![15 | P a g e
Demaison and Huizinga: divide petroleum systems into vertically and laterally drained. The Mandal-
Ekofisk petroleum system is a vertically drained system. Vertically drained systems are generally found
in rifts, deltas, wrenches, and overthrust provinces where migration is controlled by faults and fractures.
Faults and fractures limit the size of the fetch area available to traps, so a number of small- and
medium-sized accumulations abound.
Vertically drained systems have the following characteristics:
Accumulations occur above or near to the pod of active source rock.
Lateral migration distances are short.
Multiple, stacked accumulations usually contain the same genetic oil.
Surface seepages are common in supercharged systems.
The largest accumulations are seldom found early in the drilling history; instead, many medium to
small accumulations are found.
Figure 3
Laterally Drained Petroleum System
According to Demaison and Huizinga,[3]
laterally drained petroleum systems have a laterally
continuous seal overlying a laterally continuous reservoir. This reservoir/seal couplet is generally
contained within a long, uninterrupted ramp. Provinces with these systems have low to moderate
structural deformation. Tectonic stability is critical for maintaining seal integrity. Laterally drained
systems are most commonly found in fore-deep and cratonic sag basins. Plunging low-amplitude arches
are necessary for connecting traps to the pod of active source rock. The Ellesmerian(!) petroleum
system is an example of a laterally drained system.](https://image.slidesharecdn.com/indianpetroindustry2017-170514041138/75/Indian-petro-industry-2017-15-2048.jpg)
![30 | P a g e
FDI in Petro Retail in India:
Petroleum oil and other products form a major part of our primary energy mix and touch our lives in more
ways than one. Also Petroleum sector being a key economic driver for the economic growth influences
some of the critical economic variables of any nation. The Indian oil and gas sector is one of the eight core
industries in India and has very significant forward linkages with the entire economy. India has been
growing at 8-9 per cent annually and is committed to accelerate the growth momentum in the years to come.
This would translate into India's energy needs growing many times in the years to come. Hence, there is an
emphasized need for wider and more intensive discussion on the trends, structure and development of the
industry.
According to data released by the Department of Industrial Policy and Promotion (DIPP), the petroleum and
natural gas sector attracted FDI worth US$ 6.67 billion between April 2000 and March 2016. The role of
FDI in any industry is to bolster its development and contribute in economic growth. But the question is
how well has FDI in petroleum sector in India impacted growth in petroleum industry for India see no
reduction in import of Oil and Gas. Nevertheless, India has seen a progressive uptick in infrastructure for
refining petroleum products and it homes the largest refinery in the world.
The investment trends and patterns along with various initiatives taken by the Government of India to
promote FDI influx in Oil and Gas sector. Further, a time series data analysis was undertaken to analyze
whether there exists any long-run relationship between FDI in petroleum sector, contribution of the sector
towards national economic growth and index of industrial production in the petroleum sector, and if so,
what is the direction of the relationship. It further discusses the empirical influence of FDI on the capacity
of the refining infrastructure currently operating in India. The exploratory research is a combination of
quantitative and qualitative analysis. The time series data has been collected through secondary sources.
CAGR and Pearson Correlation are the two tools used to assess the growth and relationship between
variables.
Public Private Partnership Models of Petro Retailing in India
A Public–private partnership (PPP or 3P) is a commercial legal relationship defined by the Government
of India in 2011[1]
as "an arrangement between a government / statutory entity / government owned entity
on one side and a private sector entity on the other, for the provision of public assets and/or public services,
through investments being made and/or management being undertaken by the private sector entity, for a
specified period of time, where there is well defined allocation of risk between the private sector and the
public entity and the private entity receives performance linked payments that conform (or are](https://image.slidesharecdn.com/indianpetroindustry2017-170514041138/75/Indian-petro-industry-2017-30-2048.jpg)
Uploaded bySHAMIK CHAKRABORTY
Indian petro industry 2017
The document analyzes the evolving landscape of petro retailing in India, highlighting the impact of deregulation and the entry of private sector players, which has intensified competition. It explores the preferences of customers and oil marketing companies (OMCs) regarding retail mix elements and outlines the strategies employed by both public and private players to enhance market share. The significance of the oil and gas industry in India's economy is also discussed, emphasizing its growth potential and the influx of foreign direct investment.
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Indian petro industry 2017
- 1. 1 | Pa g e A PROJECT ON RETAIL VERTICALS INDIAN PETRO INDUSTRY BY: SHAMIK CHAKRABORTY
- 2. 2 | Pa g e TABLE OF CONTENTS TOPIC PAGE NO Introduction 03 Petro Retailing- A Perspective 04 Importance of Petro Retailing in India 07 Structure of Petro Retailing in India 11 Scope of Petro Retailing in India 12 Systems of Petro Retailing 13 Value Chain of Petro Retailing 16 Major Players of Petro Retailing in India 19 Marketing Strategies of Petro Retailing in India 21 Recent Trends of Petro Retailing in India 27 FDI in Petro Retail in India 29 Public Private Partnership in Petro Retailing 30 References 33
- 3. 3 | Pa g e INDIAN PETRO INDUSTRY The petroleum industry includes the global processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines), and marketing of petroleum products. The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum (oil) is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, synthetic fragrances, and plastics. The industry is usually divided into three major components: upstream, midstream and downstream. Midstream operations are usually included in the downstream category. In India, with the entry of private and foreign players, the scenario of petro-retailing in India has been changing considerably. India's public sector Oil Marketing Companies (OMCs) are undertaking massive image improvement programs and differentiating delivery of their products and services. Earlier petrol retail outlets were simply used for filling the fuel, but now public sector OMCs are aggressively marketing their products to cope up with the competition from private sector OMCs. We have carried out the survey of customers and retail outlet owners/company representatives to understand their preferences of Petro Retail Mix Elements. Analysis identifies that there is a significant difference in the preferences for retail mix elements among customers and OMCs. The paper also identifies the gap between current petro-retailing practices of OMCs and customer preferences and its implications to the OMCs. Qualitative analysis presents additional insight into retail mix elements. The petro retailing scenario has suddenly changed when government declared that it would opt out of regulating the OMCs and the petrol market in India. In April 2002, Indian government deregulated the oil sector and abolished the APM which controlled the price of petroleum products and allowed private sector companies to set up their petro retail outlets to market petroleum products at the market-determined prices (Clarke Kieran, 2010). Under new regime, OMCs are free to set retail product prices based on an import parity pricing formula. With liberalization, monopolistic business of petro-retailing no more remained with state owned OMCs. New regime opened doors for private sector players. The entry of private sector players in the Indian market witnessed the forces of marketing and competition in petro retailing. Davar R. (2007) observed that the policy shift sparked a rush for opening the petro retail outlets, as both private and public sector companies wished to position themselves to sell to the nation's growing and increasing mobile middle class. Old players i.e. public sector OMCs found themselves amidst cut throat competition. The newly entered private players including Reliance, Essar and Shell started retailing of petroleum products with more professional and aggressive approach. They also adopted skilled marketing practices. The public sector OMCs (including Indian Oil Corporation Ltd. (IOCL), Bharat Petroleum Corporation Ltd. (BPCL), Hindustan Petroleum Corporation Ltd. (HPCL) and Indo-Burma Petroleum Company Limited (IBP, now merged with IOCL)) did not have marketing strength but they had an advantage of vast experience, understanding and knowledge of the Indian petro retail market and its operations. Their most important strength was extensive distribution network covering all important
- 4. 4 | Pa g e locations in India. The competition with private sector players forced public sector OMCs to convert their business from 'very low involvement commodity' into 'high involvement brands'. Both private and public sector players are now focusing their efforts to increase their market share. They are trying to understand the consumer needs and accordingly adopting different retail marketing practices like branding, positioning, advertising, sales promotions, delivery of services, etc. The petrol retail outlets are quickly getting converted into multi-facility centers with change in signage's, logos and canopies, clean floors, channel music, lightings, attendants with uniform, convenience stores, ATMs (Automatic Teller Machines), internet browsing facilities, video parlors, entertainment, supermarkets, auto/truck repair services and promotion schemes. The public sector OMCs are working towards delivering a new experience to the Indian consumers. New and attractive petro retail outlet designs, use of credit cards, lady attendants and carwashes have become an essential part of the petroleum retailing makeup, especially in big cities and urban areas in India. PETRO RETAILING--A PERSPECTIVE Marcel Cohen and Edward Bradfield in their book on Petrol Retailing--Within a Global Context have identified and discussed some of the retail mix elements for oil firms engaged in petro retailing. A brief discussion on retail mix elements is as below: Fuel Quality Fuel could be petrol, diesel, LPG, CNG for consumers in India. While the fuel quality standards have been privately enhanced over many years by oil companies in response to demands of the engine manufacturers, the scrutiny and enforcement of such standards has gradually invaded the public domain. Recent years have seen a growing degree of official regulation of motor fuel product quality and standards usually on grounds of public health and environmental concerns. Today, the fuels refined from the original crude vary greatly in their technical characteristics. Retailing companies have been charging extra cost for providing premium quality and consumers willingly pay for it. Forecourt Design The designing part of the retail outlets is based on the RVI (Retail Visual Identity) which includes the factors like under canopy lighting system, readable graphics, signage and orderly outlets. The emotionality part of it includes use of color, architectural elements and form which is meant to make the environment pleasant and comfortable. The designing starts from designing the logo of the company for creating a
- 5. 5 | Pa g e unique brand. Designing retail outlet lay out, which includes number of filling machines (dispensers), entry and exit ways are the most important aspect of forecourt design. Other services to be offered are also the part of the retail outlet designing, which should be taken into consideration while designing the retail outlet. A simple change in the planning and designing of a forecourt at retail outlets could dramatically change the way customers think about the retail outlet/brand. Pump Design What customers see at the retail outlet is not the 'pump' but a dispenser which is in effect a package. The real pump mechanism is often in the ground. With the adoption of technological advancement consumer can see the currency in terms of amount as well as the volume of fuel in the dispenser. Pumps now operate with electric motor, digital display, remote controlled operations etc. Tim Beercroft of Dresser Wayne, the oldest and most respected pump maker tried to introduce automatic pump. In this type of pump, customer is not required to come in touch of fuel. The robotic nozzle will fill the car when it is ordered by the customer who would be sitting in air-conditioned room and filling the data at visual display unit (VDU). In Japan, these types of pumps are in use, but they are very costly and oil companies are reluctant to introduce them. To avoid mis-fuelling i.e. putting diesel in a petrol car or vice versa oil companies use colour coding for example black for diesel. Shop and Other Facilities The shops along with pump is planned (i) to subsidize the poor returns from fuel, since shop can be an important profit source (ii) to promote higher petrol sales by attracting customers to the filling station/retail outlet. Shops may be in the form of utilities like ATM, restaurant, In and Out stores. Apart from shop, petro-retailing companies also provide air check, small garage /mechanic service station. The other facilities offered at petro-retail outlets in India are water cooler, wash rooms and windscreen wipe. Payment Facility The payment process is often in the form of cash in all the countries. It amounts roughly for a third of total time spent on a filling station. The speed and ease of payment are the essence for the majority of customers. For the oil companies, cards provide a much cheaper and more secure form of mode of payment. The cost of handling payments by cards is lower than that of cash, even if the merchant fees is to be paid to the bank
- 6. 6 | Pa g e for each transaction. It avoids the operator storing large amount of cash on the premises and hazards of bringing such cash to the bank. It enables the customer faster exit. It also helps in having completely un- manned automated pumps. The oil companies can get involved in focusing on capturing and analyzing the data of customer information. The analyzed information can be extremely valuable in understanding customer purchase patterns and the potential for associated sales. There is scope to move from 'transactional marketing' to 'relationship marketing'. Through the issue of payment cards OMCs can bind customers to a particular brand of fuel and boost brand as well as customer loyalty. Petrol Prices Consumers regard the price of petro-products as a tax on their personal right to mobility. They are totally intolerant of any price difference between various brands. Price sensitivity expressed in terms of cross elasticity is between minus 10 to minus 30. It means change in volume as a result of being 1% above or below a competitor's price will cause a drop or increase in volume by 10% to 30%. Promotion It is observed that attention to the promotion of product or service is a critical element of marketing mix. Other marketing mix elements cannot operate successfully without successful promotion. Promotion mix has two popular meanings. One is in the sense of free giveaways. Other broader meaning given to promotion is in the sense of communication. Give-always: The petrol industry has a long history of promotion at retail outlets. About 40 years ago whiskey bottles were offered as a free give-away on certain quantity (gallons) of petrol. During 1980s, in some countries collectible sets of coffee mugs, soup bowls, and towel collections were given away. Sometimes the give-away was in the form of an opportunity to play in a game of chance with cash prize. Scratch cards, catalogues of gifts redeemable through coupons, electronic points etc. are also some of the giveaways as promotion. Communication: It is in the form of branding, advertising, direct mailing, press and public relations and so on. Direct mailing is not appropriate for mass-market product such as petrol except for local site opening. Branding: Branding as explained by Cohen and Bradfield is a shorthand communication. For petro- retailing companies, the choice of brand name suggests combination of attributes and personality of that company. It is vital for fuel marketing companies to make brand and logo easily recognizable. Logos are
- 7. 7 | Pa g e used often in expression of brand names and sometimes instead of brand names. Shell's pectin logo is in fact a stylized seashell, which need not carry the Shell brand name. Advertising: Early advertising among oil companies focused on the problems of those times. In 1960s, users did have concerns about the efficiency of petrol in terms of its mileage. The consumers also were concerned about the harmful effect of petrol to their cars. Advertisement during those days responded to those concerns by providing reassurance. It also may be noted that some of the advertisement is to support give-away promotions. However the proportion of budget dedicated to building and maintaining the brand is still significant. Public Relations: It is observed that the public's opinion of oil companies is fairly negative in most countries. Oil companies are regarded by public with suspicion and they are considered as being exploitative, profiteering and manipulative. Such public opinion is formed based on various media reports. A strong public relations campaign is required to counter this opinion. People The first point of contact of customer with the oil company is with cashier/attendant at the filling station. They are in fact not an employee of OMCs but rather an employee of the site operator. Therefore they have no obligation towards the oil company or have any desire to further OMC's interest. The operator is an independent businessman who pays them as little as possible, mostly minimum wage. With such poor wages, the quality skills of the attendant and cashier are compromised. Their self-esteem is extremely low and they show little or no pride in their job. Therefore the filling stations are renowned for the unfriendliness of their staff. The standard of service they offer is sometime very poor. OMCs in India have started using above retail mix elements to differentiate their products and services in the business environment wherein now private companies have entered. We have in this research paper have tried to understand the customer preferences and OMCs preferences for various retail mix elements. Then preferences of customers and OMCs are compared to identify the differences. IMPORTANCE OF PETRO INDUSTRY IN INDIA The oil and gas industry has both a direct and indirect impact on the domestic economy, with oil and gas prices directly affecting the health of the economy as a whole. Oil and gas is incredibly important not only to individuals and businesses within India, but also to the position of India among other countries across the globe.
- 8. 8 | Pa g e The oil and gas industry is among the six core industry in India and plays a major role in shaping the Indian economy. The Indian oil & gas industry was worth US$ 139.8 billion in 2015.India’s economic growth is related to energy demand; hence the Indian oil industry is one of the pivots in the country. The Government has allowed 100% FDI in oil sector. Today, it attracts both domestic and foreign investment, as attested by the presence of Reliance Industries Ltd (RIL) and Cairn India. Backed by new oil fields, the Indian domestic oil output is anticipated to grow to 1 MBPD by FY16. Gas consumption is likely to expand at a CAGR of 21% during FY08-17. Market Size India is expected to be one of the largest contributors to non-OECD petroleum consumption growth globally. Total oil imports declined by 10 per cent year-on-year in February 2017. Fuel consumption in India increased by 10.7 per cent to a 16-year high of 196.48 Million Tonnes (MT) in 2016. India is the fourth-largest Liquefied Natural Gas (LNG) importer after Japan, South Korea and China, and accounts for 5.8 per cent of the total global trade.3Domestic LNG demand is expected to grow at a CAGR of 16.89 per cent to 306.54 MMSCMD by 2021 from 64 MMSCMD in 2015. The country's gas production is expected to touch 90 Billion Cubic Metres (BCM) in 2040 from 23.09 BCM in FY2016-17 (till December 2016). Gas pipeline infrastructure in the country stood at 15,808 km in December 2015. State-owned Oil and Natural Gas Corporation (ONGC) dominates the upstream segment (exploration and production), producing around 25.93 MT of crude oil, which is approximately 60.5 per cent of the country’s 36.95 MT oil output, as of March 2016. Investment According to data released by the Department of Industrial Policy and Promotion (DIPP), the petroleum and natural gas sector attracted FDI worth US$ 6.8 billion between April 2000 and December 2016. Following are some of the major investments and developments in the oil and gas sector: Indian Oil Corporation (IOC) plans to invest around Rs 40,000 crore (US$ 5.9 billion) to set up a 15 million tonne (MT) refinery at Nagapattinam in Tamil Nadu. ONGC has signed an agreement with the Government of Andhra Pradesh to invest around Rs 78,000 crore (US$ 11.7 billion) in the Krishna Godavari basin for producing hydrocarbons by FY 2021-22.
- 9. 9 | Pa g e Honeywell International Inc, the US-based technology firm, plans to double the headcount at its Indian petroleum and polymer arm, Honeywell UOP, to 700, in order to tap opportunities from India’s massive refinery upgradation programme and petrochemical capacity expansion. Investments in India's oil and gas sector will likely touch Rs 2.5-3 trillion (US$ 37.5-45 billion) over the next few years, which will help raise the share of gas in the country’s primary energy mix to 15 per cent by 2030, as per British multinational oil and gas company BP Group. ONGC has launched a start-up fund of Rs 100 crore (US$ 15 million) on its Diamond Jubilee year to encourage and promote new ideas related to oil and gas sector, thereby giving a fillip to Government's Startup India initiative. Yara International ASA, a Norwegian chemical company, plans to acquire Tata Chemicals Limited’s Babrala urea plant and distribution business in Uttar Pradesh for about Rs 2,670 crore (US$ 400.5 million), on a debt and cash free basis. Heraeus, one of the world’s largest recyclers of reforming catalyst, has opened a new facility at Udaipur which will allow companies to benefit from less transport costs, easier file processing, faster recycling times, better transparency and overall improved costing for catalyst recycling in the country. Honeywell International Inc, the US-based technology and manufacturing solutions provider, has unveiled a new refining technology in Gurgaon, which will be dedicated to helping Indian refiners get more clean transportation fuel, reduce imports of crude oil and produce environmentally preferable diesel fuels. Royal Dutch Shell Plc, which has already invested US$ 1 billion in India, has planned further investments in upstream and downstream segments of oil and gas sector, and is also doubling its employee base at its Shell Technology Centre Bangalore (STCB). India and Iran have signed agreements related to crude oil imports, petrochemical complexes and gas field development, in addition to India committing to invest US$ 20 billion in the port of Chabahar in Southeastern Iran. Kolkata-based Dhunseri Petrochem Limited and Thailand's Indorama Ventures Public Company Limited have agreed to enter into an equal joint venture to manufacture and sell polyethylene terephthalate (PET) resins for Indian market. State-run Indian Oil Corporation Ltd (IOCL) plans to invest Rs 34,000 crore (US$ 5.1 billion) on a petrochemical complex at Paradeep in the state of Odisha, which is expected to be commissioned by 2021. Petrogas Pvt Ltd, a joint venture of Isomeric Holdings bhd of Malaysia and LEPL Venture Pvt Ltd of India, will collaborate with Krishnapatnam Port Co Ltd and the Government of Andhra Pradesh, to set up a Liquefied Natural Gas (LNG) regassification and floating storage terminal at Krishnapatnam Port in Nellore district with an investment of around Rs 3,000 crore (US$ 450 million). Essar Projects, the engineering, procurement & construction (EPC) arm of Essar Group, in a joint venture with Italy’s Saipem has won a US$ 1.57 billion contract from Kuwait National Petroleum Company (KNPC) for setting up part of the Al-Zour Refinery Project in Kuwait. ONGC Videsh Ltd (OVL), the foreign arm of state-owned petroleum explorer ONGC, has planned to acquire up to 15 per cent stake in CSJC Vankorneft, which owns Russia's second- largest oil and gas field.
- 10. 10 | Pa g e Kirloskar Oil Engines Ltd (KOEL) and MTU Friedrichshafen, GmbH signed a memorandum of understanding (MoU) towards exclusive cooperation on the building and commissioning of emergency diesel gensets (EDG). CDP Bharat Forge GmbH acquired 100 per cent equity shares of MécaniqueGénéraleLangroise (MGL) for € 11.8 million (US$ 12.91 million) to consolidate Bharat Forge’s position in the oil and gas sector by enhancing service offerings and geographical reach. Technip won a € 100 million (US$ 109.37 million) contract from ONGC to build an onshore oil and gas terminal in Andhra Pradesh. Government Initiatives Some of the major initiatives taken by the Government of India to promote oil and gas sector are: The Government of India plans to merge state oil companies to create an integrated oil major that could compete globally, and utilise the synergy between various state entities for achieving efficiency and cost competitiveness in order to create more value for all shareholders. The Government of India plans to unveil a new policy for renewing and extending the lease of 28 oil and gas blocks in the country, with a view to attract more investments into these fields. The Cabinet Committee on Economic Affairs, Government of India, has approved the awarding of contracts on 23 onshore and 8 offshore contract areas of discovered small oil and gas fields that earlier belonged to Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL). India and Russia have agreed to enhance their bilateral engagement by signing three Memorandum of Understanding (MoU) on October 15, 2016 for co-operation in the field of hydrocarbons sector during the India-Russia Annual Summit held at Goa. The Ministry of Mines plans to restart operations in several hundred mines across the country in order to raise the share of mining and quarrying industry in India’s Gross Value Addition (GVA) by one percentage point from 2.4 per cent at present, over the next two-to-three years. The Union Cabinet has approved the National Mineral Exploration Policy (NMEP), which will pave the way for auction of 100 prospective mineral blocks to attract private sector in exploration, besides involving state-run agencies. Mr Dharmendra Pradhan, Minister of State for Petroleum and Natural Gas and Mr Prakash Javadekar, Minister of State for Environment, Forests and Climate Change have launched a pilot programme, aimed at introducing compressed natural gas (CNG) as fuel for two-wheelers. The Ministry of Petroleum and Natural Gas is seeking to enhance India's crude oil refining capacity through 2040 by setting up a high-level panel, which will work towards aligning India's energy portfolio with changing trends and transition towards cleaner sources of energy generation. The Ministry of New and Renewable Energy (MNRE) plans to launch an integrated bio energy mission with an investment of Rs 10,000 crore (US$ 1.49 billion) from FY 2017-18 to FY 2021-22, aimed at enhancing the use of bio-fuels like ethanol and biogas and reducing consumption of fossil fuels.
- 11. 11 | Pa g e The Hydrocarbon Sector Skill Council (HSSC), which was set up by the Government of India under its Skill India initiative, plans to train over 1.9 million people in the oil and gas sector over the next 10 years, to cater to the rising skill needs of the industry. The Union Cabinet has allowed state-owned oil firms to evolve their own crude oil import policies which involve freedom to choose source companies as well as pricing for their crude oil imports, thus allowing them to compete in the market effectively. In a major drive to enhance the petroleum and hydrocarbon sector, Government of India has introduced initiatives like the Hydrocarbon Exploration Licensing Policy (HELP), Marketing and Pricing freedom for new gas production, grant of extension to the Production Sharing Contracts and assigning the Ratna offshore field award to Oil and Natural Gas Corporation (ONGC) for development. Mr Dharmendra Pradhan, Minister of State (Independent Charge) for Petroleum and Natural Gas has released the Hydrocarbon Vision 2030 for North East India, with the objective of leveraging the north-eastern region’s hydrocarbon potential; enhance access to clean fuels, improve availability of petroleum products, and facilitate economic development and to involve local population in the economic activities in this sector. The Government of India plans to incentivise gas production from deep-water, ultra deep-water and high pressure-high temperature areas which are presently not exploited on account of higher cost and risk, and also to augment the investment in nuclear power generation in the next 15 to 20 years. The Government of India is in the process of identifying at least 50 potential blocks of 100 sq km and above to be given to companies for bringing private investment in the mineral exploration sector. The Ministry of Petroleum and Natural Gas has put up for comments a draft policy, to opt for revenue-sharing model while auctioning future oil and gas blocks for exploration to private companies, compared to production-sharing mode earlier, in order to make the process more transparent and market-oriented. The Ministry of Petroleum and Natural Gas has announced a new 'Marginal Fields Policy', which aims to bring into production 69 marginal oil and gas fields with 89 million tonnes or Rs 75,000 crore (US$ 11.25 billion) worth of reserves, by offering various incentives to oil and gas explorers such as exemption from payment of oil cess and customs duty on machinery and equipment. Government of India entered into bilateral discussion with Norway to extend co-operation between the two countries in the field of oil and natural gas and hydrocarbon exploration. To strengthen the country`s energy security, oil diplomacy initiatives have been intensified through meaningful engagements with hydrocarbon rich countries. STRUCTURE OF PETRO INDUSTRY IN INDIA The petroleum industry can be sub categorized into two parts. These are:
- 12. 12 | Pa g e Exploration & Production (Upstream) Refining & Marketing (Downstream) Industry Bodies/ Others SCOPE OF PETRO INDUSTRY IN INDIA The scope of Petrochemical Industry in India is potentially huge. With the trend in the global market shifting India can become one of the leaders in this industry on a global basis. Indian Petrochemical industry is an important member of the Indian economy because it fulfills the need of major industries like textiles, telecoms, power, cables, plastics, etc. The competitors in the market are attracted to the India petrochemical industry for its benefits. The per capita consumption of synthetic fibers, synthetic rubber, plastics, and polymers in India is lower than
- 13. 13 | Pa g e the per capita consumption worldwide. But interestingly, the growth of the petrochemical industry in India in recent times was around 15% whereas the growth in the petrochemical industry globally was only 4%. In the future, there is a huge scope for the India petrochemical industry in the global market for petrochemicals and petrochemical-based products. This would make way for the entry of new companies in the Indian market. This industry is divided into 3 basic petrochemicals such as olefins (ethane, propane, and aromatic compounds such as benzene, toluene, intermediate petrochemicals, end products (polymers), synthetic fibers, and synthetic rubber. As the general trend in the global arena of the petrochemical market has shifted to the Middle East and Asia from the West, India stands a good chance in providing a lucrative market to the world. In the present scenario, the scope of India petrochemical industry is very good as the government regulations are aligned with the industry and is playing an important part. The regulations have opened the market which is full of scope for the rapid growth of the industry and in turn, the growth of the economy. The supply and demand situations and the pricing views in the industry are also among the factors for growth. With fierce competition in this sector, there is every chance that superb quality products will be produced in order to stay ahead of competitors. The encouragement for investment has been another growth factor for the India petrochemical industry. The capacity of different products is in the production, segmentation, and consumption trend of each of the products and so the economies of scale play a very important role in the profit making mechanism of this industry, thereby determining the scope of each of the competitors in the industry. SYSTEMS OF PETROL INDUSTRY Linking the elements (source, reservoir, seal, and overburden) to the processes of petroleum geology (trap formation and hydrocarbon generation-migration-accumulation) is an effective exploration approach. Mapping and studying a petroleum system helps explorationists predict which traps will contain petroleum and which will not. It also helps them focus on that part of a province that will most likely contain accumulations. Below are some examples of how the petroleum system concept can be applied to petroleum exploration at local and regional levels. Let us take an example to understand it: Consider Figure 1, a cross section from the Papers Wash field from the San Juan Basin, New Mexico. The cross section shows that three separate prospects (traps) were tested (drilled). The deepest trap was
- 14. 14 | Pa g e filled to the spill point with oil, the middle trap was partially filled, and the shallowest trap was empty. This arrangement suggests that oil migrated to the traps from a mature source rock down dip to the north by filling the traps in sequence. If these three prospects had not been tested, which would we drill first? With an understanding of the petroleum system that charged these prospects, we could be more confident in recommending which prospect to drill first. If we knew that mature source rock was located directly under the reservoir, then we would expect all traps to be filled an equal amount (Figure 2A). Conversely, if we knew that the source was mature down dip to the north, then we would drill the deepest prospect, not the middle or shallowest prospect to the south (Figure 2B) Figure 1 Figure 2A, Figure 2B Regional Scale Application Petroleum system studies may serve as analogs for undocumented petroleum systems in prospective petroleum provinces. Because a petroleum system study describes both elements and processes, we can use them as look-alike and work-alike analogs. Petroleum systems also can be classified in different ways according to our needs—an example of applying a petroleum system classification scheme to petroleum exploration. Vertically Drained Petroleum System
- 15. 15 | Pa g e Demaison and Huizinga: divide petroleum systems into vertically and laterally drained. The Mandal- Ekofisk petroleum system is a vertically drained system. Vertically drained systems are generally found in rifts, deltas, wrenches, and overthrust provinces where migration is controlled by faults and fractures. Faults and fractures limit the size of the fetch area available to traps, so a number of small- and medium-sized accumulations abound. Vertically drained systems have the following characteristics: Accumulations occur above or near to the pod of active source rock. Lateral migration distances are short. Multiple, stacked accumulations usually contain the same genetic oil. Surface seepages are common in supercharged systems. The largest accumulations are seldom found early in the drilling history; instead, many medium to small accumulations are found. Figure 3 Laterally Drained Petroleum System According to Demaison and Huizinga,[3] laterally drained petroleum systems have a laterally continuous seal overlying a laterally continuous reservoir. This reservoir/seal couplet is generally contained within a long, uninterrupted ramp. Provinces with these systems have low to moderate structural deformation. Tectonic stability is critical for maintaining seal integrity. Laterally drained systems are most commonly found in fore-deep and cratonic sag basins. Plunging low-amplitude arches are necessary for connecting traps to the pod of active source rock. The Ellesmerian(!) petroleum system is an example of a laterally drained system.
- 16. 16 | Pa g e Laterally drained systems have the following characteristics: Oil accumulations generally occur in thermally immature strata located far from the pod of active source rock. Accumulations containing oil that migrated long distances on average account for 50% of the entrapped oil. A single reservoir of the same age as the active source rock contains most of the entrapped oil and gas. In supercharged systems, large deposits of heavy oil often occur in thermally immature strata near the eroded margin (geographic extent) of the petroleum system. The largest accumulation is usually found early in the drilling history of the system. After that, mostly small accumulations are found (J. Armentrout, personal communication, 1997). Figure 4 Figure 4 is an example of a laterally drained petroleum system, patterned after the Eastern Venezuelan Basin. VALUE CHAIN IN PETRO INDUSTRY The oil sector can be divided into upstream, midstream, and downstream segments. Upstream encompasses exploration and production; the midstream includes transporting oil from production sites to refineries via
- 17. 17 | Pa g e pipelines, trains, tankers, and trucks; and the downstream is comprises refining and marketing refined petroleum products. All segments of the value chain are capital intensive. Some companies specialize in just one component of the value chain, while others, called integrated companies, participate in all of them. In the upstream sector, oil can be either unconventional or conventional depending on the method of extraction, although there is no consensus on what methods or processes are unconventional. Canadian oil sands, tight oil, and ultradeepwater offshore oil are examples of unconventional oil sources. Unconventional sources may become conventional over time, as the unconventional technologies become better understood and more widely adopted. Oil production is a capital- and technology-intensive process, and can range in complexity, from relatively simple onshore projects to multibillion-dollar, multidecade complex ultradeepwater projects. In addition, many exploration and production ventures are longterm investments; it can take a decade or more from initial prospects to bring a well to production. As a result, the industry plans and operates with long lead times and exposure to price risk. In the downstream sector, refineries, industrial users, and others consume about 90 million barrels of crude oil every day. Refineries convert crude oil into a variety of useful products that are consumed by residential and commercial users, industrial users, and electric utilities. Petroleum products, like crude oil, are traded globally. The United States has the largest refining capacity in the world (about 18 million barrels per day, or MMbbl/d), followed by China (about 13 MMbbl/d) and Russia (about 6 MMbbl/d). Refineries employ a variety of chemical and physical processes to convert crude oil into petroleum products. Refinery processing capability ranges from very simple, with minimal equipment and processing capabilities (called teapot refineries) to extremely complex, requiring expensive and technical equipment. The extent of processing required depends on the quality of the crude oil as input (sweet vs. sour, light vs. heavy) and the product slate desired as output. Because light, sweet crudes require less processing, they are sold at higher prices than heavier, sourer crudes. In 2014, global refining capacity grew by 1.4 MMbbl/d, with significant expansion in China and Saudi Arabia. In Europe and Japan, conversely, refining capacity has declined. In India we have 23 refineries, as per the petroleum planning and analysis cell, Ministry of Petroleum, Govt of India.
- 18. 18 | Pa g e Petroleum is also a key input in a variety of products, including plastics and fertilizer. Crayons, dishwashing liquids, eyeglasses, tires, garbage bags, and ammonia, for example, all contain petroleum. Most petroleum is consumed in its product form, and primarily in the transportation sector. The transportation sector accounts for about half of the oil consumed globally and 72 percent in India (2015- 2016).
- 19. 19 | Pa g e MAJOR PLAYERS OF PETRO INDUSTRY IN INDIA India’s Oil and Gas Industry has an interesting mix of Oil & Gas companies from the government and private sector. Except for some companies providing ancillary and drilling services, most of the companies are huge with billion dollar balance sheet and huge operations as is the case with the Oil and Gas Industry worldwide. Except for Reliance Industries, the upstream sector of oil and gas production and distribution is dominated by government owned companies which are heavily regulated. Despite attempts at liberalizing the APMC and the operations of the PSU Oil Companies, HPCL,BPCL and IOC run billions of dollars in losses as they are forced to sell oil and gas products at below their cost. The government’s policies are mostly ad-hoc compensating these companies through bonds and money transfers. It is quite strange as the minority investors are forced to pay for government subsidies for energy. India’s Oil Subsidies has led to the flourishing of a massive Oil Mafia which does not think twice before killing government officials and has led to poor outcomes for the country. Despite this government stupidity, some government companies like GAIL, OIL India and ONGC which operates in the production and have to bear less of the subsidy burden have grown and performed admirably. In the private sector companies like Reliance, Aban, Great Offshore, Essar have managed to grow rapidly as well with varying degrees of success. Here is the list of the major Oil and Gas Companies in India. 1. Reliance Industries – The Flagship Company of the Ambanis and India’s largest Private Company Reliance Industries is also an Oil and Gas Giant .The Company has seen very sharp growth in the last decade and is diversifying into Retail.With a market cap exceeding $30 billion it is India’s most valued company.The company is also one of the biggest exporters in India with one of the largest petrochemical and oil refining complexes in the world at Jamnager.It recently sold a stake in its valuable Godavari Basin to BP for a whopping $7.5 billion.Extremely cash rich with a horde of more than $15 billion,it has started on empire building through ventures in Finance ( DE Shaw) ,Communications (buying of wirelss broadband spectrum),Shale Gas Buys in the USA,Hospitality (Buying up stakes in Hotel Companies). 2. ONGC Corp – With a market cap of Rs. 235,000 crores ONGC ranks 3rd in Oil & Gas Exploration & Production (E&P) Industry globally .It cumulatively produced 803 Million Metric Tonnes of crude and 485 Billion Cubic Meters of Natural Gas from 111 fields. ONGC’s wholly-owned subsidiary ONGC Videsh Ltd. (OVL) is the biggest Indian multinational, with 40 Oil & Gas projects in 15 countries. The company earned a revenue of approx Rs. 20,000 crores with net profit margin of 34% in Dec’10.It holds largest share of hydrocarbon acreages in India & contributes over 79 per cent of Indian’s oil and gas production. Created a record of sorts by turning Mangalore Refinery and Petrochemicals Limited (MRPL) around from being a stretcher case at BIFR to the BSE Top 30, within a year. 3. GAIL India – GAIL (India) Limited, is India’s flagship Natural Gas company, integrating all aspects of the Natural Gas value chain right from exploration to marketing.It emphasizes on clean fuel industrialization, creating a quadrilateral of green energy corridors that connect major consumption centers in India with major gas fields, LNG terminals and other cross border gas
- 20. 20 | Pa g e sourcing points. With a market cap Rs. 58,000 crores GAIL is expanding its business to become a player in the International Market. . The revenue earned was 24,000 crores (2009-10) with a net profit margin of 11%.The business has achieved laying of Natural Gas high pressure trunk pipeline, LPG Gas Processing Units & Transmission pipeline network, oil and gas Exploration blocks, OFC network offering highly dependable bandwith for telecom service providers etc. GAIL has been entrusted with the responsibility of reviving the LNG terminal at Dabhol as well as sourcing LNG.GAIL is one of the best performing stocks in the Energy Industry in India in the last couple of years.It is a well managed fast growing company in one of the best sectors in India with high competitive barriers. 4. Cairn India – With a market cap Rs. 66,000 crores, Cairn India is now one of the biggest private exploration and production companies currently operating in the region. A subsidiary of the British company Cairn,its growth has been nothing short of phenomenal after winning a bid to explore oil blocs in Rajasthan in the NELP. Cairn India’s strategy is to establish commercial reserves from strategic positions in order to create and deliver shareholder value. The company operates the largest producing oil field in the Indian private sector and has pioneered the use of cutting-edge technology to extend production life. The company has set up a Processing terminal in Barmer (Rajasthan) to process the crude from fields. A pipeline has also been constructed to transport the crude from Barmer to Bhogat in the Gujarat coast. The pipeline section from Barmer to Salaya is operational and sales have commenced to Essar, RIL and IOC.Cairn India has recently agreed to be taken over by London listed India’s largest Mining Group Vedanta though the approval is still awaited from the government of India.It is the second largest Oil and Gas private company listed on the Indian stock exchange. 5. BPCL – BPCL is alongiwth HPCL and IOCL, a major distributor of petroleum,cooking gas and diesel in the Indian market The company has a market capitalisation of Rs. 21,000 crores. on revenues of Rs. 36,000 crores with a net profit margin of 0.5%.The company’s low margins and abysmal stock price performance is due to the government control which forces it to sell at below cost leading to huge losses and curtails capex for growth.Despite noises of liberalization,nothing has come about with increased global crude prices increasing the losses greatly.Bharat Petroleum produces a diverse range of products, from petrochemicals and solvents to aircraft fuel and speciality lubricants and markets them to hundreds of industries and several international and domestic airlines. 6. Indian Oil Corporation Ltd (IOCL) – The company covers the entire hydrocarbon value chain – from refining, pipeline transportation and marketing of petroleum products to exploration & production of crude oil & gas, marketing of natural gas, and petrochemicals. With a market capitalisation of Rs. 75,000 crores, it is in the Fortune ‘Global 500′ listing, ranked at the 125th position in the year 2010. IndianOil closed the year 2009-10 with a sales turnover of Rs. 271,074 crore and profits of Rs. 10,221 crore. IndianOil and its subsidiary (CPCL) accounted for over 48% petroleum products market share, 34.8% national refining capacity and 71% downstream sector pipelines capacity in India. IndianOil is currently investing Rs. 47,000 crore in a host of projects. The IndianOil Group of companies owns and operates 10 of India’s 20 refineries with a combined refining capacity of 65.7 million metric tonnes per annum. IndianOil’s cross-country network of crude oil and product pipelines, spanning 10,899 km and the largest in the country, meets the vital
- 21. 21 | Pa g e energy needs of the consumers in an efficient, economical and environment-friendly manner.Like IOCL it is also suffers from government mal-interference and not a good investment. 7. Hindustan Petroleum Corp. Ltd (HPCL – One of the smalled of the major Oil and Gas PSUs with a market capitalisation of Rs. 11,000 crores. The company owns and operates the largest Lube Refinery in the country producing Lube Base Oils of international standards, with a capacity of 335 TMT. This Lube Refinery accounts for over 40% of the India’s total Lube Base Oil production. It has two major refineries producing a wide variety of petroleum fuels & specialties, one in Mumbai (West Coast) and the other in Vishakapatnam, (East Coast). HPCL’s vast marketing network consists of its zonal & regional offices facilitated by a supply & distribution infrastructure comprising terminals, pipeline networks, aviation service stations, LPG bottling plants, inland relay depots & retail outlets, lube and LPG distributorships. HPCL accounts for about 20% of the market share and about 10% of the nation’s refining capacity. The revenue earned was around Rs. 34,000 crores with a net profit margin of 0.6% in Dec’15. 8. Oil India Ltd.– With a market capitalisation of Rs. 31,000 crores, OIL is engaged in the business of exploration, development and production of crude oil and natural gas, transportation of crude oil and production of LPG. It became a wholly-owned Government of India enterprise in 1981. The revenue earned by the company was 2,400 crores & with a net profit margin of 36% in Dec ’10. Very similar in profile to ONGC it presently produces over 3.2 million tons pa of crude oil, Natural Gas and over 50,000 Tones of LPG annually. Most of this emanates from its traditionally rich oil and gas fields concentrated in the Northeastern part of India and contribute to over 65% of total oil & gas produced in the region. It has emerged as a consistently profitable international company with exploration blocks as far as Libya and sub-Saharan Africa. 9. Petronet LNG Ltd. – It was formed as a Joint Venture by the Government of India to import LNG and set up LNG terminals in the country, it involves India’s leading oil and natural gas industry players. The promoters are GAIL, ONGC, IOCL & BPCL. The company has a Market cap Rs. 9,000 crores. The revenues earned in Dec’10 was approximately Rs.3,600 crores with a net profit margin of 5%. 10.Other companies which deserve a mention are Essar Oil,Essar Energy,Aban Offshore, Chennai Petroleum, Gujarat State Petroleum,Indraprastha Gas, Gujarat State Petronent LNG.
- 22. 22 | Pa g e MARKETING STRATEGIES OF PETRO RETAILING FOLLOWED IN INDIA Marketing has always been considered as a tool for markets with imperfect competition, where many sellers fight for consumers, they have differentiated products and lots of advertising and sales promotion, various prices might also prevail in these markets (Palmer A. 2004. “Introduction to Marketing: Theory and Practice”. India. Oxford University Press). On basis of these characteristics, it is intricate to comment that selling of petrol in India was anything but not about marketing. Since, none of the characteristics of Indian Petroleum Market of that time coincides with the characteristics of markets with imperfect competition. For example – during that time, the petrol selling companies need not fight for consumers and they (petrol selling companies) offered exactly the same product to the consumers (characteristic of a commodity) and that too at the same price. In other words, the history of marketing of petrol in India was defined and characterized by extreme government control and protectionism. Not only the marketing function, but all aspects of petroleum business, (exploration, refining, distribution or selling) were strictly regulated and protected. But, recently a big paradigm shift is taking place in the way petrol is being marketed. Marketing of petrol in India: a historical perspective For about hundred and forty odd years, ‘Petrol’ existed as an ‘undifferentiated commodity’ in India. No serious efforts were made for augmenting and differentiating this ‘commodity’. More importantly, only three government regulated petrol selling companies enjoying an almost ‘monopoly status’, were running the business, driven by the social objectives set by the government, along with the prices of petrol. Although the companies demanded autonomy on regular basis, they never realized that they would be compelled to “market” petrol and fight with each other for market share and since the war for capturing other’s market share was never fought during all these years, marketing was obviously considered as the least required function in the petrol selling business. Even the consumers never thought that they will be standing on the petrol pumps thinking about the brand of petrol to choose from a number of brands available. During this era of protection and control, ‘marketing of petrol’ actually meant ‘distribution of petrol’. In the name of marketing, petrol selling companies focused primarily on strengthening their distribution network, that is, adding more and more number of ‘outlets’ (petrol pumps) to their network. Efforts made for expanding the geographical coverage were termed as ‘marketing’. At that time, even this was justified because of the environmental factors prevailing at that time, like: 1. Nature of ‘commodity’ As mentioned above, for over hundred and forty years, petrol has been a ‘commodity’ in India. Since consumers did not found any difference in petrol produced and sold by companies operating in this market. For consumers, petrol as a product was exactly the same at all the places. Secondly, consumers did not found any significant difference between the ‘petrol selling companies’ either. Since, they were all government companies, the ‘reliability’ factor was similar and more because they were selling the ‘same thing’ at the ‘same price’. Because of these reasons, there was no question of patronizing ‘petrol selling companies’ and also their product (petrol). Surprisingly, instead of patronizing the ‘petrol selling companies’, consumers rather patronized the petrol pumps in their specific geographical areas. The loyalty for petrol-pumps was based on consumers’
- 23. 23 | Pa g e assumptions and perceptions regarding pumps giving ‘right quantity’ and not indulging into ‘adulteration’ practices. Since petrol was an undifferentiated commodity, any kind of loyalty (which is visible for brands) was out of question. With this environment at hand, it became obvious for the companies that their sales depended on the number of outlets (petrol pumps) they owned. Therefore, in order to increase their sales, companies just focused on increasing the number of outlets (petrol pumps) and capturing good locations for their petrol pumps. Petrol selling companies knew it very well that they are selling a commodity and they do not have any control over its prices. Moreover, government indicated time and again that it intended to keep on selling petrol at the same price in future too. So, the petrol selling companies did not have any good reason as well as incentive to go for aggressive marketing of petrol. 2. Demand over-running supply Secondly and more importantly, in India, the demand of petrol has always been far more than the domestic production; therefore it was imported. Large imports of oil made it a commodity which was considered responsible for the poor BOP situation of the country. This fact intensified the assumption that aggressive marketing by sellers might result in increased demand, leading to further aggravation in the BOP problem. Therefore, marketing was never considered as an option, rather the use of ‘de-marketing’ was clearly reflected in the few advertisements on hoardings at petrol pumps, which communicated the message – ‘save petrol’. 3. Administered pricing mechanism (APM) Till recently, petrol prices were completely under government control and regulation and companies were compelled to keep same prices. In the commodity market, price is the only criterion of differentiation and even this was non-existent in the case of petrol. So, in Indian petrol retail market, the only possible differentiator was not available for the companies. This also worked as a de- motivator for the companies in pursuing marketing aggressively. 4. Protected market Government considered petrol as a product of national significance as any fluctuations in its prices and supply directly affected the prices of other products and services, so government did not allow private sector players as well as FDI to come in and operate in this market. An example of government’s seriousness of practicing protectionism is reflected through the fact that Indian government went for liberalization in 1991 and since then it had allowed foreign investment in many sectors, but it did not open Petrol market for private players and FDI for more than a decade (after liberalization started). The message was loud and clear that government was not interested in allowing ‘outsiders’ in this domain. This became one of the most important reasons for the oil companies not practicing marketing was the ‘protection’ that government provided to the petrol selling companies. The above mentioned factors actually created an environment where marketing petrol aggressively was considered out of question. The companies did not have any good reason for practicing marketing. This environment continued for a very long period (more than hundred years) and it took the companies from practicing marketing and providing value, and even consumers never
- 24. 24 | Pa g e realized that they can be pampered at the petrol pumps. Similarly, neither the consumer expected anything like product development and value added services from the companies nor the companies had any good reason for providing all these. Marketing of petrol: Present Scenario Today the marketing of petrol has changed from what it used to be in yester-years and hence petrol is on its way to transformation from being an “undifferentiated commodity” to a “branded product” (“Indian Petrol Industry – Towards Branded Fuels”. 2003. ICMR). Drastic changes (like opening up of the petrol market for private companies as well as for the international players and leaving the determination of petrol prices on the market forces) in the environment are again compelling the companies to reevaluate and have a fresh outlook at their marketing strategies. Now, companies cannot survive just by adding to their distribution’s effectiveness and it has now become a small part of their overall marketing strategy. Hence, now the petrol selling companies are doing a lot of things as a part of marketing strategy, other then focusing only on distribution Why Such Aggressive Marketing Stragies adopted? The answer lies in the need that has aroused because of the challenges posed by the changing environment (of the petrol selling organizations). Today, all of a sudden, they are not protected by the government and are exposed in the modern day market having cut throat competition. So it becomes necessary to keep a constant vigil at the marketing strategies of the competitors as well as have a fresh look at self (Chandrashekhar Y. 2002. “Indian Oil Industry: The Emerging Order” in “The Chartered Financial Analyst”). Most importantly, the old giants in petrol selling now know that in ‘open market’ situation, marketing (more specifically differentiation and value addition) will be of paramount importance because the customer will definitely go to those who will provide the best value for his money. Since they have not been in such conditions before, marketing is gaining importance for them. Also the Indian Petrol selling companies, being ‘public sector undertakings’ know that marketing is a relatively new area for them, while it (marketing) is the forte of private companies and especially multinationals. In order to survive and win in fierce competition, Indian petrol selling companies are more than eager to learn the new rules of the game. The whole paradigm shift in the Indian petrol market can be broadly classified under the following heads and these are the reasons that are compelling the companies to undertake marketing seriously: 1. Entry of private players Indian economy has by far been a protected economy and that too with government playing a vital role especially in the development of critical industries. Even after a decade of opening up the gates of the country for foreign enterprises and realizing the importance of private sector in nation’s
- 25. 25 | Pa g e development, government did not go for privatizing and even did not allow foreign direct investment in the oil and gas market. Till today it keeps a close eye on the industries operating in this sector. Recently, government has opened the gates of this very preserved industry for the private players. As competition grew, marketing became more and more important. Earlier, because of the reasons mentioned above, companies felt no need to market a scarce product. It was selling automatically, but now all this sounds like “good old days” and companies have to fight their way out if they want to survive and for this, good marketing strategies are going to be one of the most crucial weapons for the companies in the coming future. However, the new challenge is to resolve the dilemma that on one hand the companies have the social responsibility to secure India’s energy needs (the motto ‘save petrol’), and on the other hand they have to promote their brands and be profitable in order to survive the threat created by private players including the global giants which have been allowed to operate in the petrol retail market of India. Simultaneously, the companies are under severe pressure to perform as they are all listed companies and are answerable to the shareholders. And if they do not perform, there are chances that private players like Reliance or Shell will beat them at a game they are playing since long and enjoyed a ‘monopoly-like’ situation. 2. End of the “Administered Price Mechanism” era Till now, petrol prices were being administered by the government, in other words, in India, prices of petrol were not dictated by the market forces (of demand & supply) rather government administered the price of petrol by having a policy of giving subsidies to the selling companies. This policy which was used to regulate the price of petrol in the country was known as “Administered Price Mechanism” or APM (Mallik D. 2002. “Dismantling APM: Progress and Prospects”. Chartered Financial Analyst). Earlier, the government policy regarding selling of petrol, was dictated by the social objectives and profit was not the primary motive for the Indian Petroleum companies and hence it took a back seat. Moreover, it forced the Indian petrol selling companies to ignore ‘pricing’ (because it was not under their control), which is a crucial element of marketing mix. But as the government withdrew the ‘APM’ and opened the gates of this very protected and preserved industry in 2002, it was very obvious that marketing will be the new battleground and pricevale equation would be crucial for victory. Secondly, every player (new private sector and old public sector giants) is clear that only marketing can give the new players a foothold in this ‘strongly captured’ market because this was the only visible weakness in the quiver of public sector undertakings otherwise, they had more than enough experience, market knowledge, capital, government support, extensive distribution network etc. Old giants understood the fact that private players can win the battle on the basis of price due to their expertise in providing value added services, there by moving up the value chain. Reliance’s A-1 plazas on highway have already captured a large market share where ever they are operating. As a result, they started with aggressive marketing campaigns and focused on adding new value added services in their offerings (like Bharat Petroleum started its loyalty program ‘Petrocard’ and Hindustan Petroleum came up with ‘Club HP’ etc). This was an answer to the dismantling of APM and a welcome sign for customers as the companies started looking eagerly to satisfy their needs and this is the basic theme of ‘marketing’.
- 26. 26 | Pa g e Privatization India’s oil market is the world’s seventh-largest, but has so far been monopolized by state firms such as the IOC, BPCL and HPCL. Entry of private sector companies has fueled the fuel revolution further. Petrol and diesel retailing is set to see a major change next year when private and multinational companies had began selling petrol and diesel. Reliance Industries, Essar Oil and Royal Dutch/Shell have broken the public sector monopoly in petroretailing. These companies have plans to set up world-class petrol, indicating the time to come. Also, the entry of the global giant has created waves in the Indian petrol retailers. Anglo-Dutch oil giant Royal Dutch/Shell Group has won permission from the Indian government to set up 2,000 petrol stations in the country. Although the then Petroleum & Oil Minister Ram Naik said that the entry of one of the world’s largest oil companies was subject to the company submitting a bank guarantee of five billion rupees (105 million US dollars) and Shell would have to set up 11.6 percent of the outlets in remote areas as part of the agreement with the government. Our market is ever-growing and offers opportunities for even big players like Shell. Companies like Shell are expected to set new standards of operating in this business. With its global experience where this sector is not that protected, Shell’s expertise of marketing, supply chain etc. will give it a clear edge and it is expected that for new players it is easier to adapt to these conditions while it will be a serious challenge for the old behemoths to cope with the new challenges because of the inflexibility in their ‘large-to-move’ structure. Globalization Globalization brings in investment and competition to an economy and with that it creates a pre- requisite for the domestic industry to become more efficient and effective (Vasudeva, P.K. 2004. “International Marketing”. India. Excel Books). The same is the case with Indian petrol market, where not only the entry of private and multi-national companies but the intensity of their seriousness is what is stirring the market. The level of investment, both in infrastructure and in marketing, and the speed at which they are spreading and their plan to spread further have already rang the alarm-bells for the Public Sector Undertakings and they are also pulling their socks for a marketing battle. Shell and Reliance combined are to invest more than $2 billion nationwide in the next five years. Reliance and Essar Oil, are concentrating on highways where 330,000 truckers guzzle $10 billion worth of diesel every year and Shell boasting on the subsidies by government, now has more aggressive plans as for the Indian market. It now wants to take back its share of India's $30 billion petroleum products market. Competition Increasing competition brings in more options at competitive prices to consumers. New entrants in the petrol retail market are offering choices to Indian motorists. Today there are pumps every few kilometers. Tired truckers, who earlier curled up in their vehicles for a nap and urinated by the roadside, now use motels, restrooms and telephones offered by Reliance’s new pumps and urban Indians, who until recently drove outdated cars and relied on word of mouth to find a clean pump, now drive large Fords and Hondas and demand better fuel and service. Competition is forcing Indian Oil, Bharat Petroleum and Hindustan Petroleum, which together run more than 20,000 outlets nationwide, to clean up their acts India’s biggest oil company (Indian Oil Corporation) is spending up to $250 million to refurbish 2,800 of its busiest outlets. The newcomers are bringing more than
- 27. 27 | Pa g e service stations. The crux is that the customer focus is a result of this sector moving away from the ‘government controlled domain’ and this has brought new levels of competitive threat and customer focus. With the going getting tough, the smarter players have already caught on early that now the best way to do business is to go for marketing in a serious and different way then what it used to be and there has been an increasing focus on marketing since it has become the need for survival in the long run for both kinds of companies (public & private) selling petrol in India, and Indian petrol selling companies are even looking to their experienced foreign counterparts for lessons in marketing (“India takes lessons from Thailand before opening petroleum marketing. RECENT TRENDS IN PETRO INDUSTRY IN INDIA Marketing of petrol – the new era of branding, positioning and differentiation The days when customer focus and value addition and aggressive advertising and promotion etc. which were out of question; which the companies never realized; even which the consumer never expected have become a reality. “For the petroleum retail sector in India, recent years have seen fundamental changes in the way business is being done. The sector has moved away from being government controlled, a move that has brought new levels of competitive threat and customer focus.” (DIREM Marketing Services Pvt Ltd., “Consumer Loyalty & Petrol Retail in India”). This tells the whole story about the great paradigm shift taking place in the marketing orientation of the Indian Petrol Selling Industry. ‘Marketing’ of petrol is the new reality of today but still it is true that what is visible today is equivalent to the tip of the iceberg and a lot more is yet to come. Of late, because of all the above mentioned alterations in the environment, two things have prominently come to the forefront and they are creating a ground for marketing activities to take place: one is ‘competition’ and another is ‘strategy’. In Indian petrol market, both competition and strategy – are cause of the ‘marketing effect’ and it seems certain that this ‘marketing effect’ will get strong with each passing day. As the market becomes competitive, brand management will require careful thought. Though differentiation remains the key to competitive advantage, it may no longer serve the purpose. All players will have to focus largely on brand building and marketing to grow in the market place. This reflects that the top brass of petroleum industry feels the importance of marketing in the petroleum industry. The importance that marketing is getting now is visible from the change in marketing activities that are now undertaken by the various players in this field, for example, apart from improving the distribution the companies are seen focusing on other components of their marketing mix, like – Advertising and sales promotion, Brand Management, Differentiation, Segmentation, Targeting & Positioning, Consumer behaviour & Customer Relationship Management, Constant Value addition, Retail etc. A brief description
- 28. 28 | Pa g e of the innovative practices undertaken (in the above mentioned areas of marketing) by the Indian petrol selling organizations is given below: Branding Differentiation is an important tool for branding, and is necessary to create an identity of the brand (Trout J., Rivkin S. 2000. In “Differentiate or Die”. India. East West Books) but since it was felt that branding will never be required for petrol, differentiation was obviously out of question because petrol was just another commodity and there are no brands for commodities. But now the things have turned upside down. Petrol Selling companies have included “Branding” in their core marketing strategies. In July 2002, Bharat Petroleum Corporation (BPCL), one of the leading players in the Indian petroleum industry, launched premium grade petrol under the brand name, ‘Speed’. This was the first instance of an oil company launching branded fuel in the market. Soon, the two other leading oil companies, Indian Oil Corporation (IOC) and Hindustan Petroleum Corporation Ltd. (HPCL) also launched their own ‘new generation’ fuels. While IOC’s branded petrol was called ‘Premium’, HPCL called it ‘Power’. IOC and HPCL also launched branded diesel called ‘Diesel Super’ and ‘Turbo Jet’ respectively. In December 2002, another company, IBP, launched a new brand of premium grade petrol ‘Josh’ and a premium grade high speed diesel, ‘Shakti’. Within a short span of time, the country had seen the emergence of an entirely new market category (“Hindustan Petroleum Corporation Limited launches ‘Club HP’ Assures High-quality personalized ‘Vehicle and Consumer Care’. Value added services Since the main product of petrol sellers is a “commodity”, which is undifferentiated. Companies are trying to attract consumers by converting their “commodity buying” into a “pleasant experience” and for that many value added services are being used to augment the basic undifferentiated product and these services are being marketed by the companies rather than the main product (Chowdhary Nimit, Chowdhary Monika 2005. “Textbook of Marketing of Services: The Indian Experience” India. MacMillan). Not only branding, but petrol selling companies are also looking at some other areas of marketing that can be used in their strategies, for example “Hindustan Petroleum Corporation Limited” (HPCL) today launches its new Retail Brand Club HP which assures high-quality personalized Vehicle and Consumer Care through a select set of outlets”. (“Hindustan Petroleum Corporation Limited launches ‘Club HP’ which assures High-quality personalized ‘Vehicle and Consumer Care’” in News Release of March 26, 2002). Also, in an attempt to build lifetime relationship with the customers, like other companies in almost all industries in developing markets (Flambard S., Ruaud. July-September 2005. “Relationship Marketing in Emerging Economies – Some Lessons for the Future”. Vikalpa. Journal of IIM-A) petrol selling companies in India are also forcefully working on strategies under “relationship marketing”; loyalty program of BPCL is one such measure to build a relation with the customer. Advertising and sales promotion
- 29. 29 | Pa g e Advertising & Promotion of petrol sellers, which were limited to social advertising (with the theme “save petrol”) are also getting a facelift. From social advertising to the use of all possible techniques to influence consumers’ purchase behavior and attitudes. PHI is the new mantra in petrol marketing. Celebrities are now signed for endorsing petrol. For example Hindustan Petroleum has signed up with Zaheer Khan and Sania Mirza to endorse its petroleum products (News release “Hindustan Petroleum Corporation Limited signs up with Zaheer Khan”. (19 April 2005). Similarly, Yuvraj Singh another famous cricketer has also been signed by Indian Oil Corporation along with actor Vijay Raaj and the tennis sensation of India, Sania Mirza is working for HP. The crux is that marketing is getting an important role to play in petrol selling. Consumer behavior and marketing research Understanding consumer behavior and consumer loyalty was never so important for petrol sellers in India, as it has become now and with that comes the need of marketing research. Since the petrol selling companies are using marketing for the first time, the territory of consumer research is new and hence a lot of exploratory research is required for gaining insight into consumer behaviour and creating consumer loyalty. With the going having gotten tough, the smarter players have caught on early that the best way to do business is to lock customers into a habit they can’t break. Loyalty programs are ‘in’ with each of the big players wooing wallet shares with loyalty card programs (“Consumer Loyalty & Petrol Retail in India”. DIREM Marketing Services Private Limited). Retailing The petroleum and natural gas sector is set to flare up as retailing of transportation fuels like diesel and petrol will see phenomenal action. Essar Oil plans to set up more than one outlet a day; Reliance Industries is planning a phased roll out of 1,500 retail outlets from February. Over 1,000 new petrol pumps are likely to spring up in the next 12 months. Essar Oil, Reliance Industries, MNCs (read Royal/Dutch Shell) and public sector outfits like Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum Corporation, Oil and Natural Gas Corporation and IBP will be setting up these outlets. For a long time India preferred to have an inward oriented strategy and protectionism is one of the key features of this strategy and this strategy led to undergrowth of Indian industry. Not anymore and visibly, one major reason behind this revolution in petrol selling industry is DE-REGULATION, it is said and felt that deregulation and end of the administered price mechanism have been the root cause of sizzling petrol selling industry. Now, Administered Price Mechanism (APM) has lost its relevance. The economy has become dependent on petrol, and private parties are not happy with 12-15% assured return. They want more. Hence APM is dismantled in a phased manner. In this changed situation, the refining and marketing PSUs with old refineries and decades of ‘retention’ culture might find it difficult to face competition in the post APM phase. ONGCL and OIL will also become uncompetitive unless they adjust themselves quickly with the changing situation.
- 30. 30 | Pa g e FDI in Petro Retail in India: Petroleum oil and other products form a major part of our primary energy mix and touch our lives in more ways than one. Also Petroleum sector being a key economic driver for the economic growth influences some of the critical economic variables of any nation. The Indian oil and gas sector is one of the eight core industries in India and has very significant forward linkages with the entire economy. India has been growing at 8-9 per cent annually and is committed to accelerate the growth momentum in the years to come. This would translate into India's energy needs growing many times in the years to come. Hence, there is an emphasized need for wider and more intensive discussion on the trends, structure and development of the industry. According to data released by the Department of Industrial Policy and Promotion (DIPP), the petroleum and natural gas sector attracted FDI worth US$ 6.67 billion between April 2000 and March 2016. The role of FDI in any industry is to bolster its development and contribute in economic growth. But the question is how well has FDI in petroleum sector in India impacted growth in petroleum industry for India see no reduction in import of Oil and Gas. Nevertheless, India has seen a progressive uptick in infrastructure for refining petroleum products and it homes the largest refinery in the world. The investment trends and patterns along with various initiatives taken by the Government of India to promote FDI influx in Oil and Gas sector. Further, a time series data analysis was undertaken to analyze whether there exists any long-run relationship between FDI in petroleum sector, contribution of the sector towards national economic growth and index of industrial production in the petroleum sector, and if so, what is the direction of the relationship. It further discusses the empirical influence of FDI on the capacity of the refining infrastructure currently operating in India. The exploratory research is a combination of quantitative and qualitative analysis. The time series data has been collected through secondary sources. CAGR and Pearson Correlation are the two tools used to assess the growth and relationship between variables. Public Private Partnership Models of Petro Retailing in India A Public–private partnership (PPP or 3P) is a commercial legal relationship defined by the Government of India in 2011[1] as "an arrangement between a government / statutory entity / government owned entity on one side and a private sector entity on the other, for the provision of public assets and/or public services, through investments being made and/or management being undertaken by the private sector entity, for a specified period of time, where there is well defined allocation of risk between the private sector and the public entity and the private entity receives performance linked payments that conform (or are
- 31. 31 | Pa g e benchmarked) to specified and pre-determined performance standards, measurable by the public entity or its representative". The Government of India recognizes several types of PPPs, including: User-fee based BOT models, User- fee based BOT model, Performance based management/maintenance contracts and Modified design-build (turnkey) contracts. Today, there are hundreds of PPP projects in various stages of implementation throughout the country. Essar Projects, a leading Engineering Procurement & Construction (EPC) company, today announced that it has bagged the contract for replacing 141 km of pipeline of 18-inch diametre in the Koyali-Viramgam section of Indian Oil Corporation’s (IOCL) Koyali-Sanganer pipeline. The contract is valued at more than INR 850 million, exclusive of the cost of pipes, which are being supplied by IOCL. Originating at IOCL’s Gujarat Refinery in Koyali, Gujarat, the 1,056-km Koyali-Sanganer product pipeline is the company’s longest, and helps the oil PSU meet its supply commitments in central India. According to Mr AV Amarnath, COO, Essar Projects: “We are proud to be given the opportunity to work on a pipeline that has such a vital role in India’s oil & gas sector. In fact, though falling oil prices have led to a slowdown in the global oil & gas industry and to deferment of many new projects, we are beginning to see some kind of a revival in India. The proposed gas grid and the infrastructure requirements that will go hand- in-hand with the adoption of Bharat Stage 6 will present a number of opportunities for EPC players in the foreseeable future. This win is a new beginning for us and we want to pursue more projects in the oil & gas pipeline segment, in which we have world-class expertise and proven track record.” Essar Projects has established capabilities in designing, planning and executing complex pipeline projects involving oil & gas, water and iron ore slurry. The company has a track record of laying over 5,500 km of pipelines through some of the toughest terrains in India, UAE and Madagascar. It has executed oil & gas pipeline projects for diametres ranging from 18 inches to 48 inches, as well lengths ranging from 100 km to 550 km. Essar Projects’ pipeline expertise is also backed by Essar Steel’s Hazira steel plant and pipe mill. About Essar Projects: Essar Projects is a leading EPC (Engineering Procurement & Construction) company that offers a collaborative end-to-end project delivery model, which is backward integrated into the supply chain and forward integrated into customer needs. The company has over four decades of experience in executing mega projects in sectors such as Hydrocarbons (Refinery, Petrochemical & Fertiliser Plants); Tankages and Terminals; Pipelines (Oil & Gas, Water, Slurry and Subsea); Offshore (Platforms, SPM & PLEM); Infrastructure (Ports, Jetties, Airports, Railway, Buildings & Townships); Minerals & Metals (Steel Plants, Sinter Feed,
- 32. 32 | Pa g e Beneficiation & Pelletisation Plants, and Material Handling Systems); and Power Plants (Coal, Gas, Multi-fuel and Hydel). RIL-KG BASIN SCENARIO: What is KG-D6 basin? The Krishna-Godavari sedimentary basin is spread across 50,000 sq km in the river basins of Krishna and Godavari, onland and offshore along the Andhra Pradesh coast. The site Dhirubhai-6 (D6) is where Reliance Industries Ltd (RIL) made the biggest gas discovery in India in 2002 and started production of crude oil in May 2008 and natural gas in April 2009. How did RIL get into KG basin? The Union government opened up hydrocarbon exploration and production to private and foreign players in 1991. Following this, the government gave out bigger blocks in 1999 as per the New Exploration and Licensing Policy (NELP). RIL bagged the rights to explore the KG-D6 block under the first round. Various penalties on RIL and the reasons The expected gas output from the Dhirubhai-1 and 3 wells in the KG-D6 block was supposed to be 80 million standard cubic metre per day (mmscmd), but the actual production was only 35.33 mmscmd in 2011-12, 20.88 mmscmd in 2012-13 and 9.77 mmscmd in 2013-14. The current production is around 8 mmscmd. Profit petroleum penalty Profit petroleum is the source of revenue for government from a hydrocarbon block. It is the promised share to the government from earnings after revenue has been recovered. The government has imposed a profit petroleum penalty of $246.9 million till March 31, 2015. Cost recovery disallowed In a cost-recovery model, a company starts sharing income with the government only once its exploration and development costs have been covered.
- 33. 33 | Pa g e In 2011, the Mukesh Ambani-led RIL had initiated an arbitration process anticipating that the government would impose a penalty on the explorer for not meeting output targets. Following this, the government started disallowing cost recovery. Till March 31, 2015, the total cost recovery disallowed comes to $2.756 billion. Gas migration penalty Last week, the Dharmendra Pradhan-led ministry of petroleum and natural gas has slapped a fresh penalty of $1.55 billion on RIL and its partners BP and Niko for commercially producing state-owned Oil and Natural Gas Corporation's share of natural gas in the KG basin. RIL’s KG-D6 block sits next to ONGC’s lease area. According to a D&M report, over 11.2 billion cubic metres of gas had migrated from ONGC’s idling KG fields to RIL area. CONCLUSION We’ve conducted an in-depth analysis of the Indian Petrol market, specifically retail market – with reference to a government policy and changes made in it over the years; the past and present consumption and production pattern of petrol in India and the quantity of import of petrol and its effect on balance of payment position of India. The purpose is also to understand the present changes which are taking place in the Indian Petrol Market and the impact of these changes on the marketing strategies of the companies, and to find a way forward by taking Indian Oil Corporation as a base. The study aims at a comprehensive examination of Indian Oil Corporation’s marketing strategies and at critically analyzing the fitness of the strategies in the present scenario and also the long-term viability of its strategies. The study also aims to trace the trends in the petroleum marketing in Indian context, i.e., to understand the changing dynamics of marketing in the Indian petroleum industry, taking a case of Indian Oil Corporation. The above analysis is just a snapshot of the sizzle that the petrol selling industry is going through, it is this significant change in the scenario of petrol selling in India, which has attracted a lot of attention of the media all over the world. Nobody knows what the future beholds but one thing is for sure that marketing in petrol selling industry is here to stay. REFERENCES 1. Radhika N. . The E olutio , Gro th a d Stru ture of the Glo al Oil I dustr i The Effe ti e E e uti e . Readi g, I dia Oil I dustr , p. -53. India ICFAI University Press. 2. Joshi, R.M. . I ter atio al Marketi g . I dia. O ford U i ersit Press. 3. Kotler P. . Marketi g Ma age e t . I dia. PHI.
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