1. OTBA-GULF SAHODAYA EXAMINATION 2014-15 Theme:01 Oil Pricing in India

2. Contents Introduction What is crude oil? Types of crude oil What kind of crude do Indian refineries process? deregulation of petrol and diesel prices Introduction What is crude oil? Types of crude oil What kind of crude do Indian refineries process? deregulation of petrol and diesel prices

3. Introduction

4. What is crude oil? Crude oil is referred to as petroleum in its unprocessed form. It is formed from plants and animals that were buried up deep millions of years ago. The remains got converted into oil and gas due to heat and pressure.

6. Measurement of crude oil It’s measured in barrels, appreviated as bbls. 1 barrel= 159 litres 1 metric ton= over 7 barrels

7. Types of Crude oil Light crude oil Have a high specific gravity, it’s easier to pump, transport and refine into high value products like petrol, diesel, and jet fuel. Heavy crude oil Contains high concentrations of sulphur and several metals, particularly nickel and high amount of wax.

8. Types of Crude oil Sweet crude It has small amounts of sulphur(0.5% or less) and is used primarily in production of petrol Sour Crude If the percentage of sulphur exceeds 0.5%, it is classified as sour oil

14. Deregulation of petrol and diesel prices The Kirit Parikh Committee(2010) recommended deregulation of petrol and diesel prices to liberalise the energy sector in India. Merits of deregulation of petrol and diesel prices Reduction of the government burden on subsidies (cost of subsidy on oil for the year 2012-13 is estimated to be Rs 43,580 crores help the oil marketing companies (OMCs) to cover their under recoveries Private companies will compete with public sector OMCs Foreign investment may be expected in the long run In the long run the country’s import bill will fall Aligning the petrol prices to the international market forces

15. Relation between oil prices in India and the world Petrol price is calculated on the basis of worldwide supply and demand. Foreign suppliers sell crude oil to OMCs in Indian at benchmark prices. One barrel crude oil = 159 litres To calculate price per litre, the total amount paid in US dollars is converted in Indian rupee and then divided by 159 litres. Suppose, each barrel of oil cost $110, also the exchange rate is Rs60=1$. Then the cost per litre of oil would be: 1bblx110$=110$ Rs 60=1$ or 110 $x 60=Rs 6600 Cost per litre=6600/159=41.509 per litre

16. Continued--- After buying, crude oil is transported to refineries. Presently, there are 20 refineries in India. Petrol price is the cost price that includes procuring, refining and marketing plus both central and state taxes.

17. Rippling effect of oil price Higher the petrol or diesel prices, higher the prices of commodities as most of the commodities are transported on vehicles that run on petrol/diesel. with the increase in petrol price, food items will get expensive, which will result in less savings and more expenditure. The most sufferers would be the poor.

18. Strategies for solving the problem Need a balance strategy where oil companies are getting reasonable returns whereas government gets the required revenue. Some of the strategies are: Increase the refining capacity in india so that we can use our domestic reserves and reduce dependence on imports Modern technology for refining Encourage fuel efficient fans, lights,refrigerators,etc Use of renewable sources of energy like solar, biogas, wind energy,etc Conducting energy audits in houses, offices and other organizations to find out the uses and wastage of energy Change our habits: like switch off fans, ACs, lights when not required, use public transport instead of private vehicle, do car pool, write on both sides of paper, reuse our pens and practice the 3 R’s REDUCE, REUSE AND RECYCLE AS ENERGY SAVED IS ENERGY GENERATED- MANTRA FOR LIFE TODAY AND TOMORROW