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Investing in Energy Risks, Rewards

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India's Exposure to Crude Prices. Imports accounts for about 75 per cent of oil consumption ... Gasoline. Heating Oil. Natural Gas *subject to regulatory ... – PowerPoint PPT presentation

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Title: Investing in Energy Risks, Rewards


1
Investing in Energy Risks, Rewards Options
Sanjay Gakhar
2
Indian Oil Gas Scenario
  • Oil India ranks amongst the top 10 largest oil
    consuming countries.
  • Oil accounts for about 30 per cent of Indias
    total energy consumption of 2.4 million barrels
    per day.
  • Imports accounts for about 75 per cent of oil
    consumption
  • India had a total of 2.1 million barrels per day
    in refining capacity.
  • Natural Gas Indian consumption of natural gas
    has risen from a 0.6 trillion cubic feet (Tcf) in
    1995 to about 0.9 tcf is projected to reach 1.2
    Tcf in 2010 and 1.6 Tcf by 2015.
  • About 50 per cent of the countrys gas
    requirement were met through imports.

3
Government Liberalization -Reforms in Energy
Sector
  • Oil Indian govt. officially ended the
    Administered Pricing Mechanism for petroleum
    product prices
  • Disinvestment in Public Sector
  • Complete deregulation of the Indian retail
    petroleum products sector is under progress.
  • Natural Gas Govt. has been considering reforms
    in its natural gas pricing mechanism.
  • Coal The government has been planning to greater
    liberalize the coal-sector.
  • Electricity The new guidelines of National
    Electricity Policy (NEP) allow competition
  • Open access in distribution
  • Foreign equity is permitted up to 100 per cent.

4
Indias Exposure to Crude Prices
  • Imports accounts for about 75 per cent of oil
    consumption
  • Producers, refiners consumers exposed to
    international price volatility
  • Paradigm shift likely from administered pricing
    to free market pricing
  • Price volatility cannot be wished away

5
Risk Exposures
  • Producers
  • Sharp decline in oil prices
  • Economic viability of profitable wells may turn
    non-profitable
  • Refiners
  • Change in value of inventories
  • Volatile cash flows may lead to liquidity crunch
  • Volatility in prices between period of buying
    crude selling products
  • Importers / Exporters of crude oil products are
    permitted to hedge their exposure to price risk

6
Close Relationship (All Varieties)
7
MCX Crude Oil Futures
  • Trading successfully since 9th February 2005
  • Three varieties
  • Light Sweet Crude Oil
  • Brent Crude Oil
  • Middle East Sour Crude Oil (Dubai Oman Grades)
  • Provides a marketplace for bringing together
    physical industry participants and financial
    investors
  • Ideal mix of day traders position traders as
    exhibited by high liquidity open interest
    respectively

8
MCX-NYMEX Crude Oil Correlation
MCX-NYMEX Crude Oil Correlation 98
9
MCX Energy Basket
  • Light Sweet Crude Oil
  • Brent Crude Oil
  • Middle East Crude Oil
  • Furnace Oil
  • Natural Gas
  • Coal
  • may be launched soon

10
Contract Specifications for Crude Oil Futures
(Light Sweet, Brent MiddleEast)
  • Trading Unit100 barrels
  • Quotation/Base Value Rs. per barrel
  • Tick Size Re. 1
  • Price Quote Ex Mumbai (excluding all taxes,
    sales tax / VAT as the case may be, levies,
    freight and other expenses)
  • Daily Price Limits Initial Margin 4 5

11
MCX NYMEX Strategic Alliance
  • MCX through the recent exclusive Licensing
    Agreement with NYMEX on 05 June 2006, will
    shortly launch mini-versions of NYMEX energy
    products as follows settle these contracts
    based on NYMEX settlement prices
  • Gasoline
  • Heating Oil
  • Natural Gas
  • subject to regulatory approvals

12
Thank You
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