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Oil & Gas Sector Outlook May 31, 2014

Sector Overview:

India is currently the fourth largest Energy consumer in the world. Most of the needs are met through imports.

The Products available in this sector are: Coal /Peat (40%), LPG/CNG (33%), Crude Oil (24%), Hydroelectricity (2%),

Nuclear (1%), Renewable sources – Solar, Wind (1%). This Sector is largely owned by the central government with

few private players.

Expectations from New Government:

BJP victory is expected to be positive for Oil and Gas sector. Reforms in this sector would bring in investment

which would help meet India’s huge energy needs. Some of the expectations from the new government are:

It must look to invest in the exploration sector which has been largely under-utilized over the years.

It must increase Natural Gas and Diesel prices to improve off-shore investment and reduce their subsidy

burden. This would also help India meet the rising import costs

It must look to strengthen the rupee and bring down India’s dependence on imports

The utilization of renewable resources in India is very low, and the new government must take steps to

improve that to reduce the dependency on fossil fuels

Effects on Oil and Gas stocks:

Oil & Gas stocks would definitely benefit if the Government hikes fuel prices:

A hike in the gas prices would increase the revenues of firms and it would also help them explore new

opportunities which require high investments. The recent hike in the diesel prices are seen as a positive for

the Oil companies as it would significantly reduce their borrowing costs.

The government can also benefit from this hike as it can reduce fuel subsidies which are over 800 billion

A reduction in the dependence on imports would benefit Oil companies as they would get opportunities for

new projects. Their revenues would rise, so would their stock price.

Rupee vs Gas Prices:

Being one of the largest consumers of energy, India imports large quantities of oil and gas. As the rupee continues

to be weak, import costs would continue to be high and gas prices must be increased to meet these costs. So

strengthening of rupee must be one of the main goals of the new government to keep gas prices steady. The Oil

Companies would also benefit from reduced Operating costs

Research Desk

WealthRays Securities Pvt Ltd

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Oil & Gas Sector Outlook May 31, 2014

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