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do you know how long it takes to build a refinery. The Saudis are flush with cash and don’t know what to do with it. Hence they are building stuff that nobody needs. By the time they complete building their refineries, we would have moved beyond the peak oil debate with dwindling Saudi supplies. I would bet on the Bania survival skills over any machinations coming from the middle east.

The Saudis have just declared that they will be building four new, modern large refineries in the next three years. Kuwait has already started building a mega fourth refinery. The Saudis have declared that in future, they will export only petroleum and allied products NOT crude oil, which is logical. So where will he get sufficient crude when these new refineries come up? Venezuela? The freight costs would be too high. Will he build one in Venezuela or Peru? The region is famous for inviting foreign companies and then “nationalizing”, once they are on stream. Hence long term having a refinery with no captive crude supply is simply un viable, similar to having a mega steel plant with no mines for ore.

Though I have never invested in the shares of Reliance Industries, my recently gleaned understanding of the world petroleum scenario has made me respect the company’s vision in its refining projects. As I mentioned once earlier, RIL’s existing refinery, and the one nearing construction, reportedly have unparalleled flexibility to process heavy, high-sulphur (so-called sour) crude, especially that emanating from Iran. This crude sells at a huge discount to other crudes; once it is refined into diesel, though, RIL is able to sell the resultant distillates, especially diesel, into a world market which is thirsty for such products. Most mature consumers, the US especially, have made no investment in refining capacity over the last 2 decades, and strategic thinkers in the petroleum industry go so far as to say that RIL’s investments are changing the pattern of world flows in petroleum and petroleum products. For this reason, I have recently turned from a bear on RIL to a mildly positive neu...

Indian Oil Corporation (IOC) calculates inter alia the landed import duty paid price of petrol and diesel every fortnight. This calculation is based on a formula that is linked to international prices. IOC’s landed price of petrol in Mumbai for the second fortnight of May was, for instance, Rs 38.1 per litre and for diesel Rs 48.8 per litre. The marketing companies had to, in other words, pay this amount to the refiners to buy the products. Next, the Central government imposes an excise and educational cess on the purchase cost. In May, this was Rs 14.4 per litre and Rs 0.4 per litre for petrol and Rs 4.6 per litre and Rs 0.1 per litre for diesel respectively. The total cash required by the marketing companies to purchase petrol and diesel in May was, therefore, Rs 52.9 per litre for petrol and Rs 53.6 per litre for diesel. The companies then sell these products at the ministry of petroleum mandated price of Rs 49.7 per litre for petrol and Rs 35.6 per litre for diesel (Mumbai prices)...

The government may allow 100 per cent foreign direct investment in oil and petroleum marketing companies. This follows a review of the FDI norms by the nodal body for policy making in foreign investment — the Department of Industrial Promotion and Policy (DIPP). At present, if a foreign company sets up an oil marketing company, it is required to divest 26 per cent in favour of an Indian partner within a period of five years. This holds good for oil refining companies as well. Sources close to the development said that there were many applications from foreign companies to market oil and petroleum. The government, according to them, was thinking of allowing 100 per cent FDI on a case to case basis. However, both the Foreign Investment Promotion Board (FIPB) and the DIPP have taken a joint policy decision to allow 100 per cent FDI in oil marketing companies. “The move is welcome from both the industry and consumer perspectives. In the current situation, oil marketing may not be attractiv...