Investing in Energy Risks, Rewards

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Investing in Energy Risks, Rewards Options
Sanjay Gakhar
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Indian Oil Gas Scenario

• Oil India ranks amongst the top 10 largest oil
  consuming countries.
• Oil accounts for about 30 per cent of Indias
  total energy consumption of 2.4 million barrels
  per day.
• Imports accounts for about 75 per cent of oil
  consumption
• India had a total of 2.1 million barrels per day
  in refining capacity.

• Natural Gas Indian consumption of natural gas
  has risen from a 0.6 trillion cubic feet (Tcf) in
  1995 to about 0.9 tcf is projected to reach 1.2
  Tcf in 2010 and 1.6 Tcf by 2015.
• About 50 per cent of the countrys gas
  requirement were met through imports.

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Government Liberalization -Reforms in Energy
Sector

• Oil Indian govt. officially ended the
  Administered Pricing Mechanism for petroleum
  product prices
• Disinvestment in Public Sector
• Complete deregulation of the Indian retail
  petroleum products sector is under progress.
• Natural Gas Govt. has been considering reforms
  in its natural gas pricing mechanism.
• Coal The government has been planning to greater
  liberalize the coal-sector.
• Electricity The new guidelines of National
  Electricity Policy (NEP) allow competition
• Open access in distribution
• Foreign equity is permitted up to 100 per cent.

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Indias Exposure to Crude Prices

• Imports accounts for about 75 per cent of oil
  consumption
• Producers, refiners consumers exposed to
  international price volatility
• Paradigm shift likely from administered pricing
  to free market pricing
• Price volatility cannot be wished away

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Risk Exposures

• Producers
• Sharp decline in oil prices
• Economic viability of profitable wells may turn
  non-profitable
• Refiners
• Change in value of inventories
• Volatile cash flows may lead to liquidity crunch
• Volatility in prices between period of buying
  crude selling products
• Importers / Exporters of crude oil products are
  permitted to hedge their exposure to price risk

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Close Relationship (All Varieties)
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MCX Crude Oil Futures

• Trading successfully since 9th February 2005
• Three varieties
• Light Sweet Crude Oil
• Brent Crude Oil
• Middle East Sour Crude Oil (Dubai Oman Grades)
• Provides a marketplace for bringing together
  physical industry participants and financial
  investors
• Ideal mix of day traders position traders as
  exhibited by high liquidity open interest
  respectively

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MCX-NYMEX Crude Oil Correlation
MCX-NYMEX Crude Oil Correlation 98
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MCX Energy Basket

• Light Sweet Crude Oil
• Brent Crude Oil
• Middle East Crude Oil
• Furnace Oil
• Natural Gas
• Coal
• may be launched soon

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Contract Specifications for Crude Oil Futures
(Light Sweet, Brent MiddleEast)

• Trading Unit100 barrels
• Quotation/Base Value Rs. per barrel
• Tick Size Re. 1
• Price Quote Ex Mumbai (excluding all taxes,
  sales tax / VAT as the case may be, levies,
  freight and other expenses)
• Daily Price Limits Initial Margin 4 5

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MCX NYMEX Strategic Alliance

• MCX through the recent exclusive Licensing
  Agreement with NYMEX on 05 June 2006, will
  shortly launch mini-versions of NYMEX energy
  products as follows settle these contracts
  based on NYMEX settlement prices
• Gasoline
• Heating Oil
• Natural Gas
• subject to regulatory approvals

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Thank You