📰Oil

Hello. It’s Wednesday, and tomorrow is Diwali. Happy Diwali!

India is Asia’s second-largest producer of oil, but still imports tens of billions of crude oil from the Middle East to fuel its economy. As the region becomes increasingly unstable, we break down how India’s oil and gas industry functions.

BTW: The Indian state of Meghalaya features a truly unique architectural design for bridges. Do you know what it is? (Answer at bottom)

Markets

Read here for an appendix on the above.

Analysis

Understanding India’s Oil Market

The Indian oil and gas industry is currently undergoing a period of transformation, driven by robust economic growth, rising energy demand, and government initiatives aimed at boosting domestic production and achieving energy security. Earnings have grown 11 percent for the last 3 years driven entirely by revenue (up 17 percent in the same time). 

India is the world’s 20th largest oil producer, and the second largest producer in Asia (producing just 35 percent of China, the largest Asian producer). Oil makes a quarter of India’s energy supply. India is a net importer of crude oil; in 2022, the five countries it imported the most from was: $37.1 billion from Iraq, $32.7 billion from Saudi Arabia, $25.5 billion from Russia, $14.8 billion from the UAE, and $10.8 billion from the United States.

Thus, the country’s economy heavily depends on oil price stability from an increasingly unstable region. The breakdown of India’s oil and gas industry is as follows:

Major Players

Upstream Segment: The upstream segment, which encompasses exploration and production, is dominated by government-owned companies like Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL). These companies account for approximately 70 percent of India's total oil and gas output. Private companies such as Cairn India and Reliance Industries Limited are also significant players in this sector.

Downstream Segment: The downstream segment, which includes refining and distribution, features both government-owned and private refineries. Key players include Indian Oil Corporation (IOCL), Reliance Industries Limited, Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL). Key trends recently have been greater inclusion of Venezuelan oil into the refining mix and more privatization of the industry. Privatization has allowed for faster growth since companies optimize more for growth as compared to the public sector, especially with more mismanagement surrounding the Indian government. 

LNG and City Gas Distribution: LNG is liquified natural gas exporting and consumption. Typically the US exports LNG across the world but India has growing consumption since LNG is a cleaner energy source than other fossil fuels. Petronet, Gas Authority of India Ltd. (GAIL), and the Gujarat State Petroleum Corporation are key players in the LNG sector. Major suppliers of city gas distribution include GAIL Gas Limited, Indraprastha Gas Limited, and Mahanagar Gas Limited.

Current Drivers

Rising Energy Demand: India's energy demand is projected to double to 1,123 million tonnes of oil equivalent (Mtoe) by 2040, driven by strong economic growth and a growing population.

Government Policies and Initiatives: The government has implemented various policies, such as the New Exploration Licensing Policy (NELP) and the Hydrocarbon Exploration and Licensing Policy (HELP), to deregulate the industry and encourage private and foreign investment. The government has also set a target to increase the share of natural gas in India's energy mix to 15 percent by 2030, up from the current 7.6 percent.

Focus on Energy Security: The global energy crisis has highlighted the importance of energy security for India, which heavily relies on oil imports. This has led to initiatives aimed at diversifying energy sources, building strategic petroleum reserves, and promoting domestic exploration and production.

Clean Energy Transition: India is committed to reducing its carbon footprint and transitioning to cleaner fuels. This is reflected in the promotion of biofuels, electric vehicles, and green hydrogen technology.

Trends

Increased LNG Imports: India is witnessing a surge in LNG imports due to rising natural gas demand and declining domestic production. The country aims to expand its LNG import capacity to 70 million metric tons per year by 2030. A risk factor for India is the dependence on imports, however. Qatar is currently the biggest supplier which makes magnified shocks in the Middle East more risky. This can be seen in how adverse events have affected the Nifty as well. 

Additionally, the City Gas Distribution (CGD) sector is experiencing rapid growth, with plans to expand coverage to 86 percent of India's geography. Currently, there are various infrastructure constraints regarding pipeline networks to rural areas, insufficient storage facilities, and logistical challenges. 

Expansion of Refining Capacity: Indian refiners are investing heavily in expanding their refining capacity to meet the growing domestic demand for petroleum products.

Macro

• India's fiscal deficit for the April-September quarter reached $56.50 billion (₹4.75 trillion), accounting for over 29 percent of the full fiscal year's target, according to government data.

• India’s infrastructure output rose 2 percent year-on-year in September, driven by strong cement and refined product production, according to government data released Wednesday. This follows a 1.6 percent contraction in August, the first decline in over three years, with coal production up 2.6 percent after an 8.1 percent drop, and electricity generation down 0.5 percent compared to a 3.7 percent fall the prior month. (Reuters)

• Apple ships $6 billion of iPhones out of India's manufacturing plant. iPhone exports from India surged by a third in the six months through September, highlighting Apple's commitment to expand production there and reduce its reliance on China. Annual exports are likely to surpass $10 billion by fiscal 2024. (BBG)

• Global gold demand surged approximately 5% in the third quarter, reaching a record high and pushing consumption above $100 billion for the first time, according to the World Gold Council. This increase, with volumes rising to 1,313 tons, was driven by stronger investment from Western high-net-worth individuals, offsetting declining demand from Asia, while bullion-backed exchange-traded funds saw a return to gains after a period of outflows. (BBG)

• The MSCI benchmark index for emerging stocks dropped 0.8 percent by noon ET today, heading for its steepest monthly loss since January, led by declines in Chinese and Hong Kong equities. While emerging-market currencies generally advanced, Latin American currencies weakened as markets adjusted to the potential risks of a Trump win in the U.S. election, given his stance on higher import tariffs. (BBG)

Equities

• India's Tata Power missed second-quarter profit expectations on Wednesday, as cooler monsoon temperatures reduced electricity demand. The company reported a 5.8 percent year-on-year increase in net profit to $110.3 million (₹9.27 billion), falling short of analysts' forecast of 9.82 billion rupees, with revenue dipping 0.26 percent to 156.98 billion rupees. (Reuters)

• The Indian government plans to penalize General Electric Co. for significant delays in delivering jet engines for its light-combat aircraft, according to an official familiar with the matter. Delivery of the F404 engines for the Indian Air Force’s Tejas Light Combat Aircraft Mk1 series, initially set to begin in 2023 under a $716 million contract with Hindustan Aeronautics Ltd., has been postponed to March 2025. (BBG)

• Amazon Inc.’s India payments unit reduced its losses for the fiscal year ending March 31, with higher sales and lower costs helping to drive the improvement. Amazon Pay India’s loss narrowed by nearly 40 percent to $108 million (₹9.1 billion rupees), as sales grew 9.2 percent to 22.9 billion rupees and expenses dropped proportionally, according to filings via Tofler. (BBG)

• Bharti Telecom Ltd. seeks to raise $1.33 billion (₹111.5 billion) in the local currency bond market. On November 4, Bharti Telecom Ltd. will invite bids for six-part notes maturing in three to ten years, featuring an 8.9 percent coupon on the longer-end bonds, which could mark the company's largest rupee issuance to date, shortly after Bharti Airtel Ltd., its largest shareholder, reported a quarterly profit that fell short of analysts' expectations due to foreign exchange losses.

Alts

• Swiggy, the Indian food-delivery platform, will IPO on November 13 and begin offering shares at $4.64 (₹390) a piece from Nov 6-9. The IPO plans to raise $535 million. (BBG)

Policy

• India’s government and power sector are considering a potential phase-out of sulfur hexafluoride (SF6), a potent greenhouse gas, although the high costs of alternatives pose significant challenges to regulation. SF6, which is used as an insulator in power transmission equipment like circuit breakers and switchgear, has a warming potential 23,500 times greater than carbon dioxide and can remain in the atmosphere for over 1,000 years, contributing to rising global concerns as its usage has rapidly increased over the past three decades. (BBG)

• India's markets regulator proposed on Wednesday that asset management companies (AMCs) deploy funds from new mutual fund schemes, or new fund offers (NFOs), within 30 days of unit allocation to investors. The Securities and Exchange Board of India suggested that AMCs extend this period by an additional 30 days with approval from their investment committee, as no such deadline currently exists. (Reuters)

Oh, and Meghalaya is home to living, breathing bridges made of tree roots.

See you Friday.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

1 USD = 84.10 Indian Rupee