The HPCL stock is up around 22 percent this year and in the last six months, it has risen around 14 percent. The stock is currently trading at around Rs 270 on the NSE. There was an interesting note put out on the oil and gas space, which said, they are modelling Brent at $64 a barrel. Brent is down 6 percent from its recent peak. So, the recovery in Singapore gross refining margins (GRMs) in auto fuel has led to an improvement in the earnings visibility for oil marketing companies. To discuss the demand picture and the outlook, CNBC-TV18 caught up with MK Surana, CMD, HPCL.
Surana said, “There has been an improvement in product cracks on the back of demand recovery in Asian countries, and Europe and America, especially on gasoline. Also, some of the refineries were shut because of the hurricane activities in Gulf of Mexico. So, gasoline cracks are in the range of $9-$11. Even the diesel cracks have improved because of the demand pickup and winter stocking will begin again. So even diesel cracks have improved to $9-$10 per barrel. Going forward, MS cracks may soften a little bit, again to pick up in the next-to-next quarter, but the diesel trucks will continue to improve and that is supporting the GRM. So, we expect Singapore GRMs, which is the benchmark to be in the range of $5 per barrel.”
Regarding fuel demand, Surana said, “As far as demand in the domestic market is concerned, petrol demand has been quite good and in September so far, it is almost 8 percent up from the pre-pandemic level. So, it is definitely more than last year, but it is even more than 2019 levels of September.”
“As far as diesel demand is concerned, that is still yet to come to the pre-pandemic level. It is at least 5 to 6 percent lower than what we had in 2019. ATF demand has picked up of late and it is almost up to 65 percent of the pre-pandemic level and LPG had always been positive, both during Covid and after that as well,” he said.
“Overall, if you see month to month, petrol demand has picked up around 4 percent more than last month, diesel also around 1 percent from last month and ATF around 8 percent higher than the last month of the current year. So overall, it has been a good recovery and likely to speed up further because of more air routes happening and the fear of delta variant now receding,” he said, adding that the third wave appears less scary now and vaccination is picking up momentum as well.
“Moreover, with a lot of policy initiatives on the monetary front, etc., the industry should pick up, the festive season is also coming. Diesel demand was lower because of the heavy monsoon in some areas of the country, but now that should be receding. So, we expect that to change,” he further said. He also mentioned that this is the case with other Asian countries, as well as with Europe and the USA. So it should support the GRMs, the cracks.
Recently, the petroleum secretary said that a lot of oil marketing companies are investing in new energy. HPCL
has already invested in charging stations, biofuels, etc. So, talking about their expansion plans and investments, Surana said, “In the last five years, we did invest in strengthening our coal business, to expand the refineries that bring petrochemicals and LNG, and to bridge the gap between our own marketing, demand and supply capacity, as well as bring new products to the portfolio. In the next phase, we are doing capex, the new energies like EVs, biofuels, renewables, hydrogen, and we have already taken some steps - we already have around 165 petrol stations where we have EV charging facility, both combined slow and fast chargers. We have taken some projects for ethanol production from 1G and 2G and compressed biogas (CBG), that is the biofuel area, apart from blending around 8 to 9 percent of ethanol in MS.”
“We already have got wind capacity of around 101 megawatts, but we will enhance our investment in solar and wind. We are also taking some of the pilot projects for hydrogen, which is a new field that has got a potential on the greener side. So that is the next location of our capex. We have got a plan to enhance our EV charging facilities to around 5000 retail outlets in the next four years,” he further said.
“Moreover, we already have got two mills, which produce ethanol. HPCL is the only OMC right now, which has got ethanol-producing capacities. But that is not to say that the liquid fuel demand will reduce, in fact it will increase in the near future and this new energy will take part of it,” said Surana.
For the full interview, watch the video