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Crude oil prices a big challenge for India, says Regina Mayor of KPMG

Crude oil prices a big challenge for India, says Regina Mayor of KPMG

Crude oil prices a big challenge for India, says Regina Mayor of KPMG
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By CNBC-TV18 May 22, 2018 1:16:13 PM IST (Updated)

I think crude oil prices is a big challenge for India, said Regina Mayor, KPMG, in an interview to CNBC-TV18.

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She said there is still a lot of emotion and irrational speculation that comes into crude oil pricing.
Edited Excerpts:
What is your view on Organization Of Petroleum Exporting Countries (OPEC) cuts and compliance and where is crude oil price headed from here and the impact that we can see on sense of prices for India from that?
I expect them to maintain the cuts. I mean, what they are finding, is the actions, while maybe not directly correlated with what they are doing, it is obviously having an overall positive effect. I don't see them wanting to take any action that would have a reason for drawing that price back down.
I think the Kingdom of Saudi Arabia is on record as saying they believe it should be $80 per barrel or higher. Obviously, that helps their prospects for their IPO and you see, some of the other integrated oil companies arguing that it's probably more of a $30 per barrel. My personal point of view is $60 to 65 per barrel is more of a rational price and you will see more US supply come on, that will dampen that overall price.
That really seems to be the view because there are reports suggesting that we could see the crude oil prices correct $20 from here. But then there are other reports which are also putting it to $90, even $100 for 2019, what broader range will you really want to work with?
The industry gets so excited and they have such a short term memory. I remember in 2014, when we were complaining that $100 oil was the new $20 oil, because no one could make money at a 100. Ad then we were saying it was lower for longer, lower forever and now we are back almost to $80 per barrel. I don't believe it is sustainable.
I think, there is still a lot of emotion and irrational speculation that comes into crude prices and there are obviously different sides that want it one way or the other and the current price makes a lot of plays economic.
Oil sands becomes far more economic again, ultra-deep water is well into the money and then of course shale, where they were sized to be profitable at 30 or 40 is well into the money. So, I think it creates more opportunity for more supply to come on.
Well absolutely and as they say that crude is perhaps 80 or 90% politics?
It is absolutely is, but we have to be careful not to ride the emotional highs and lows associated with that.
Talking about India, then and our dependency on imports is huge, 84 to 87% depending on what month you are looking at. So with the crude oil prices on where they are, how do you see India in that light?
I think it is a big challenge for India, when you are in an environment where you are so dependent on external resources. We have other markets that look like that. Japan for example, they don't have their own natural resource capabilities. So, my strong recommendation is that a country like India has to figure out what is the overall portfolio of resource that I need and how do I create a portfolio, where I am exploiting my own natural resource because you do have gas supply and reserves available that could create a huge potential for energy to offset some of the dependence.
Then you look at what are you going to import? Does it have to be all crude? Can it be naphtha? Can it be refined products? A balanced mix so that you create a natural hedge in your portfolio, while you are also implementing renewables, things that you can do within your own continent or your own geography to fulfill energy needs and then create a portfolio so that you are not overly dependent on one source of supply or frankly one supplier.
We have seen much of April and the first week of May, the petrol and diesel prices did not move in India and many people of course put it on to the fact that there are state elections coming in and we might see this as a trend perhaps but then again petrol prices are at 56 month high as diesel price is at a record highs is what we have seen day on day in last three days yet again. What is again a strategy that India needs to appoint in as we look at day to day changing prices mechanism here?
I understand that your market doesn't necessarily have full price transparency, where that is passed on directly to the consumer and you have taxes that are built into some of the energy prices, which is not different from other parts of the world. US is known for having gasoline taxes and things of that nature. But I think, sort of creating the right economic incentive that allows the companies to provide the product with an appropriate return but still make it affordable for your populace.
Crude prices, they have disconnected from gasoline prices. So if you are not all about importing only crude and then creating all of your downstream products and you create this strategy, where you might import some gasoline or you might import naphtha or you might import ethane, that creates more of an opportunity to manage that financial risk and make sure that things stay affordable for your folks.
I also wanted to talk about the whole power thing yet again. I mean how would you look at that being an important part here and as you said there is a vast change coming in here but is the change good enough, fast enough, and impactful enough to change? Can it be a game changer as we move ahead?
I am super passionate about the topic of what we call energy poverty. The fact that there are still 1.3 billion people on the planet that don't have access to electricity, and electricity is one of the single greatest drivers of wealth creation, that will to lift everyone around the world into a better state of being and you have a tremendous opportunity here. I spoke to one of the clients, who said of the 1.3 billion probably 0.3 billion are here in India. So the opportunity exists. It is a great first step to electrify the villages.
However, is that electricity reliable? Is it on 24/7? Is it accessible? Is it affordable? Does it go into every home and abode? My understanding is, we are not there yet and that is the next stage opportunity. It is incredibly hard, getting the line to the village in the first place is the first step. But then, making sure that you can get it into the household without electricity theft and I mean that it is dangerous. You don't want all those wires hanging from poles and threading into a different type of an abode that you have here.
So I think it is a first good step, the government and obviously, the communities and the businesses agree it is the priority. But I don't think you can declare success by any stretch yet.
What are those few things that you are watching out now to look at crude oil prices because every small event, every news, even a statement from an oil minister tends to move crude oil prices a couple of percentage points?
It wasn't like that until just two months ago though. Remember for a 12 to 18 month period, we were fretting as to why our geopolitics is not reflected in the crude price. We had North Korea and South Korea and all the name calling, crude was not reacting at all and now I think it is overreacting.
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