In an interaction with Anuj Jain, Director (Finance), IndianOil Corporation
Indian Oil Corporation Limited (IOCL), trading as IndianOil, an Indian multinational energy major, is a Central Public Sector Undertaking. IndianOil is ranked 116th on the Fortune Global 500 list of the world’s largest companies as of 2023. It is the largest government-owned oil refining and marketing company in the country both in terms of capacity and revenue. In this interview, Anuj Jain, Director (Finance), IndianOil Corporation, explains the performance of the company, challenges posed by Red Sea disruptions, state of readiness for Hydrogen transportation and LNG sourcing.
Can you shed some light on your Q1FY25 results? What factors have contributed to the company's performance?
The company reported a net profit of `2,643 crore for Q1FY25. The reduction in profit vis-a- vis Q4FY24 is primarily on account of lower refining margins as well as the suppressed marketing margins. On the physical performance front, during Q1FY25, the company has registered a growth of 1.4 per cent in domestic sales volume, led by around 7.3 per cent growth in auto fuels and 8.8 per cent growth in the gas sales volume over the last quarter. The throughput of countrywide pipelines network has increased by 5 per cent but due to shutdowns at some of the refineries the crude throughput and petrochemical production are lower as compared to last quarter.
The refinery margins are dependent upon cracks of petroleum and petrochemical products in the international market and as there was a sharp decline in the cracks IndianOil has reported a lower GRM in Q1FY25 as compared to the earlier quarters. Supported by the improved physical performance, IndianOil was able to report profits despite lower margins. The company also maintained the same levels of borrowing in Q1FY25 and the debt-equity ratio of 0.64 times as on June 30, 2024 which is around the same level as in the previous financial year.
How is IOCL mitigating risks from Red Sea disruptions to crude oil supply? What steps are being taken to diversify import sources and routes?
IndianOil has a broad spectrum of grades in its crude oil basket. We import crude oil from across the globe. While a major chunk of the oil comes from the Arab Gulf region, sizeable volume comes from the West Africa, Mediterranean, Southeast Asia and the US Gulf regions. Our refineries are capable of processing several types of crude grades and accordingly we are not dependent on any one particular grade of crude oil. Further, IndianOil has access to several oil majors, traders and national oil companies, which helps the company to mitigate the risks associated with geopolitical disruptions.
We also have a very strong presence in the shipping markets wherein we successfully manage to secure tonnage as per our requirement and at the most competitive freight rates. Considering the availability of a wide pool of ship owners who are willing to work with us, we have access to both clubs of ship owners; owners willing to transit Red Sea as well as those not willing to transit the region. Based on risk perception, IndianOil actively engages with its business partners to optimally route the supplies. We are keenly observing how the Red Sea scenario unfolds.
Can you give some guidance on your future earnings outlook?
The profitability of the company largely depends upon the crude prices and product cracks. Our focus remains on physical performance of our refineries, pipelines and marketing installations.
What investments are being made to upgrade the existing natural gas pipeline infrastructure to accommodate hydrogen transportation? How will the company ensure the safety and reliability of hydrogen transportation through these pipelines?
We have already commenced pilot study for one of our natural gas pipelines. A hydrogen readiness assessment is being carried out by one of the leading pipeline transporter companies in Europe. Based on the same, the modifications required for transporting up to 10 per cent hydrogen blended natural gas in our system, shall be finalised. Global industry and safety standards have been adopted in the study and the same are being followed to ensure safety and reliability of hydrogen transportation through these pipelines. Through such pilot projects, IndianOil envisages to get first-hand experience in safe and reliable operation of hydrogen transportation through existing natural gas pipeline infrastructure.
The long-term LNG contracts with ADNOC and Total Energies, along with the renewal with Qatar Energy, significantly strengthen your supply position. Could you elaborate on the strategic rationale behind these deals and their impact on overall cost competitiveness?
It is pertinent to note that India’s GDP grew at a rate of 8.2 per cent in FY24, beating all the estimates, and is projected to grow at a rate of more than ~7 per cent this year. India is on a robust growth trajectory marked by significant urbanisation coupled with demographic dividend for driving economic productivity. India's per capita energy consumption, currently at one-third of the global average, is having significant potential for growth. With India aiming to become a USD 30 trillion economy by 2047, the energy demand is expected to grow in the coming years.
Moreover, considering the country’s commitment to achieving net zero emissions by 2070, natural gas is the fitting choice today for playing the pivotal role of one of the transition fuels. Further, IndianOil is also augmenting its refining capacity, which will also enhance our demand of natural gas for captive consumption. India already imports 45-55 per cent of its natural gas requirement, which is expected to substantially rise considering the country’s target for increasing the share of natural gas up to 15 per cent in its energy basket. Reliance on imported natural gas exposes the market to supply fluctuations and geopolitical risks.
In 2022, the global LNG industry witnessed the unprecedented challenges, marked by volatility in the spot LNG market that exposed emerging economies in Asia to significant risks. The Platts Japan-Korea Marker (JKM) benchmark, which reflects cargoes delivered into Northeast Asia, averaged USD 33.98/ mmBtu in 2022, reaching an annual daily low of USD 18.94/ mmBtu IN January 2022 and hitting an annual high at USD 84.76/mmBtu on Mar 2022. This sharp and unexpected increase had far-reaching effects on various sectors in Indian economy. Due to price sensitivity of Indian consumers, there was a drop of 14 per cent LNG imports in India in FY23 as compared to the previous year due to high spot LNG prices. Long-term LNG contracts help in mitigating such fluctuations.
IndianOil, being the leading energy company of India, has remained steadfast in its commitment to fostering a clean energy landscape. The company has strategically initiated discussions with global LNG suppliers for securing long-term LNG contracts. Last year, we forged two long-term deals, which was a strategic shift from the spot market for meeting our demand. These long-term deals with ADNOC and Total Energies are cost competitive for meeting our growing demand. Such long-term deals would ensure uninterrupted and affordable supply to Indian customers thereby reducing vulnerabilities of a volatile spot market. Moreover, these deals have also enhanced the confidence of other Indian players for concluding affordable long term LNG deals.