University of Petroleum & Energy Studies

Centre for Continuing Education

Executive MBA

(Oil & Gas Management)

Semester IIIYEAR: 2014

SESSION: JULYAssignment 1For

Petro Retailing Business(MDSO 831D)

(To be filled by the student)

Name:

Binodh D_____________

Sap No/Regn. No:50028040______________

Section A (20 Marks)

Write short notes on any four of the following

1. Exploration and Production Activities in Petro Industry The domain of ONGC and OIL, upstream E&P is a high risk and high return capital-intensive business. ONGC explores oil across the country and accounts for about 80 per cent of the crude produced while OIL operates mostly in the North Eastern parts of India. In E&P, there is high uncertainty with regard to striking of oil in commercial quantities. The companies need to invest significant risk capital and have to accept high ratio of failures before discovery.

It was because of the exploratory efforts of ONGC and OIL that a number of oil and gas bearing structures were discovered in Gujarat and Assam. Of these, the important ones were in Assam.

The Government made the search for foreign firms to join hands with ONGC. The contract was signed with the USSR for offshore seismic survey in the Gulf of Cambay, Arabian Sea and on the East Coast. OIL, on the other hand, further developed their existing fields and opened two new areas for exploration. Indias crude oil production during this period rose from about 0.5 million tonnes to 5.66 million tonnes per annum. With recovery of the national economy, exploration for oil was intensified. ONGC increased the speed of exploration in not only the on land basins but also extended it to the offshore areas. Discovery of oil in large quantities at Bombay High opened up a new vista of oil exploration in offshore areas. In order to develop the Bombay High field quickly, ONGC adopted the concept of phased development. Production from Bombay High was started initially from two platforms at the rate of 40,000 barrels of oil per day. Later, the oil production from other platforms was also added to reach a production rate exceeding 60,000 barrels of oil per day.

OIL, meanwhile, continued exploratory efforts in their licences in upper Assam and increased their reserves by additional discoveries. They had started exploration in Arunachal Pradesh and stuck oil in the Kharsand areas. During the decade (1967-77), the production of crude oil increased from 5.66 MTPA to 8.9 MTPA. Next decade (1977-87) began on a note of deep concern due to the escalating import bill. The demand for petroleum products was rising and international prices were also high. The augmentation of indigenous resources became the key demand of strategy. Both ONGC and OIL took up the challenge and formulated ambitious exploration programmes. The exploratory efforts yielded results in the form of discoveries of oil and gas in a number of structures in the Mumbai offshore areas. Exploration was extended to other offshore areas like the East Coast. by ONGC and in the offshore of the Andamans by the OIL with varying degrees of success. Both the ONGC and the OIL continued their efforts to make the discoveries, though of small size. OIL discovered a few other small pools in the nearby areas, which were taken up for development. In its newly acquired areas in Rajasthan, OIL has completed its first phase of seismic survey. It is to start exploratory drilling in this basin. In the year 2009-10, the production of Petroleum Products in the country was 149.65 MTs as against 150.52 MTs during 2008-09,decline of about 0.6%. Out of the total domestic production of 149.65 MTs of all types of petroleum products, high-speed diesel oil accounted for the maximum share (41%), followed by Fuel Oil (12%), Motor Gasoline (11%), Naphtha (10%), Kerosene (6%) and Aviation Turbine Fuel (5%). During the current financial year (2010-11), production of crude oil is estimated at 37.96 million metric tonne (MMT), which is about 12.67 per cent higher than the crude oil production of 33.69 MMT during 2009-10. The projected production for natural gas, including coal bed methane (CBM), for 2010-11 is 53.59 billion cubic metres (BCM) which is 12.80 per cent higher than the production of 47.51 BCM in 2009-10. The increase in natural gas production is primarily from the KG deep-water block. The upstream oil and gas sector is characterized by high commercial risks, upfront financing exposure and commitments necessitating high premium on stable relationships with Government and partners. In the context of domestic upstream sector, some other typical constraints are:

Stagnant production level,

Rapidly rising oil import bill,

Increasing maturity of production acreage,

A large unexplored/less explored terrain,

Requirements of large investments. One way of meeting the deficit is what the government has decided at present to provide more openings for the private sector in exploration. If it is accepted by the private sector, then, at least, technology and finance - two critical inputs - would be made available. The chances of new discoveries are enhanced. Oil production from old and depleting fields may be sustained over longer periods by applying suitable enhanced oil recovery techniques. Large investments need to be made to commence production on a large scale. Production levels from existing wells cannot be increased beyond a certain point. The process of deregulation will benefit ONGC and OIL. The price realization of these two companies is at international rates, thereby, boosting profitability. While the costs for these companies would remain the same, the total turnover will increase creating a higher surplus, which would enable them to invest more in exploration. The following salient features in the future strategy in the upstream sector in India are emerging:

Shift to new potential areas such as: Mesozoic exploration in Kutch region and Saurashtra offshore. Deep-water exploration. Andaman offshore basin as a possible outcome of speculative survey activity. Gas potential of central on land basins.

Consolidate the initiatives taken and seek greater private participation through joint ventures to increase the inflow of capital for exploration in the country, which would be mutually beneficial to all parties. Greater thrust on acquiring foreign acreages/farm-in opportunities. Increase the number of players in exploration and production sector.

According to an estimate, about US$60 billion will be required in exploration, drilling and development activities over the next 10 years. The Indian acreages have the capacity of absorbing this order of investment and the government is encouraging private sector participation with attractive fiscal and contract terms in the exploration and production sectors. The Government of India has also offered private companies the opportunity to participate in the development of discovered medium and small-sized fields. The estimated oil production from these fields is over 360 million barrels and gas production is about 50 billion cubic metres. The most visible change in the environment of the oil industry is happening in the downstream public sector companies. The Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation, which were hitherto engaged only in refining and marketing, have decided to enter the upstream activities. These oil companies are also looking for strategic alliances for exploration and production of oil and gas abroad and in India. Presently, there is a need to mobilise huge venture capital (to the tune of $ 60 billion) which is mostly in the form of risk capital. The upstream sector has always been a high-risk and high-return business. So the government. is encouraging private capital, both domestic and foreign, and to this end has started simplifying procedures and also providing fiscal incentives, which are given in the New Exploration Licencing Policy.

The government has expressed due concern for:

The need to accelerate the pace of absorption of new cost effective technology because any increase in recovery level from existing fields is tantamount to adding new oil fields.

The need to conserve oil and natural gas, petroleum products etc., rather than just meeting gap with increase in production or imports. With the acceleration of exploration activity in India, increased opportunities will be available to foreign and domestic companies in the area of oilfields goods and services. Domestic capability exists with ONGC and certain other private sector and public sector companies in India to carry out geophysical surveys,drilling, well logging, stimulation cementing and many other oilfield services. Capacity also exists for fabrication of offshore platforms, pipeline construction, coating and laying of pipelines, 5 etc. However, the existing facilities will be grossly inadequate to meet many times higher demand, in future. Opportunities are available to foreign companies to form joint ventures with domestic companies to provide oil field equipment and services to the national oil companies as well as to private companies operating in India.

New Exploration Licencing Policy (NELP) :

One of the most important results of the GoIs reform efforts has been the introduction of competition in E&P through the New Exploration and Licensing Policy (N ELP). The NELP has certainly weakened ONGCs monopoly status in the upstream sector. By bringing more competition to the sector, the NELP has also enabled the greater use of benchmarks and industry standards for monitoring ONGCs performance.

Significant Success under NELP :

India has an estimated sedimentary area of 8.14 million square kilometer, comprising 26 sedimentary basins. Before implementing the New Exploration Licensing Policy (NELP), only 11% of Indian sedimentary basins were under exploration. Under NELP, which I was approved by the Government in 1997 and operationalized since January 1999, Government of India has awarded an area of 47.3% of Indian sedimentary basin area to E&P companies, making a total of 58% of Indian sedimentary basin area under exploration. 87 oil and gas discoveries have been made by private/joint venture (JV) companies in 26 blocks.

Under NELP, I about 640 million metric tonnes of oil equivalent hydrocarbon reserves have been added. As on 01.10.2010, investments made by Indian and foreign companies was of the order of US $ 14.8 billion. At present, after concluding eight rounds of NELP, 235 production- sharing contracts have been signed. The number of NELP blocks awarded in previous eight rounds is given in Table.

The ninth round of NELP (NELPIX) was launched" on 15 October, 2010 and 34 exploration blocks including 8 deep-water, 7 shallow water, 11 on-lands, and 8 Type-S on-lands were offered. On-land blocks are spread over six states namely Assam (2), Gujarat (11), Madhya Pradesh (2), Rajasthan (2), Tripura (1) and Uttar Pradesh (1).

ParameterNELP

INELP

IINELP

IIINELP

IVNELP

VNELP

VINELP

VIINELP

VIII

No. of Blocks offered4825272420555770

No. of Blocks Bid for 2823242120524536

No. of Bids454452446916518176

No. of blocks awarded2523232120524434

No of PSC signed2423232020524132

Area Awarded1.94.7352,613,050204,5881,92,8101,15,1803,06,2001,17,00055,496

2. Initiatives Taken by Indian Oil Corporation Limited to Improve CRM The Marketing Mantra for Indian Oil Corporation Limited is to I continuously provide the best products and services at the most reasonable cost. The New Look petrol/diesel service stations selectively have Convenience shopping stores, snap services, quick Lube change, automatic car wash and multi-product dispensing pumps. To facilitate easy transaction, many of the stations accept major credit cards. In fact, IOCL and Citibank have launched a special co-brand card, the Indian Oil Citibank Card which is not only accepted at Indian Oil petrol stations but at many restaurants, shops, airlines, etc. Also, IOCLs tie-up with Coca- Cola ensures that selects petrol stations stock and dispenses Coke - thus quenching the thirst of the vehicles and the motorists.

A new concept of Jubilee Retail Outlets has also been launched to set up petrol/diesel stations on highways with comprehensive value added facilities for various customer segments, namely truckers, farmers, tourists and passenger transport. These include hotels, restaurants, parking lots, weighbridges, sale of tyres, batteries, accessories, agricultural machinery repairs and recreational facilities provided selectively. The first such retail outlet was commissioned at Ongole, District Prakasam and Andhra Pradesh.

Indian Oil: Topping Up on Customer Loyalty

In an effort to understand its customers, petroleum major Indian Oil Corporation Ltd. (IOCL) has launched a customer outreach programme, which involves not only the retail sales force but also personnel from various departments of the organization. The objective is two-fold and incorporates both HR and CRM shades. Firstly, make the back-end departments more aware about the retail function and secondly, to present a more humble face to customers visiting IOCL outlets.

IOCL deputy general manager planning and economic studies showed that the initiative enabled personnel from other departments to be more sensitive to how a retail sales force works at the ground level.

IOCL deputy general manager, who himself was part of the cross- functional team, said many a times the field force is engaged in activities like understanding the dealers and their problems. This has led to the perception that IOCL has less visibility in customer relationship management compared to competitors. The formation of the cross-functional team which visited the petrol pumps is aimed at understanding what the customers expect and also what I problems the dealers and the forecourt staff face, he added.

While the products that the players have on offer plays an}, important role, these days it is also the level of service and the, kind of service which are equally crucial. And in the retail arena; where everyone is trying to woo the customers, reaching out to the customer to tell them about the service becomes important_. The outreach programme becomes important in this case, said al consultant at a market research firm. A spokesperson for IOCL said 80 officers from the western regional and marketing head: office were divided into teams and they visited around 60 petrol outlets in Mumbai and Navi Mumbai to support the retail sales; force in their functioning and also understand customers expectation with regard to the service at petrol pumps. The objective of the outreach team called Customer Ambassadors (who are drawn from various functions like information technology, planning and HR) is to understand the functioning of the retail sales force. We felt it was important for the other departments to understand what happens at the ground level, both from the field force as well as the customers perspective, said IOCL deputy general manager. While the programme is largely a customer outreach initiative, it has shades of HR management as it gave the back-end departments a chance to understand the rigors that retail sales force has to undergo. IOCL senior divisional consumer sales manager (Mumbai region) said the entire exercise enabled him to understand the process of interacting with retail customers, which is a departure from his primary function of handling customers like railways, defence and companies.

IOC to Offer more than Just Fuel

Indian Oil Corporation is tying up with large retailers to offer more than just fuel to its customers. Together with major brands, such as Food World and Hindustan Lever, Indian Oil is expanding retail sales of non-fuel products in its gas stations.

Its growth plans centre on giving extra - Extra Mileage- Extra Savings is a catch phrase at its outlets. Now the oil company is going the extra mile to offer its customers non-fuel services.

It makes sound business sense because growth in the number of fuel pumps is outstripping increase in demand for fuel. Petrol sales are increasing.

Apart from the existing players, the entry of private companies into fuel sales is going up to the competition. So, to sell petrol and diesel, companies need to attract people to their outlets by offering more products and services. So what do the oil companies do Petrol and diesel are the bread and butter of their business. So, they start selling jam also.

Through an agreement with the retail chain, Food World, the oil company will offer space in select petrol bunks for the retailer to set up shops. The agreement provides for FoodWorld to set up shop in any of a selected list of Indian Oils petrol outlets. IOC is also talking to Sangam, the urban distribution arm for Hindustan Lever products, to procure and supply products to its convenience stores in the petrol bunks. Through these agreements, the company will set up convenience stores either through the FoodWorld chain, Sangam and run the businesses on its own. It also provides ATM facilities, has pharmacies and restaurant and boarding facilities at outlets located along the highways. A large basket of extras. Apart from competition, other factors affect fuel sales, particularly sales of diesel.

IOC Launches Check and Win

Indian Oil Corporation (IOC) has launched a novel consumer awareness programme at its petrol pumps in Hyderabad and Secunderabad. In a press release, IOC announced the campaign titled Check and Win which invites customers visiting the petrol pumps to test the quality of petrol and diesel hands on and qualify for 123 prizes to be won against a bumper draw.

The customers just need to drive into any of the IOC outlets in the twin cities and do two simple fuel tests to assure themselves as to how pure the IOC oil was and fill in questionnaire to enter the contest.

To enter the contest, the customers need not to buy anything from IOC, not even fuel. The customers can also get instant gift from IOC for filling the questionnaire.

IOC Getting Ready for Fully Automated Petrol Pumps

Drive into the petrol station and fill the tank just by swiping your petro-card like an ATM for withdrawing cash! This could be possible at select IOC retail outlets across the country over the next few months. Indian Oil Corporation plans to introduce fully automated retail outlets at a number of locations across India, at a huge investment. IOC is negotiating with a number of hardware and software vendors for implementing the plan, according to a senior official. The plan is to automate the entire retail outlet right from product supply to dispensing. IOC has chosen an assortment of sites along highways, metros and smaller Cities instead of focusing on the four metros alone. The plan is part of lOCs Operation Everest under which the company has selected 1,000 outlets for introducing quality and quantity assurances to customers. It plans to spin off a separate brand through these premium retail outlets, much like its PSU competitors Bharat Petroleum and Hindustan Petroleum have done through their Pure for Sure and Club HP initiatives. Both the companies have already executed the idea of branded premium outlets supplying 3 the entire range of oil products - from premium and non-branded transport fuels to engine oils, car-care and even consumer goods. l And IOC is being looked at as a late entrant into this market. Even the concept of fully automated retail outlets has been recently [N introduced by HPCL. IOC was the first Indian company to introduce quality. and quantity assurances and premium fuels without hoopla. It was also the first company to introduce high octane fuels back in 1995. IOC had introduced Indias first branded retail outlet - Top gear in 2000 but the Venture did not take off because of high costs involved in revamping every outlet. The companys Operation Everest also involves considerable investments. IOC is looking at enhancing the Corporate brand and in addition, build sub-brands along various product lines and retail services. IOC Fuels Cash Customers with Reward Programme In a bid to reward its customers, oil retailer Indian Oil Corporation kicked off an award programme for its cash customers. The cash customers would earn reward points against such purchases covering not just fuel but a whole host of other items including lubricants and other IOC products. The new scheme would be open on a subscription basis for a nominal fee in some retail outlets across 79 cities in the first phase. This would be extended to over 2,000 outlets later on. Customers enrolling for the programme would receive a card to which reward points would be added every time the card is used at select outlets against cash purchases. Points in turn could be redeemed for items like vehicles, electronics, tea sets and bags. 3. Demand and Supply of Petroleum Product Recently, macro-trends are occurring in the world petroleum industry especially, oil, natural gas and refining. Other notable changes are also taking place in restructuring, reform and introduction of compilation and consolidation. All this affect the demand and supply of petroleum product to a large extent.

Global Oil Demand

The economic growth in the major Organization for Economic f Cooperation and Development (OECD) industrial countries economies in Asia (excluding Japan) will be the key factor in deciding global demand for oil for the next decade. The economies of the industrialized countries are expanding and the economies of many developing countries are growing rapidly. Global Oil Supply If we look back over the past few years, we notice several factors affecting the worldwide crude oil supply. There was the Persian Gulf war, which removed oil production capacity from the market by eliminating output from Iraq and temporarily eliminating output from Kuwait. The worldwide crude oil supply situation changed markedly following the conflict in the Persian Gulf. After a brief period of uncertainty that drove up the price of crude oil in late 1990 and early 1991, the market experienced an extended period of price stability. The war and subsequent outcome resulted in a substantial volume of crude oil capacity being removed from the market. The removal of this capacity contributed greatly to the period of price stability. For a substantial number of years there was excess production capacity in the world, which put downward pressure on prices. Most of that excess capacity was in the OPEC countries. With the loss of the production capacity of Kuwait and Iraq, a substantial portion of the excess capacity was eliminated. There was even some danger of temporary supply shortages when demand moved up late in 1990, during the winter heating season. To satisfy the increase in world liquids demand in the Reference case, liquids production increases by 26.6 million barrels per day from 2008 to 2035, including the production of both conventional liquid supplies (crude oil and lease condensate, natural gas plant liquids, and refinery gain) and unconventional supplies (biofuels, oil sands, extra-heavy oil, coal-to-liquids [CTL], gas-to-liquids [GTL], and shale oil). In the Reference case, sustained high world oil prices allow for the economic development of unconventional resources and the use of Enhanced Oil Recovery (EOR) technologies to increase production of conventional resources. High world oil prices also incentivise the development of additional conventional resources through technically difficult, high-risk, and very expensive projects, including wells in ultra-deep water and the Arctic.

4. Anti-adulteration Tips on the Consumers Front Consumers are the sufferers of adulteration malpractice. Any quality conscious consumer has the right to be assured of the quality of the products and if he wishes, he can get his sample checked for adulteration. Some easy and important checks can be conducted at the retail outlet: Filter Paper Test: Initially the mouth of nozzle is cleaned to remove stains. Afterward, a drop of petrol is put on the filter paper from the nozzle. The petrol dropped on the filter paper is allowed to evaporate for 2 minutes. The petrol should evaporate without leaving any stain on the filter paper. If the colour left on the paper is pinkish, it is the colour of MS and not a stain. Dealers are probable to provide filter paper to customers on demand. Density Test: This is a very easy test. This test takes approximately 5 to 10 minutes. Product is taken in a glass jar and then a Hydrometer (separate Hydrometers for MS and HSD) available with the dealer is dipped in the product. A Thermometer is too immersed into the product jar simultaneously without touching the walls of the jar. The readings of Thermometer and Hydrometer are taken. Afterward, with the help of a conversion chart, the density is converted to 150C and this is compared with the recorded density/reference density, which can be seen from the density register maintained by the dealer. If the variation between the observed density and recorded/reference density is within +0.0030, then the product density can be considered to be correct. If the difference is more than + 0.0030, then it points out possibility of adulteration. Water Contamination Checks: For both MS and HSD can be done with the assistance of a dip rod and water finding paste, available with the dealer. In Case of Lubricants: The customer should check the seal of container, date of manufacture and name of the manufacturer. For ease of 2/3 wheelers, Retail Outlets provide 2-T dispensers/2-T mix dispensing units and also keep tamper proof 2-T pouches. Recommendations Bringing down the price discrepancy between adulterants and base fuel products appears to be an effective step in discouraging this practice, but it could not be possible to increase the prices of products like kerosene, etc. which caters to poor people. There exist various technical measures are accessible to tackle this problem but those measures give benefit only when backed up by very good system of monitoring and surveillance. Furthermore, petroleum products being complex hydrocarbon mixtures with batch-to-batch variations, certain inevitable mixing between diverse batches in transit and in storage, availability of wide variety of adulterants, and the detection methods may not be easy. However, conscious systematic efforts can reduce adulteration to a great extent. Some of the possible measures are enlisted as follows:

Responsibility: The oil companies must be legally responsible for the failure of any product fully meeting the required specifications or detection of some admixture of low duty product, by-products or waste products in the outlet of the company carrying the sign of the company. Any fault by the transporter or the dealer will be still inside the jurisdiction of the Oil Company. Oil Companys Role: Responsibility for dispensing the right quality of fuels must be made obligatory to oil companies. Being in their jurisdiction, the oil companies must be required to closely examine the transport and retailer facilities and conduct suitable checks to control and prevent adulteration.

By-product Outlet: Refiners and Petrochemical complexes must not be allowed to sell any by-product or intermediate product to the market but only to a refinery for further processing into specification products. Products like slack wax, tank sludge must also be considered forrefinery processing. By-product Disposal Follow-up: In. case any by-products are sold out or the final disposal of by-products from chemical processing, solvent preparation, solvent regeneration units, etc. require to be transparent and the disposal and ultimate usage pattern need to be verified at regular intervals. Passport for Transport Fuel Batches: Transport fuels must have passport containing principal characteristics, which the batch will carry till the retail outlets. This will assist in identification of adulterants at the outlets. Appropriate analytical methods for this need to be established. Furthermore, there should be expansion of the tank lorry locking system introduced in metros to other cities.

Legal Framework: There is extra need to develop legally binding and legally enforceable penalty system. Penalty system should be harsh and imposed upstream. In case of an abuse in fuel market the penalty should be imposed on all concerned along the supply chain-the company, transporters and dealers and the actions taken must be exemplary to discourage adulteration practice. Sample Collection & Analysis: A lawfully acceptable system of sample collection and analysis in accredited laboratories of l selected parameters and full specification testing requires to be worked out and implemented.

Independent Sample Testing: Setting up of a self-governing anti-adulteration cell and the joint inspection approach put in place in NCT of Delhi beneath the directions of the Supreme Court brought about improvement in fuel quality. Inspections by cooperative teams of anti-adulteration cell, state civil supplies and state pollution control boards officials in polluted cities must be taken up. Surprise Checking: Rigorous surprise checking of samples from pumps must be carried out independently and in case of non-compliance; the responsible oil company may be named and highlighted in media. This will force the oil companies to protect their brand image and ultimately mount pressure on the oil companies to be efficiently vigilant about the quality of fuels sold in their retail outlets.

Compliance Certification/Awards: A system of monitoring and award for the fuel stations can be initiated in the cities. Bodies like Central Pollution Control Board can undertake monitoring of samples from different outlets and award compliance certificate to the stations. Upon non-compliance of samples, the relevant fuel station may be stripped off its compliance certificate. This when practiced would motivate the petrol pump owners for fine & quality conscious business.

Markers: Special marker systems are nowadays available in I International Markets and some pilot projects on markers are also going on in India. These markers possibly will be adopted for detecting adulteration.

Research & Development: R&D organization must be directed to conduct studies to assess the impact of adulteration on quantum & toxicity of emissions and results of such studies can be helpful in creating public awareness.

Good Business Practices: Voluntary initiatives of the oil companies similar to Pure for Sure as initiated by BPCL needs to be encouraged by the Government.

Awareness: Consumer organizations at city/town level with essential support of concerned authorities can serve as watchdog to check adulteration. Section B (30 marks)

(Attempt any three)

1. Identify the people in petro industry. Also, list the customers categorisation and recognition. People in Petro Industry

The petroleum chain can be portrayed as a global supply-driven structure with the main following actors: Suppliers of Crude Oil: As a natural resource, the crude oil is located in definite areas of the World that typically are far from the main consuming countries, by and large the OECD (Organization for Economic Co-operation and Development) members. A significant part of the crude oil supply and reserves is concentrated in the hands of an alliance: OPEC (Organization of Petroleum Exporting Countries).

Refiners: With plants located all over the world moreover closer to final consumers. The major reason for this fact is the economies of scale of transporting crude oil in large supertankers versus transporting the final product in smaller lots, and the deliberate value of the refining assets. This latter fact makes governments have a preference having some of the refinery operations in their territories.

Consumers: They are categorized into small consumers (e.g., car owners buying gasoline) and wholesale consumers (e.g., power stations using heavy oil, petrochemicals plants receiving feedstock).

The petroleum downstream industry serves fundamentally two types of customers:

Wholesale customers, composed by petrochemical facilities, power plants, large fuel consumers (airlines, shipping companies) and other industrial customers.

Retail customers, who make use of the fuels essentially for transportation and domestic heating.

Customers Categorization and Recognition: In developing products and services, the significant aspect is to understand your customer. Segmentation is a dominant tool to help marketers identify the requirements of the customers.The top three segments as being the most advantageous and oil companies developed its products and services to cater to the target customers requirements. An implementation to understand the customer segments can go a long way for local petroleum retailers to recognize the target segments and developing the appropriate strategy. Product and Service Development:

Formerly the choice of target segment is identified, products and services require to be tailored to their requirements. The target customer must drive the value proposition, for both fuel and non- fuel products in addition to services.Fuel Based Proposition: In certain markets, petroleum retailers sell numerous grade fuels based on the octane ratings, with diverse prices at different stations, where the customer can hunt for a bargain. In many places where unleaded fuel is the standard, 2 grades are available, Octane 95 and 98. Though, the Octane 98 petrol accounts for less than 5% of the over 3.3 billion litres consumed. This might be attributed to the 25% premium over the Octane 95 product price, which is managed by the government.On the other hand, with the large high-end car population, an opportunity exists in the market to perk up the perception of product superiority and get better the bottom line. In India too, with the beginning of stringent pollution norms, coupled with the growth in large cars, the better-quality product based opportunity is large. The first mover benefit needs to be captured and capitalised through a merge of customer education and marketing activities.2. Discuss the exploration and production process of petroleum.Exploration and Production

Exploration and Production encompasses discovery and production of oil and gas by undertaking geological and geophysical surveys like remote sensing, airborne magnetic and field gravity to identify the principal areas of adequate sediment cover. The areas thus identified are assessed for the most likely hydrocarbon potential through various methods of resource appraisal. Depending on the resource estimated, available technology and the current economic factors, each basin is ranked in terms of risk and reward and exploration priorities assigned. Basins/areas of low to medium risk and high to moderate reward are taken up first for systematic exploration, which begins with detailed geological and regional seismic surveys. The results of such surveys highlight area of cost intensive exploratory inputs like seismic surveys on adequate grid and structural/parametric/information drilling. Favourable results of these inputs lead to the next stage of exploration during which targets are decided and prospects identified. Each prospect thus demarcated is evaluated, techno-economically.

Exploratory Drilling: An exploratory well is required to confirm y the existence of oil and gas in a terrain and extract required information from the geological history and the nature and organisational aspects of reservoir. The surveys whether 2D or 3D can give us the signals of structure containing oil or not. It is the exploratory drilling, which can ascertain whether the oil is there or not. The costs involved in exploratory drilling are very high and also require huge amount of capital. The costs may escalate if exploratory activities are further stepped up. In this way, it would put a pressure on the resources of the Oil Company. On the contrary, if oil is actually found under the identified structure the whole costs involved in exploration could be capitalised. Otherwise, in case of dry well the entire costs would be written-off by the concerned company.

Development Drilling: It is the phase in which oil that has been i explored can be commercially extracted. Development of drilling is meant for commercial extraction of oil but it is highly capital intensive and requires a long gestation period. In most Asian countries, the governments have managed to extract between 80 to 90 per cent of the total revenue in the form of various royalties, levies, duties and taxes. Commercial Production: Commercial exploitation commences in accordance with the available infrastructure. Initially the reservoir pressure would be adequate to push oil and gas to the surface but pressure decreases with increase in production. The natural drive mechanism can be scientifically used to maintain the rate of production. However, secondary recovery methods, like injection of additional energy will be needed only if there is a fall in production with poor recovery rates. Enhanced Oil Recovery (EOR) techniques involving injection of hot water, steam or addition of solvents could also be used to increase production though, at current oil prices, use of EOR may not be commercially viable. Contracts and Licences: Commercial extraction of reservoirs can begin after obtaining licences or contracts from the State Governments. Such agreements are in the form of either licences Or what is called as production sharing contracts. In case of licences, the states interest is restricted to royalties and taxes and licences will be free to produce and sell oil and gas without any limitations. In the case of production sharing contract(s), the National Oil Company is made a partner in the venture and initial exploration costs would have to be borne by the contractor. Revenues earned on production of oil and gas shall first set off the costs incurred by the contractor and the balance amount shall be shared in a predetermined ratio. Exploration and Development in the Ninth Plan: With evolving geological concepts and experience in other parts of the world it is seen that the less explored basins in India, e.g., Gondwana basins could be more prospective and need to be accorded top priority for exploration. Exploration efforts should spread over all the basins including unexplored/less explored having favourable geological formations. This requires a change in exploration strategy. 3D technology has been identified as a major seismic input for the development of the field as well as for monitoring EOR processes. Tools for Measuring Exploration EfficiencyThe most commonly used parameter for measuring exploration efficiency is the finding cost. The index is a good indicator of how successful a petroleum firm is in finding and developing new reserves at reasonable costs. Finding cost provides the cost per barrel of finding and developing new reserves depending upon what parameters have been used in deriving it. International E and P companies use three different definitions of finding costs, which are:

Exploration expenses and leasehold costs divided by the reserve addition from exploratory efforts.

Exploration expenses and leasehold costs divided by reserve addition and revision.

Exploration, leasehold and development costs divided by reserve additions, revision and enhanced recovery or reserve purchase.

4. Throw light on the fuel industry in India. What initiatives did India take to control fuel adulteration?

The petrol retail sector can be termed as one of the mainly organized sectors of the retail industry. In line with the strong GDP growth, the petroleum sector saw a noteworthy increase in the consumption of petroleum products, the year on year growth has resulted in sales of petroleum products rising.

The oil and gas industry is predictable at US $ 110 billion, which is 14% of Indias GDP. This sector is about 45 per cent of the total energy consumption of the nation, which is the fifth largest energy consumer in the world. Petroleum exports have also emerged as the single largest foreign exchange earner, and increasing at a faster rate.

Fuel Industry: Key players in this sector comprise Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL), Indian Oil Corporation (IOC) and Oil & Natural Gas 3 Commission Limited (ONGC). Oil retailers are as well looking at revenues from non-fuel retailing, such as FMCG products and grocery sales, at their outlets. One more public sector company, Mangalore Refinery and Petrochemicals (MRPL) is planning to Open around 15 outlets over the next two months. Numaligarh Refinery (NRL), a subsidiary of BPCL, has 74 retail outlets across the country and plans to open at least 100 more, both in the North East and North India.

The country has 36,936 petrol pumps. Of the overall retail outlets, state run Indian Oil, Bharat Petroleum and Hindustan Petroleum own 34,304 pumps whereas the remaining belong to the private; sector.

The PSU giants have been tying up with a variety of FMCG and; other companies to promote forecourt retail. With the fast growth being witnessed in the fast food industry, BPCL has entered into agreements with both of the Joint venture partners of McDonald: operating in India - Hardcastle restaurants Private Limited and Connaught Plaza Restaurants Private limited. BPCL as well signed an agreement with Nirulas Corner House Private Limits. for setting up Nirulas restaurants in the network. These QSR alliances, while pleasing the image of the retail network, will serve as a differentiating customer value proposition. BPCL furthermore operates the In&Out convenience stores at various petrol pumps. Go after the footsteps of global oil marketing companies, Indian Oil has decided to come in the retrial business at some 2,000 of it 16,455 retail outlets. Indian Oil is planning to partner with existing retailers, for instance Apollo for pharmacies, Subhiksha bookseller Crossword and Caf Coffee Day. This is alike in concept to the In&Out retail store format at competitor Bharat Petroleum Corp Ltd., which has formed deliberate alliances with major bran owners, retailers and music stores Planet M and Music World among others. Indian Oil expects the retail business to add a total turnover of around Rs 3,000 crore when rolled out fully. Internationally, petrol pump-based convenience stores have developed into large businesses with corporations such as Royal Dutch Shell Pic., Caltex Australia Petroleum Pty Ltd and BP. The enlargement in highway infrastructure courtesy the Golden Quadrilateral project and the impending competition in oil retailing, seem to be the two key drivers. Moreover, with land becoming costlier, there is restricted scope for urban growth. Little wonder then that almost 70% of all new outlets are coming up highways. In the midst of the private sector players, Reliance Industries outlets were selling approximately four times the average sales of , PSU outlets. The sales volumes of RIL, outlets fell considerable after PSU oil retailers were prevented by the government from raising prices.

Indian Initiatives to Control Fuel Adulteration: It is essential to dispense auto fuels of the right quality to achieve the targeted emissions from vehicles. Hence, adulteration of auto fuels should be discouraged in all its forms. Off late India has also taken some initiatives to deal with this problem. As per the Ministry of Petroleum & Natural Gas, following steps have been undertaken to control Adulteration of Fuel in the country:

1. The Ministry of Petroleum & Natural Gas has caused oil Companies takes various steps listed below to detect/prevent adulteration of MS/HSD at retail outlets: I. Filter paper test,

II. Furfural doping of PDS kerosene,III. Density checks,

IV. Blue dyeing of kerosene,

V. Regular/surprise inspection of retail outlets,

VI. Joint inspection of retail outlets by the industry teams,

VII. Regular/surprise inspection by mobile laboratories,

VIII. Special vigilance drives, etc.

2. Further, in order to prevent diversion of kerosene meant for distribution under PDS for adulteration, MoPNG has directed the oil companies to ensure upliftment by the wholesalers as under:

I. 60% by 1oth of the month

II. 25% during next week, and

III. Balance 15% during the following week.

3. MOPNG has also advised State/UT Government from time to time

I. To ensure upliftment of fuel by the wholesellers from oil companies as per upliftment pattern.

II. To identify loopholes in the distribution system.

III. To review scale of distribution4. MS/HSD control order has been amended for providing testing of MS/HSD for various parameters of specification apart from density like Octane No. of MS, Cetane No. of HSD, and any other parameter of MS/HSD specification indicated in the order.

5. The state Govt. authorities are empowered under the MS/HSD control order to conduct inspections at the retail outlets and take appropriate action against the erring dealers in case of any malpractices/irregularities detected.

6. MOPNG has also amended the control order making it mandatory for the parallel marketers to file end use certificate from their industrial customers.

7. An independent fuel-testing laboratory has been set up all Noida as directed by Honble Supreme court and as desired by EPCA for testing of samples drawn from retail outlets in the: NCT/NCR.8. MOPNG have issued two control orders namely (i) the solvent, Raffinate and Slop (acquisition, sale, storage and prevention of use in automobile) order, 2000 in order to prevent unauthorized usage of these products for adulteration of MS/HSD at retail outlets.

9. In addition to above, following measures are at advanced stage of implementation to prevent adulteration of MS/HSD: (i) Oil companies are undertaking trial of various marker systems to detect/prevent adulteration of MS/HSD. (ii) Oil companies are examining the feasibility of replacing the existing sealing system for the tanks carrying MS/HSD with Assa Abloy Security locking system in order to prevent en-route adulteration of MS/HSD by transportation/Tank truck crew. (iii) MOPNG has directed the oil companies to increase the number of mobile laboratories. (iv) Oil companies are setting up a number of laboratories equipped with facilities like CFR engines to test octane/cetane number of MS/HSD sample etc. all over the country. 10. Following methods are practiced for checking kerosene adulteration in MS: (i) Filter paper test (ii) ASTM Distillation However, both these methods are qualitative in nature and detection of low level of adulteration with SKO is not possible. For this IOCL (R&D) has done substantial work and based on the findings, addition of 20-ppm furfural was recommended. 11. A method using GC as a powerful laboratory-based tool for detecting hydrocarbon-based adulteration was suggested. In this original GC Finger prints (chromatogram) on as many potential base fuels (pure fuels) such as automotive gasoline, diesel fuels and kerosene were essential. The approach was to generate chromatogram of the fuels procured from the market and then to compare the same against the chromatogram of the so-called pure fuel for the hydrocarbons like hexane, heptane, etc. Any deviation in the concentration of hexane, heptane, etc. in the fuel amounted to adulteration. Though this method of detection of adulteration was later declared to be erroneous, arbitrary and irrelevant as it is claimed that there is nothing like pure gasoline, kerosene and diesel. Classically any of these fuels can be blended with different, hydrocarbon streams of refinery meeting the product specifications characteristics as per relevant Indian and International norms.Section C (50 marks)

(Attempt all questions. Every question carries 10 marks)

Read the case Pipelines - Indian Oil Corporation Limited. and answer the following questions:

Case Study: Pipelines - Indian Oil Corporation LimitedIndian Oil Corporation Ltd. operates a network of 11,214 km long crude oil, petroleum product and gas pipelines with a capacity of 77.258 million metric tonnes per annum of oil and 10 million metric standard cubic metres per day of gas. Cross-country pipelines are globally recognised as the safest, cost-effective, energy-efficient and environment-friendly mode for transportation of crude oil and petroleum products.The operational throughput of pipelines was recorded at 74.20 million metric tonnes during 2013-14. The offshore terminals of IndianOil at Vadinar, Mundra and Paradip have handled 218 tankers including 128 VLCCs during the year. The multi-product pipelines successfully prepared to transport Euro IV grade fuels from refineries to marketing centres maintaining the high quality standards of products during transportation. Beginning with the first batch of Euro-IV MS grade quality fuel to National Capital Region in January, 2010, Euro IV grade quality fuels have been transported through the pipelines from refinery locations to the major metros for supply of these environment friendly products to the consumers as per the new emission norms.

IndianOil completed and commissioned the 290-km long Chennai-Bangalore Pipeline to position the petroleum products from Chennai Petroleum Corporations Manali refinery to Bangalore and surrounding areas in a cost-effective manner. Crude oil feed for the expansion of Panipat refinery to 15 million tonnes was arranged through the augmented Mundra-Panipat Pipeline. The augmentation project was commissioned during the year at a cost of Rs. 165 crore against approved cost of Rs. 205 crore.

Integrated crude oil handling facilities being provided at Paradip involves setting up of a second and third Single Point Mooring (SPM) and concomitant sub-sea pipelines. Crude oil blending application installed at Mundra has been an attractive solution for refineries with the ability to blend different crude types to provide a consistent and optimal feedstock to refinery operations. The online integrated crude oil blender facility is now being implemented at Vadinar crude oil terminal to enable the maximization of yields of higher value products.

Implementation of Paradip-Sambalpur-Raipur-Ranchi Pipeline, branch pipeline from Koyali-Sanganer Pipeline at Viramgam to Kandla will further strengthen the petroleum product delivery in central and western India in the coming years.

Nearly 14 pipeline projects are under implementation at an approved cost of over Rs. 6,700 crore. Upon completion, these projects would result in additional length of over 3,600 km and added capacity of 16 MMTPA. These include the 700 km Paradip-Haldia-Budge Budge-Kalyani-Durgapur LPG Pipeline, 295 km Sanganer-Bijwasan Naphtha Pipeline, Augmentation of PHBPL and five additional tanks at Paradip, 270 km branch pipeline from Patna to Motihari and Baitalpur, 120 km Cauvery Basin Refinery to Trichy Pipeline and 400 km Ennore-Trichy-Pondicherry LPG Pipeline.

Crude Oil Pipelines

Salaya-Mathura Pipeline (SMPL)

IndianOil operates the 1870 km long Salaya-Mathura Pipeline from Salaya (near Vadinar) in Jamnagar district on the coast of Gujarat to bring crude oil to IndianOil's refineries at Koyali (Gujarat), Mathura (Uttar Pradesh) and Panipat (Haryana). Two Single Point Mooring (SPM) systems are operated at Vadinar to unload the crude oil received from tankers including Very Large Crude oil Carriers (VLCCs) with offshore pipelines. At Vadinar, IndianOil has a vast crude oil tank farm of 13 tanks with a total capacity of 0.773 MMT. IndianOil also has crude oil storage tank farm at Viramgam with a total capacity of 0.331 MMT. Another storage tank farm at Chaksu has six tanks with a total capacity of 0.219 MMT.

After traversing 435 km from Vadinar, the Salaya-Mathura Pipeline branches off at Viramgam in Gujarat through a 148 km pipeline to Koyali (Baroda). Further, after 716 km, the pipeline branches off at Chaksu to Mathura and Panipat.

Paradip-Haldia-Barauni Pipeline (PHBPL)

The 1302 km long crude oil pipeline from Paradip in Orissa to Barauni in Bihar has 328 km long Paradip-Haldia and 498 km long Haldia-Barauni sections. In addition, the pipeline system include 20 km long offshore pipeline from Single Point Mooring system to tank farm in Paradip. It also has a loopline of 437 km. A total of 19 km dockline also connects the pipeline with two crude oil jetties at Haldia. The crude oil requirement of IndianOil's refineries at Haldia, Barauni and Bongaigaon is transported through this pipeline.

Mundra - Panipat Pipeline (MPPL)

The 1194 km long Mundra Panipat Pipeline was commissioned to transport crude oil from Mundra on the Gujarat coast to IndianOil's refinery at Panipat in Haryana. The pipeline consists of a 74 km long pipeline from Mundra to Kandla which was hooked up to the existing system of Kandla-Panipat section of Kandla-Bhatinda Pipeline at Churwa near Gandhidham. The pipeline utilizes Gujarat Adani Port's Single Point Mooring (SPM) offshore crude oil terminal facilities and associated offshore and onshore pipelines. The crude oil tank farm consists of 12 crude oil storage tanks with total capacity of 0.499 MMT at Mundra.

Questions:

1. Write short note on the integrated crude oil handling facilities being provided at Paradip.

Integrated crude oil handling facilities being provided at Paradip involves setting up of a second and third Single Point Mooring (SPM) and concomitant sub-sea pipelines. Crude oil blending application installed at Mundra has been an attractive solution for refineries with the ability to blend different crude types to provide a consistent and optimal feedstock to refinery operations. The online integrated crude oil blender facility is now being implemented at Vadinar crude oil terminal to enable the maximization of yields of higher value products.

Implementation of Paradip-Sambalpur-Raipur-Ranchi Pipeline, branch pipeline from Koyali Sanganer Pipeline at Viramgam to Kandla will further strengthen the petroleum product delivery in central and western India in the coming years.

There is also 1302 km long crude oil pipeline from Paradip in Orissa to Barauni in Bihar has 328 km long Paradip-Haldia and 498 km long Haldia-Barauni sections. In addition, the pipeline system include 20 km long offshore pipeline from Single Point Mooring system to tank farm in Paradip.2. Where is the Salaya-Mathura Pipeline located and how long does it extends?

IndianOil operates the 1870 km long Salaya-Mathura Pipeline from Salaya (near Vadinar) in Jamnagar district on the coast of Gujarat to bring crude oil to IndianOil's refineries at Koyali (Gujarat), Mathura (Uttar Pradesh) and Panipat (Haryana). Two Single Point Mooring (SPM) systems are operated at Vadinar to unload the crude oil received from tankers including Very Large Crude oil Carriers (VLCCs) with offshore pipelines. At Vadinar, IndianOil has a vast crude oil tank farm of 13 tanks with a total capacity of 0.773 MMT. Indian Oil also has crude oil storage tank farm at Viramgam with a total capacity of 0.331 MMT. Another storage tank farm at Chaksu has six tanks with a total capacity of 0.219 MMT.

After traversing 435 km from Vadinar, the Salaya-Mathura Pipeline branches off at Viramgam in Gujarat through a 148 km pipeline to Koyali (Baroda). Further, after 716 km, the pipeline branches off at Chaksu to Mathura and Panipat.

3. Write an executive summary on the operations of Indian oil Corporation Limited.

Indian Oil Corporation Ltd. operates a network of 11,214 km long crude oil, petroleum product and gas pipelines with a capacity of 77.258 million metric tonnes per annum of oil and 10 million metric standard cubic metres per day of gas. Cross-country pipelines are globally recognised as the safest, cost-effective, energy-efficient and environment-friendly mode for transportation of crude oil and petroleum products. The operational throughput of pipelines was recorded at 74.20 million metric tonnes during 2013-14.

4. What do the Euro IV grade fuels depict in the above case?

An emission performance standard is a limit that sets thresholds above which a different type of emission control technology might be needed. While emission performance standards have been used to dictate limits for conventional pollutants such as oxides of nitrogen and oxides of sulfur (NOx and SOx), this regulatory technique may be used to regulate greenhouse gasses, particularly carbon dioxide (CO2). In the US, this is given in pounds of carbon dioxide per megawatt-hour (lbs. CO2/MWhr), and kilograms CO2/MWhr elsewhere.In India: Bharat stage emission standards are emission standards instituted by the Government of India to regulate the output of air pollutants from internal combustion engine equipment, including motor vehicles. The standards and the timeline for implementation are set by the Central Pollution Control Board under the Ministry of Environment & Forests. The standards, based on European regulations were first introduced in 2000. Progressively stringent norms have been rolled out since then. All new vehicles manufactured after the implementation of the norms have to be compliant with the regulations. Since October 2010, Bharat stage III norms have been enforced across the country. In 13 major cities, Bharat stage IV emission norms have been in place since April 2010. The phasing out of 2 stroke engine for two wheelers, the stoppage of production of Maruti 800 & introduction of electronic controls have been due to the regulations related to vehicular emission

While the norms help in bringing down pollution levels, it invariably results in increased vehicle cost due to the improved technology & higher fuel prices. However, this increase in private cost is offset by savings in health costs for the public, as there is lesser amount of disease causing particulate matter and pollution in the air. Exposure to air pollution can lead to respiratory and cardiovascular diseases, which caused 620,000 early deaths in 2010, and the health cost of air pollution in India has been assessed at 3 per cent of its GDP.

The multi-product pipelines successfully prepared to transport Euro IV grade fuels from refineries to marketing centres maintaining the high quality standards of products during transportation. Beginning with the first batch of Euro-IV MS grade quality fuel to National Capital Region in January, 2010, Euro IV grade quality fuels have been transported through the pipelines from refinery locations to the major metros for supply of these environment friendly products to the consumers as per the new emission norms.

5. How many pipeline projects are under implementation?

Nearly 14 pipeline projects are under implementation at an approved cost of over Rs. 6,700 crore. Upon completion, these projects would result in additional length of over 3,600 km and added capacity of 16 MMTPA. These include the 700 km Paradip-Haldia-Budge Budge-Kalyani-Durgapur LPG Pipeline, 295 km Sanganer-Bijwasan Naphtha Pipeline, Augmentation of PHBPL and five additional tanks at Paradip, 270 km branch pipeline from Patna to Motihari and Baitalpur, 120 km Cauvery Basin Refinery to Trichy Pipeline and 400 km Ennore-Trichy-Pondicherry LPG Pipeline.