further augmented with economic value in
the supply chain of petroleum products.
❖ Need for new pipeline opens up avenues for investment, financial structuring,
and technological challenges
❖ Firstly, is that pipelines are natural monopoly. More number of pipelines
under the ownership of a single company would mean strengthening of
monopolistic condition
❖ In view of the typical nature of cost and revenue curves of pipeline projects,
its financing has a nonconventional structure
The Pumps
Petrol/Diesel Stations of HPCL

❖ Provide better and efficient services

❖ HPCL petrol/diesel stations take care of not only their customer fuelling

needs, but also complete vehicle care

❖ They bring conveniences that allow customer to carry out his/her banking
activities
Vision
❖ Highest performer in sales growth over industry
❖Sustained profitability all the way through increased sales, ARB earnings, cost
optimization, branded fuels and branded lubricants.

❖Customer delight at the point of interface

❖Competent, committed and empowered employees.
❖Sense of pride and mutual trust and camaraderie
Retail Outlet Branding
❖ Retail Outlet Branding
❖ Visual Identity
❖ Club HP
❖Numerous initiatives to strengthen Brand promise
❖ “Leading with Power”, “At the Forefront” and “Positive Value Based StressFree
Supervision” – unique training program for ground force

❖ Corporate level tie up has been made with Tata Motors , US Pizza
Customer Loyalty Programs by HPCL
Quality Assurance Initiatives
Branded Fuels
❖ “ Good Fuel Promise” - mobile labs for
❖ Power
Club HP outlets
❖ Turbojet
❖ Surveillance audit for “Club HP“ ROs
Fuel Promises
Non-Fuel Business
❖ Quality products
❖ C- stores
❖ Checks available at RO – Filter paper
❖ATM
test, Density check, Checking Lubricant
❖ food joints
❖ Period sample check
Petro Stations and Retail
Outlets
 Petrol Station Security

✓ Video surveillance of pumps and store

✓ Intrusion alarms securing the facility at off hours
✓ Access control securing all entry points and facilitating deliveries
✓ Security system offers easy search of events
Different Ros :
✓ IOCL – XtraCare
✓ BPCL – OSTS, PFS
Offers and certifications
✓ Wide range of offers ✓ Complaint redressal mechanism
✓ Certification by Third party agencies ✓ Training to pump attendants
✓ Value added service availability
Various Schemes in
Retail Outlets
Customer Loyalty Programs by HPCL
Initiatives
❖ ATMs Kisan Seva Kendra / Humara Pump

❖ In USA, QuikTrip also uses consumer ❖ Award wining program for Ros at rural
experience to reinforce its price-based area

strategy ❖ Tie up with FMCG companies, Agro

❖Video surveillance of pumps and store companies, Telecom Companies

Highway Large Format Ro ❖ There are many ground-level

❖ Swagat RO ( IOCL) / OSTS ( BPCL) challenges: expertise by the dealers for

Convenience Store fuel retail and the products like fertilizer

❖Focusing on Non-fuel –revenue ( NFR) sales

❖Bank Tie up ❖ Good for customers to get the fuel at

❖ATM Tie UP doorsteps

❖FMCG Tie up
Creating differentiation thru C-Store business
5C Analysis of Marketing
5C Analysis of Marketing

Do 5C Analysis for Retail BU for HPCL >> Will it be the same for Urban/ Rural
and Highway segments ?
How To Sell Value Instead Of Commodities
Step 1: Identify key levers to impact
the customer’s business

Step 2: Change the customer

conversation – bring new insights
Step 3: Commit to execution

Step 4: Measure, measure, measure -

requires solid metrics that demonstrate
success
Case Studies

❖Rising Demand for Petroleum Products

❖Castrol India: Buy
Petroleum Pricing
Pricing of Petroleum Products
❖ Crude oil price formation does take place in two markets,-physical market
and paper market

❖ In economic sense, price is what a buyer pays for the utility of the goods that
he buys

❖ In that sense, the price of crude oil is the market price in the physical market.
❖ Paper market is actually a derivative market, where physical crude is not
available

❖ Paper market is a backward extension of physical market

Physical Market
❖ Buyers in the market – Traders / Refiners

❖ Sellers of the market – Producer of crude oil / Traders /

Refiners

❖ For India, Physical crude market – Middle East/ West Africa

and Far East – due to proximity

 Players in Physical Market ………………………………(1)
❖The National Oil Company (NOC) of the country of crude oil origin, like Saudi
Aramco, Abu Dhabi National Oil Company (ADNOC), Kuwait Petroleum Corporation
(KPC), Petronas in Malaysia
❖ National oil company declare their price, which is called Official Selling Price (OSP)
❖ While fixing the OSP –
(a) demand and supply of crude in the physical market,

(b) revenue for the producing country and margin for the refineries (the buyers),

(c) current production level and investment for future oil fields, and

(d) some other geo-strategic fronts as having political and military dimensions.
Players in Physical Market ………………………………(2)
Trading Companies
❖They invariably have some equity holdings in some crude oils somewhere in the
world
❖Alternatively, they have purchase contract from the original crude oil producers
Integrated MNCs

❖multinational oil companies (MNCs) having integrated operations in the oil

market, namely, E&P, refining, marketing and trading

❖ They are very powerful operators in the crude oil market by virtue of their scale
at operation, volume of transaction and financial strength

❖ BP/ ExxonMobil/Shell/ Total / Chevron

Players in Physical Market ………………………………(3)
Refiners

❖The users of crude oil and are the ultimate buyers

❖ They do resell the crude oil due to
(a) to take opportunity in price movement;

(b) the swap the crude oil, inter grade or inter month; and

(c) unscheduled change in demand pattern

❖a particular type of crude oil has an economic value for a particular refinery,
which is otherwise called as ‘Gross Product Worth’ (GPW).
❖Given the GPW of a type of crude oil for a particular refinery, the CFR (Cost and
Freight) price of crude determines the margin that a refinery gets by processing a
type of crude oil.
Players in Physical Market ………………………………(4)
Paper Market

❖Paper markets are basically markets where right to crude oil is traded.
❖It is a mixture of crude oil market and financial market
❖This market has multiple uses, the principal among which is price risk

management

❖This market consists of institutions like Oil Exchanges, Financial Institutions and
Brokers, in which instruments like futures and swaps are bought and sold
Crude Oil Pricing
Pricing Concept
The pricing mechanism was based on the concept of retention price, by which
❖ refiners were allowed to retain out of their sale proceeds – cost of crude, refining
cost and a reasonable return on investment
❖ The same mechanism was extended to marketing and distribution companies,
which were compensated for operating costs along with an assured return
❖ The APM played a significant role in insulating oil producers, refiners and marking
companies from global oil price fluctuations and fulfilled the socioeconomic
objectives of the government considerably
❖but in the process failed to generate adequate incentives for investment in the
sector and thus failed miserably to create a vibrant and globally competitive oil
industry
Tradable and Non-Tradable Crude
The time frames for buying crude oil are two
❑Annual Term Contract
❑Spot Purchase
There are some types of crude oil in the Middle East, which can only be bought by
annual contract and these crude oils are destination specific. These are, therefore,
called Non-Tradable Crude. (Arab Heavy, Arab Light, Arab Medium, and Kuwaiti
Crudes)

The crude oil which changes the hands of multiple sellers, is available in the spot
market – Tradable Crude . The physical crude oil market is such that it is to be
booked at least two months prior to the month of loading the cargo.
Formula Price
When there is a booking for cargo (two months in advance) two things are
finalized – Quantity & Price

Invoice Price = Basic Price + Premium or Discount

[this is called Floating Price or Formula Price ]

Basic price ~ Official selling price of NOC

Payment terms (usually) 30 days after loading of cargo

Hence, the Payable amount looks like:

Invoice amount ( after one month of loading) = Basic Price ( as on date of

loading) + Premium/ Discount ( as agreed two months before loading )

Pricing Formula
The pricing formula has following characteristics :
❖ The price has been agreed in advance
❖ The major part of the price, that is the basic price, remains relevant to the time when cargo
is loaded
❖ The basic price is market-determined, as assessed by an independent expert body in the
Industry acceptable by buyer & seller
❖ At the time of signing the contract, neither buyer nor the seller has knowledge of the basic
price.
❖ Premium / Discount also captures the quality difference of the cargo booked with respect to
the benchmark crude.
❖ As it is a monthly average of the daily assessment, the price gets moderated by the law of
average
❖ Neither buyer nor the seller gets affected by the specific loading window, as long as the
loading window falls in the calendar month
Benchmark Crude
✓There are many different varieties and grades of crude oil
✓Buyers and sellers in oil industry have found it easier to refer to a limited number of
references or benchmark crude oils.
✓Other varieties are then priced at a discount or premium, according to their quality.
✓The main criteria for a marker crude is for it to be
▪ sold in sufficient volumes to provide liquidity (many buyers and sellers) in the physical
market

▪ as well as having similar physical qualities of alternative crudes

✓ Brent is generally accepted to be the world benchmark
✓ Brent is used to price two-thirds of the world’s internationally traded crude oil supplies.
✓ In the Middle East, Dubai crude is used as a benchmark to price sales of other regional
crudes into Asia.
OSP of NOCs
✓NOCs with original hold on their country’s crude usually announce the FOB price of their Crude oils
for their term buyers

✓ This rate is applicable for all the cargoes loaded during a specified period and uniform for all the
buyers in the region, irrespective of the volume.

✓ Some companies like Saudi Aramco and KPC, announce a premium or discount to the average of
Benchmark crude (Oman and Dubai). They announce in the first week of the month for the next

month

✓ Company like ADNOC announces an absolute number in the first week of the month, applicable for
all the cargo loaded in the previous month.

✓ NOC of Yemen and Nigeria announces a premium or discount to Benchmark crude (Brent). The
applicable price is average of 5 or 6 days after the Bill of Loading days
Underlying principles in the OSP System

✓It is a declared price (or posted price) by the seller, and applicable to all
the buyers in the region. – NO negotiation

✓While setting the price, the sellers usually make the price level in line with
the spot price in the respective destination market.
Platts and Argus
✓Platts is a leading energy news service agency – set up in 1923
✓ In the crude oil market, Platts plays a crucial role in the daily assessment of
crude oil prices, including those of benchmark Crudes
✓ Platts, at the end of the day, assess and reports a high, mean, and low price, at
which a particular crude oil was traded in a particular market
✓ Petroleum Argus is another agency of the same kind.
✓ The methodology adopted by Argus for price assessment is different from that
used by Platts
✓ However, the price assessment by both for the same crude follows the somewhat
similar level
✓ In the crude oil market , Platts has more acceptability than Argus
Factors Affecting Petroleum Prices
✓No theory has thus far been able to use economic variables in
a model that can accurately predict future oil prices

✓ The region-by-region demand patterns interact to establish

the price level

✓ There are consultants who consider the fundamentals of the

market and factors political and social developments

OPEC
OPEC
✓OPEC is the Organization of the Petroleum Exporting Countries
✓ It is an oil cartel whose mission is to coordinate the policies of
the oil-producing countries

✓ The goal is to secure a steady income to the member states

and a secure supply of oil to the consumers

OPEC’s Role in Price Structure
✓ OPEC members share common interests and as a group have
a significant influence on the world oil market

✓ Despite their lack of monopoly over world oil production. EIA

(Energy Information Administration) estimates the current

eleven members account for roughly 40 per cent of world oil

production and about 80 per cent of the proven oil reserves.

Characteristics of OPEC countries
✓ Member countries of OPEC are important world oil exporters (excluding
Indonesia)
✓ OPEC countries’ oil industries are mostly nationalized, allowing OPEC
members’ political establishments to increase or decrease oil production
✓ The lion’s share of the world’s spare oil production capacity lies in OPEC
countries
✓ 80 percent of proven world crude oil reserves are located in OPEC
member countries ( 2002)
✓ Production costs are far lower in OPEC countries
Characteristics of Non- OPEC countries
✓Most non-OPEC countries are net oil importers. The seven largest non-
OPEC producers’ 2001 net exports averaged 15 percent of total oil
production
✓ Because major non-OPEC countries have private oil sectors ( except
Mexico), the political establishment generally has very little control over
production levels
✓ Private companies keep very little spare production capacity – OPEC is the
primary source in case of any world oil production disruption
✓ Non-OPEC lifting costs tend to be higher than OPEC lifting costs, which
makes non-OPEC production more vulnerable to price collapses
OPEC’s Oil Policy
✓The single most important objective of OPEC is to maximize the revenue of its member
countries
✓ OPEC is a cartel and not a monopoly producer.
✓ The revenue maximization objective of OPEC is dictated by a number of compulsions ,
such as,

▪ Meeting Budgetary Requirements of its Member States

▪ Transfer of Technology – newer exploration & production technology

▪ In the revenue earning game played by both the oil producing countries and oil
consuming countries, OPEC does not want to be a losing party

▪ Another compelling purpose for which OPEC countries barter their output and price
control is to earn measures of political stability and military security.
Effect of OPEC’s Policy

OPEC operates its policy through the following four

instruments viz.,

(a) output variation,

(b) destination control,

(c) declaration of official selling price, and

(d) policy announcement

India’s OPEC Policy
▪ India has large stakes in OPEC countries

▪ The geographical proximity of Middle East is really an opportunity for India by way of

security of supply and economic freight

▪ Some of the Indian refineries are configured to process the types of crude produced in

Middle East.

➢The combination of rising oil consumption and relatively flat production has left India
increasingly dependent on imports to meet its petroleum demand

➢ In 2010, India was the world’s fifth largest net importer of oil, importing more than 2.2
million bbl/d, or about 70 percent of consumption
Objective of India’s OPEC Policy

Objective of India’s OPEC policy can be classified under two

headings: viz.,

(a) to have a security of supply at all times and especially at the

time of exigencies like war or natural calamities and

(b) to get crude at the best price

Objective of India’s OPEC Policy
Indian refineries were operating in protected environment and under administrative pricing
regime.
The features of crude import, which were then operating under the previous regime, were:

➢Canalized procurement by Indian Oil Corporation, under the operating guidance of

Oil Corporation Committee

➢ Crude types were limited, which formed a common basket for all PSU Refineries
➢ Sources of import were also limited, dominated by protocol and convention of
Indian Government with National Oil Companies of Middle East.

➢ Operational practices were constrained by existing infrastructure, which were highly

inadequate, and therefore, built in costs were incurred for crude import.

➢ Import procedures were strongly tied by Government guidelines

➢ Now Relaxed – PSUs/ companies determine
Policy Direction for India
✓Indian Refineries and policy maker to take policy initiatives – security and
economy wrt Crude oil import

✓Indian government and business associations (like FICCI & ASSOCHAM)

need to step up commercial diplomacy in the OPEC member countries.
✓India’s premier companies like ONGC Videsh Limited (OVL), the
consultancy JV of ONGC, IOC & GAIL (ONGlO), and Petroleum India
International (PII) can play constructive roles in exploration of new fields.

✓Indian companies have to secure equity in overseas oil fields –

progressing
Action areas for Indian Refineries

✓Diversification of crude basket, which means the continuous search for

non-conventional crude – all refineries are upgrading

✓ Diversify the supply sources. New Crude sources are to be tapped. For
example, countries like Venezuela, Angola, Egypt, and Libya has not been
properly examined.

✓Have port-related facilities to handle VLCC

✓Vigorously enter into risk management areas. It is commonly known that
crude prices are highly volatile and considering the volume, and stakes are
very high – need to resort to techniques to pass on the price risks to others
Promotions
Evolution of Petro Retail Over Time

Old Era Marketing (Pre & Early Post New India Approach (1975
Independence) onwards)
Private firms
Nationalized company
Commodity
Commodity
Unorganized sales
Price regularized & administered by Govt

Phased de-regularisation (Post CX Revolution (Last decade)

2000)
• Requirement of additional services at
Entry of private players – increase in fuel stations
competition
• Shift in customer expectation and
Exposure of modern technologies to buying behavior due to tech exposure
customers at General retail sector
Case Studies

❖High-Quality Personalized “Vehicle and Consumer

Care”

❖LPG, Diesel Burn Oil Marketing Companies

Sales and Marketing
Sales & Marketing

❖Crude Oil Marketing >>> OPEC

❖Natural Gas Marketing >>> CGD ( CNG/PNG/LNG/LCNG)

❖Retail / Industrial & Customer / LPG /Lubricants

Gap Model
Gap Model – Case Study

- Analyze Service Quality at HPCL Retail Outlets in View of Gap Model

- Suggest some improvement against each Gap

Franchising and Brand
Management
Franchising and Brand Management
❖Franchisee >> Dealers ( Retail) / Distributor ( LPG & Lubricants)
❖Dealers >> more than 70000 all India ( including Pvt players)

Franchisees are of different types :

❖ Individuals & Partnerships

❖ Industrial Houses
❖Co-Operatives
❖ Govt Bodies
❖ COCOs
Brand Management
Product type : MS/HSD/ Branded MS / Branded HSD

Why is it required?
Stagnant market >> overall demand is not growing >> One way to
increase margin is by getting more market share

The perceived value of the product differs in customers’ minds with

respect to product’s additional features >> is the key
Brand Personality
Brand Personality is what distinguishes one brand from another. It is the
sum of the intangible assets of the brand. It is the symbolic aspect of a
brand.

Basic Differences between Brand and Product

❖A product is something that is made in a factory
❖A brand is something that is bought by a customer
❖A product can be copied by a competitor
❖A brand is unique
❖A product can be quickly outdated
❖ A successful brand is timeless
Petroleum Industry Future

Future of Global Petroleum Industry >> “Oil is dead.

Gas is king. Long live the King”

Mega economies like China, India, and North America

have a massive thirst for gas
Upstream Industry: Future of the North Sea
The future of the North Sea is a two-sided coin. On one side, new investment has slumped due to the
continued hangover from the low oil price in 1998. On the other side, opportunities are enormous for
smaller, independent E&P companies

Factor that has added to the low level of development work has been the mergers of a large number
of companies with investments in the North Sea:
▪Western Investment in Middle East
▪ US Independents Prefer to Explore Overseas
▪ China: is becoming more and more dependent on imported oil as it looks towards the next
decade
▪ Asia Pacific Region: Oil producers in the Pacific Rim are expected to increase production
significantly with the use of enhanced exploration and production technologies.
▪ Libya: has been heralded with the title of “The no. 1 Exploration Hotspot”
▪ Africa: Several West African producers (Angola, Cameroon, Chad, Congo, Gabon and Ivory Coast)
Top ten exploration hotspots in the world as per the
latest survey
o Libya o Iraq
o Iran o Indonesia
o UK o Angola
o Australia o Brazil
o Algeria o Egypt
Alternative Fuels
Alternative Fuelled Vehicle (AFV) is any vehicle capable of operating on an alternative fuel, such as
LPG, natural gas, alcohol or electricity.
There are two configurations:
1. Dedicated, one fuel
2. Non-dedicated
a) Hi-fuelled : can operate on either an alternative fuel or gasoline but not at the same time plus
they have the separate storage system
b) Flexible fuelled: Flexible fuelled can operate in either alternative or conventional fuel or a
combination – single storage and combustion system:
c) Duel fuelled : Duel fuelled can burn two fuels simultaneously, stored separately, and injected into
the combustion chamber simultaneously [conventional fuel + electric]

Alternate fuels : LNG/ LPG/ Ethanol /Methanol/ Hydrogen/ Bio-Diesel/ P-Series Fuel --vegetable oil,
animal plant waste sourced fuel, used as an alternative to gasoline.
 Emerging Issues In
Indian Oil Industries
Issues & Opportunities in Indian Petro Retailing
❖Import Parity Price
❖Managing Unannounced Surplus
❖Technology
❖Security
❖Self – reliance
❖Petro retailing in general stores – FMCG stores and supermarkets
❖Food Service Outlets
❖Ancillary/ value-added services - Vehicle care/ ATM/ N2 / Bill Payments etc
Case Studies

❖British Petroleum

❖Indian Oil Corporation Limited

Thank you!