Current Challenges of the Petroleum Sector

Report
Challenges of the Sri Lanka’s Petroleum
Industry
by
R. H. S. Samaratunga
Secretary, Ministry of Petroleum Industries
1
Challenges of the Sri Lanka’s Petroleum Industry
• Global Scenario in Brief
• Sri Lanka’s Petroleum Industry Structure
• Demand, Supply and Challenges
2
Challenges of the Sri Lanka’s Petroleum Industry
Global Scenario
Consumption
• Global : 90/mb/day (2011)
• OECD : 50% (appox)
• North America: 24%
Production
• OPEC: 37%
North America: 15%
• Russia: 11%
Saudi Arabia: 10%
3
Challenges of the Sri Lanka’s Petroleum Industry
• Petroleum product prices: increasing trend
• Short term demand: price inelastic
• Current scenario:- Weaker demand in EU
- Supply side uncertainties
- Additional supplies
- Downward stock adjustment
4
US$/Bbl
Brent Crude Oil Prices 1997 - 2012
5
Challenges of the Sri Lanka’s Petroleum Industry
Sri Lanka’s Petroleum Industry
• Import dependent petroleum consumer
• Prior to nationalization: oligopoly of imports/distribution
• 1961 - creation of state monopoly
• 2003 - end of state monopoly and creation of duopoly (CPC
and LIOC)
• Island-wide presence
• Many players in several petroleum product markets:
bunkering, lubricants
• Case for regulating the market: products quality, services
quality maintenance and enforcement
• Employment 600-700 (1970s); now 6000-7000
6
Challenges of the Sri Lanka’s Petroleum Industry
Market Structure of Petroleum Product
Distribution
Period
Products
Market
Market players
structure
Prior to 1961
All products
Oligopoly
Caltex, Mobil, Shell
1961-2003
All products
Monopoly
CPC
2003 to date
Petrol, diesel,
Duopoly
CPC, LIOC
kerosene, bitumen
7
Challenges of the Sri Lanka’s Petroleum Industry
•
PG was a private monopoly, nationalized and
again privatized
•
Presently a duopoly market - Litro (govt.); Lauhfs
(private)
•
Both are import dependent to a larger extent
8
Petroleum Products Consumption by
Sector
2000
2010
6%
10%
Transport
49%
Industrial
33%
31%
55%
Power Generation
Other
10%
6%
9
Challenges of the Sri Lanka’s Petroleum Industry
Demand, Supply and Challenges
• Importer of refined products: beginning till late 1960s
• Only refinery commissioned in 1969
• Refinery met the country requirement in total for about a
decade
• Since then a larger part of key products/total demand for
kerosene from the refinery
• Currently about third of the country requirements met from the
refinery
10
Challenges of the Sri Lanka’s Petroleum Industry
• Rising domestic demand: petrol, diesel, fuel oil
• Fuel oil demand: depends on the rain- inverse
relationship
• Declining demand: kerosene
11
Growth Rates of Refined Petroleum Products
Growth Rate (%)
Year
Petrol
Diesel
Kerosene
Fuel Oil
1990
-
-
-
-
1995
-8.34
57.81
12.41
8.65
2000
32.49
79.46
5.03
26.04
2001
7.07
2.64
-3.67
-0.68
2002
21.13
0.73
11.05
9.91
2003
10.85
-6.46
-27.52
-14.76
2004
12.52
21.43
28.38
-0.71
2005
27.54
19.39
-6.71
68.68
2006
-5.78
4.19
-3.23
-13.81
2007
16.29
4.05
-34.91
-10.11
2008
4.75
-9.59
-5.93
0.68
2009
0.05
-1.65
9.2
16.33
2010
2011
18.21
15.47
4.21
15.99
-23.56
0.13
-6.84
9.14
12
1,200
800
Furnace Oil Annual Sales Volume
(MT)
600
400
200
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1995
1990
0
1985
Year
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Year
13
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1995
1990
-10,000
1985
Furnace Oil Annual
Sales Value (Rs/Mn)
Value/ Rs. Million
Volume /MT
1,000
Challenges of the Sri Lanka’s Petroleum Industry
• Rapidly rising overall demand
• Petroleum accounts for 24% of import bill and 45% of exports
(2011)
• Demand doubled during last three years (in value terms)
• More on refined products
• More resources required for imports in absolute and relative
terms in the future
14
Country’s Demand for Petroleum
Products
6000
5000
Value (US$/Mn)
4000
3000
2000
1000
0
1980
1985
1990
1995
2000
2005
2006
2007
2008
2009
2010
2011
Year
15
Country's Demand – Relative Significance % of Exports & Imports
36.5
29.2
% of Exports
% of Imports
21.9
14.6
7.3
2011
2010
2009
2008
2007
2006
2005
2000
1995
1990
1985
0
1980
Percentage of Exports & Imports
43.8
Year
16
Challenges of the Sri Lanka’s Petroleum Industry
• Sri Lanka: price taker, import quantity being very small
• Periodic price revisions from 2005: upward/downward
- international price trends
- subsidy levels for each product
- CPC’s financial status etc.
17
Crude Oil Imports - Unit Price Movements
120
110
97.6
80
79.3
72
65.1
62.6
60
51.9
40
28.7
28.5
25.1
23.6
20
18.9
C&F Price
US$/bbl
37.4
28.3
29.3
17.4
11.6
Year
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1995
1990
1985
1979
1974
1.6
0
1970
C & F Price (US$/ Bbl)
100
International Market Prices and Government Subsidy
19
Import Prices Vs. Domestic Market Prices
20
Challenges of the Sri Lanka’s Petroleum Industry
• State control in pricing during the monopoly era
• Price revision by LIOC on its own or LIOC can follow the
government program of revision
• As the largest share of market is with CPC, major price
changes by the competitor becomes ineffective
2011
Petrol
80%
Diesel
95%
Kerosene
100%
21
Challenges of the Sri Lanka’s Petroleum Industry
• Increased power supplies to be met from oil based electricity
generation : 2010 - Gwh 10714 of which thermal: 46.7%
2011 - Gwh 11528 of which thermal: 49.9%
• Fuel oil is also subsidized, affecting CPC financial status
• Electricity consumption is subsidized and also regulated
(average unit cost: Rs 15.59 against selling price of Rs. 13.22)
• Stable electricity supply
22
Electricity Generation / Gwh
Year
2006
2007
2008
2009
2010
2011
Thermal
Other
4751
5865
5763
5975
4994
5748
4638
3950
4138
3908
5720
5781
14000
Electricity Generation/GWh
12000
10000
8000
49%
50%
40%
40%
42%
53%
Other
6000
Thermal
4000
2000
51%
60%
58%
60%
2007
2008
2009
47%
50%
0
2006
2010
2011
Year
23
Challenges of the Sri Lanka’s Petroleum Industry
• Refinery provided: entire requirement in 1970s
• 1990s: about one half met from refinery
• 2010: about 35 met from the refinery
• Increasing demand met from imported refined products
(on expenditure basis)
• Change due to: fixed processing capacity and increased
demand
24
Crude Oil & Refined Petroleum Product Import Ratio
Product
1990
2000
2010
Refinery Output
91.5
55
35
8.5
45
65
Imported Refined Petroleum
Products
Percentage (%)
8.5%
91.5%
Year
25
Challenges of the Sri Lanka’s Petroleum Industry
Refinery’s technological limitations:
- built in 1960s
- can accommodate limited crude types
- low yield and value addition
26
Challenges of the Sri Lanka’s Petroleum Industry
• Current tension in the Middle East/supply uncertainties
gulf region:
20% of global petroleum exports
30% LNG exports
• Diversification of sources of supply
- crude oil (technological issues)
27
Thank You
28

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