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LPG Marketing in India

Analysis of impact of changes in Regulation and Market Structure

Summer Internship Project Report

(MAY –JUNE 2013)

Presented To

The Academic Faculty

Submitted in partial fulfillment of

MMS

2013-15

BY

AJIT VINOD DUBEY

MMS

Roll No. –06

Industry Guide-

Mr. D.V. Patel

Manager - Marketing

Oil and Natural Gas Corporation Ltd.

Marketing Group. Mumbai

First Floor, Exchange Plaza, BKC, Bandra (E), Mumbai-400051

Faculty Guide-

Prof. Hanif Kanjr

Rustom Jee Business School

Rustom jee Irani Marg Dahishar (West)

Mumbai – 400095.

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ACKNOWLEDGEMENT

My sincere gratitude to Dr. Hanif Kanjer, Dean of Rustomjee Business School, for providing me

with an opportunity to do my internship at ONGC. I take this opportunity to express my

profound gratitude and deep regards to Mr D.V Patel and Mr Haresh Patwardhan for allowing

me to work with ONGC which is a prestigious organization. A special thanks Mr Darshan

Pagar, my project guide, for their able guidance and advice which helped me to complete this

report.

I thank Mr. D.V Patel for his exemplary guidance, monitoring and constant encouragement

throughout the course of this project. The help and guidance given from time to time shall carry

me a long way.

I am obliged to all staff members of ONGC for their cooperation during the period of my

assignment.

Special thanks to all my professors, Mr. Darshan Pagar, Ms. Charmi, Ms Shipra Bhatia and Ms.

Kinjal for their valuable inputs which helped to me to put to practice what I had learnt from

throughout the past year.

Ms. AJIT VINOD DUBEY

Place: Mumbai

Date:

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CERTIFICATE FROM GUIDE

This is to certify that Ms. AJIT VINOD DUBEY is a bonafide student of RUSTOM JEE

BUSINESS SCHOOL, Mumbai and is presently pursuing a Master of Management (MMS)

course affiliated to Mumbai University.

Under my guidance she has submitted the project entitled “ LPG Marketing in India- Analysis

of impact of changes in Regulation and Market Structure” conducted at ONGC, Mumbai. To

the best of my knowledge this is an original piece of work.

I wish her all the very best in her career endeavors.

Signature of Guide Signature of Director

(Prof . Hanif kanjer) (Prof . Hanif kanjer)

Place: Mumbai

Date:

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DECLARATION

I, Ajit vinod Dubey hereby declare that I have completed the corporate profile report entitled

“LPG Marketing in India – Analysis of impact of changes in Regulation and Market

Structure” assigned to me by the Institute, to be submitted in the partial fulfillment of the

Integrated MBA 2 Year Degree from Mumbai University. Further, I declared that this is original

work done by me and the information provided in the study is authentic to the best of my

knowledge and belief.

Signature

AJIT VINOD DUBEY

Date- MMS-A (2013-15)

Place - DAHISHAR (WEST), MUMBAI

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Table of Contents Acronyms ........................................................................................................................................ 7

Abbreviations .................................................................................................................................. 8

Executive Summary ........................................................................................................................ 9

Research Objective ....................................................................................................................... 10

Research Methodology ................................................................................................................. 11

INTRODUCTION: ONGC ........................................................................................................... 12

HISTORY ...................................................................................... Error! Bookmark not defined.

1961 – 1990.................................................................................... Error! Bookmark not defined.

After 1990 ...................................................................................... Error! Bookmark not defined.

Profile- ONGC: ............................................................................................................................. 13

The Road Ahead: .......................................................................................................................... 16

ONGC looks forward to become an integrated energy provider, with:- ....................................... 16

Vision and Mission: ...................................................................................................................... 17

SWOT Analysis of ONGC............................................................................................................ 22

STP................................................................................................................................................ 22

SWOT ........................................................................................................................................... 23

Competition................................................................................................................................... 24

Energy consumption pattern in India ............................................................................................ 25

ENERGY OF INDIA IN COMING YEARS ............................................................................... 26

RENEWABLE ENERGY SCENARIO IN INDIA ...................................................................... 27

Players in the Energy Sector ......................................................................................................... 28

Introduction of LPG ...................................................................................................................... 32

Why use LPG? .............................................................................................................................. 37

LPG IN INDIA OVERVIEW ....................................................................................................... 39

DEMAND SUPPLY SCENARIO ................................................................................................ 39

LPG SUPPLY CHAIN ................................................................................................................. 41

Customer ....................................................................................................................................... 41

PRICING....................................................................................................................................... 42

LPG Selling rights to ONGC ........................................................................................................ 42

DISTRIBUTION AND RETAILING........................................................................................... 42

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INTERNAL MARKETING.......................................................................................................... 44

LPG PROGRAMS IN INDIA ...................................................................................................... 46

Deepam LPG Scheme ................................................................................................................... 46

Rajiv Gandhi Gramin LPG Vitrak ................................................................................................ 47

Petroleum Subsidy on SKO (PDS) and LPG (Domestic): ............................................................ 48

COMPETITIVE ENVIRONMENT.............................................................................................. 50

Threat from substitutes.................................................................................................................. 51

Cap on LPG cylinders hikes sales of auto LPG, CNG ................................................................. 52

Kerosene Demand To Dip on LPG use, Rural Electrification ...................................................... 53

RECENT CHANGES IN REGULATION ................................................................................... 55

LPG cap rise may fuel black marketing........................................................................................ 56

KYC (Know your customer) Norms Implementation For LPG connections ............................... 57

CUSTOMER BASE...................................................................................................................... 57

Direct Cash Transfer via Aadhar Card.......................................................................................... 58

LPG Subsidy Directly in Bank Accounts ..................................................................................... 58

AADHAAR................................................................................................................................... 60

Aadhaar Integrated Process........................................................................................................... 62

LPG Demand Outlook .................................................................................................................. 64

Infrastucture Plan .......................................................................................................................... 65

Rural Marketing ............................................................................................................................ 66

HURDLES .................................................................................................................................... 68

VISION 2015 ................................................................................................................................ 70

Vision 2015 of Govt. of India ....................................................................................................... 71

FINDINGS .................................................................................................................................... 73

RECOMMENDATION ................................................................................................................ 74

CONCLUSION ............................................................................................................................. 75

Bibliography.................................................................................................................................. 76

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Acronyms

APM – Administrative price mechanism

ATF – Aviation turbine fuel

BPCL – Bharat Petroleum Corporation Limited

CAGR – Compounded annual growth rate

CBM – Coal bed methane

CGD – City gas distribution

CNG – Compressed natural gas

GAIL – Gas Authority of India limited

GGCL – GujratGas Company limited

GOI – Government of India

IGL – Indraprastha Gas limited

LNG – Liquefied Natural Gas

LPG – Liquefied Petroleum Gas

LSHS – Low Sulphur Heavy Stock

MOPNG – Ministry of Petroleum and Natural Gas

Non-APM – Non-administrative price mechanism

OIL – Oil India Limited

ONGC – Oil and Natural Gas Corporation

PNG – Piped Natural Gas

PSU – Public Sector Undertaking

RIL – Reliance Industries Ltd

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Abbreviations

BCM – Billion cubic metres

BCF – Billion cubic feet

BMT – Billion metric tonne

CM – Cubic metres

Mbar – millibar

MBtu – Million British thermal units

Mcm – Million cubic metres

MMSCMD – Million standard cubic metres

MMT – Million metric tonne

MTPA – Million tonnes per annum

Mtoe – Million tonnes of oil equivalent

Toe – Tonne of oil equivalent

Tcf – Trillion cubic feet

Km – Kilometres

SCM – Standard cubic metres

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Executive Summary

This project deals with the LPG business in India. The focus is pertaining to the analysis of

impact of changes in regulation and market structure, its a constituents and how it is produced.

Following to it demand. Thesupply chain of the LPG businessstarting right from procuring,

storage and also customer and pricing. Retailing and Distribution processes have been explained

in details. Next comes the marketing of LPG, which had unique characteristics because of the

fact the product cannot be seen either by the producer neither the consumer. Therefore it is

important from the company’s point of view to create a perception in the minds of the consumer

that of reliability and safety.

The market segment consists of domestic, commercial and Industrial segment and the marketing

as well as the pricing policies varies accordingly. One of the biggest challenges of the business

of LPG is the diversion of the cylinder from the Domestic segment to the Commercial and

Industrial segment. It is in the interest of the company to orient the distributor and consumers

accordingly to the regulations of the business. The motivation arises from the subsidized price of

Domestic LPG, which is not the case in commercial and Industrial segment.

The competitive environment of the business has been analyzed. The intra Oil Marketing

Company’s competition as well as the competition between Oil Marketing Companies and

Parallel Marketing Companies has been explained. Again, the threat from one of the most potent

substitute of LPG, Piped Natural Gas has been analyzed. Though LPG is a more efficient fuel

than Natural gas (higher calorific value), but the advantages in case of Natural gas out weights

the LPG by some amount. Until the infrastructure for distribution of Natural gas is present.

Liquefied Petroleum Gas will continue to be in existence, though to make this business viable the

abolition of the subsidy regime needs to be implemented. The recent changes in capping of LPG

subsidized cylinders to nine from the previous six have been analyzed. The challenges for the

rural marketing of LPG has been explained in detail and the program implemented by the

government for the rural people.

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Research Objective

1. To Study the growth in domestic use of LPG in India – In continuation of the recent trend

2. To Study the domestic use of cooking fuels in Rural India, particularly that of LPG

3. To Understand the requirements in terms of supply and distribution- To meet the

increased demand for LPG

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Research Methodology

Primary Research

Interaction with managers And other employee in ONGC

Secondary Research

Secondary Data has been gathered from the sources such as internet, published News, statistical

Records and ONGC Marketing Handbooketc

This data was then analyzed to make necessary findings and recommendations pertaining to the

study.

Limitations

There are certain limitations pertaining to the project as the business is very competitive. Data

with regard to future plans of the various players is not available easily. Because there are

Control of Government of India

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INTRODUCTION: ONGC

ONGC was set up under the visionary leadership of PanditJawaharLal Nehru. Pandit Nehru

reposed faith in ShriKeshavDevMalviya who laid the foundation of ONGC in the form of Oil

and Gas division, under Geological Survey of India, in 1955. A few months later, it was

converted into an Oil and Natural Gas Directorate. The Directorate was converted into

Commission and christened Oil & Natural Gas Commission on 14th August 1956. In 1994, Oil

and Natural Gas Commission was converted in to a Corporation, and in 1997 it was recognized

as one of the Navratnas by the Government of India. Subsequently, it has been conferred with

Maharatna status in the year 2010.Today, Oil and Natural Gas Corporation Ltd. (ONGC) is, the

leader in Exploration & Production (E&P) activities in India having 72% contribution to India’s

total production of crude oil and 48% of natural gas. It also contributes over three million tons

per annum of Value-Added-Products including LPG, C2 - C3, Naphtha, MS, HSD, Aviation

Fuel, SKO etc.

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Profile- ONGC:

Global Ranking:

Only Indian energy major in Fortune's Most Admired List 2012

under 'Mining, Crude Oil Production' category.

It is ranked 171th in Forbes Global 2000 list of the World's

biggest companies for 2012 based on Sales (US$ 26.3 billion),

Profits (US$ 5 billion), Assets (US$ 51 billion) and Market

Capitalization (US$ 46.6 billion).

ONGC has been ranked 39th among the world's 105 largest listed companies in 'transparency

in corporate reporting' by Transparency International making it the most transparent

company in India.

ONGC is India's Most Valuable Public Sector Enterprise:

The Company won Petrofed Oil & Gas Industry Awards 2011 in three categories -

"Environmental Sustainability: Company of the Year", "Human Resource Management:

Company of the Year" and "Innovator of the Year: Team (Won by IOGPT)".

It was bestowed with "Most Attractive Employer" Award in Randstad Awards 2011

Won "Golden Peacock Award for Sustainability" for the year 2011

Awarded with the Gold Trophy of SCOPE Meritorious Award for "Environmental

Excellence & Sustainable Development" for the Year 2010-11 by former President Smt.

PratibhaDevisinghPatil

Anointed "Outstanding PSU of the Year" at AIMA Managing India Awards 2012

Awarded the Best overall Performance PCRA Award in the Upstream Sector (Oil & Gas) for

3rd consecutive year

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Awarded the "ICSI National Award for Excellence in Corporate

Governance for 2011"- Certificate of Recognition

Awarded NIPM National Award for Best HR Practices – 2011

Adjudged amongst 20 Top Companies for Leaders 2011 in Aon

Hewitt Awards

"Best Enterprise Award" for the organization in the Maharatna and Navaratna Category at the

22nd National Meet of Women in Public Sector (WIPS)

It was bestowed with Safety Innovation Award 2011 in the Oil & Gas sector for innovative

safety measures

OVL Honored with SCOPE Excellence Award for Excellence and Outstanding Contribution

to the Public Sector Management

Perspective Plan 2030 (PP2030):

PP2030 charts the roadmap for ONGC's growth over the next two decades.

It aims to double ONGC's production over the plan period with 4-5 per

cent growth against the present growth rate of 2 percent. In physical terms

the aspirations under Perspective Plan 2030 aims for -

Production of 130 mmtoe of oil and oil equivalent gas (O + OEG) per

year and accretion of over 1,300 mmtoe of proven reserves.

Grow ONGC Videsh Limited (OVL) six fold to 60 mmtoe of international O+OEG

production per year by 2030.

More than 20 mmtoe of O+OEG production per year in India coming from new

unconventional sources such as shale gas, CBM, deep water and HPHT (High Pressure &

High Temperature) reservoirs.

Over 6.5 GW power generations from nuclear, solar and wind and 9 MTPA of LNG.

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Scaling up refining capacity to over 20 MMTPA and targeted investments to capture

downstream integration in petrochemicals.

Financials (2011-12):

ONGC group's turnover during 2011-12 has been Rs. 150,185 Crore with net profit of Rs.

28,144 Crore. ONGC paid the highest-ever dividend of Rs. 8,342 Crore. The Net Worth of

ONGC Group of companies is Rs. 135,266 Crore.

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The Road Ahead:

ONGC looks forward to become an integrated energy provider, with:-

New Discoveries and fast track development

Equity Oil from Abroad

Downstream Value Additions & Forward Integration

New Sources of Energy

ONGC has taken structured initiatives to tap unconventional energy sources through

unconventional gases like Coal Bed Methane (CBM), Underground Coal Gasification (UCG),

Shale Gas and Gas Hydrates, or unconventional energy sources like wind, solar etc.

"ONGC Energy Centre Trust", a dedicated centre created by ONGC for holistic research in

non-conventional energy sources, has taken up three projects viz., Thermo-chemical reactor for

Hydrogen, Geo-bio Reactors and Fuel Cells. ONGC has already commissioned a 50 MW Wind

Farm in Gujarat and plan is afoot to set up another 100 MW Wind Farm in Rajasthan. ONGC

has also set up 3 Solar Thermal Engines at Solar Energy Centre, Ministry of New and

Renewable Energy (MNRE) campus at Gurgaon.

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Vision and Mission:

“To be global leader in integrated energy business through sustainable growth, knowledge

excellence and exemplary governance practices.”

. ONGC-World Class:

Dedicated to excellence by leveraging competitive advantages in R&D and technology

with involved people.

Imbibe high standards of business ethics and organizational values.

Abiding commitment to safety, health and environment to enrich quality of community

life.

Foster a culture of trust, openness and mutual concern to make working a stimulating and

challenging experience for our people.

Strive for customer delight through quality products and services.

ONGC- Integrated In Energy Business:

Focus on domestic and international oil and gas exploration and production business

opportunities.

Provide value linkages in other sectors of energy business.

Create growth opportunities and maximize shareholder value.

ONGC As Dominant Indian Leadership:

Retain dominant position in Indian petroleum sector and enhance India's energy

availability.

ONGC Manpower Strength:-

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ONGC- Our People

Today, ONGC is the flagship company of India; and making this possible is a dedicated team of

nearly 33,000 professionals who toil round the clock. It is this toil which amply reflects in the

aspirations and performance figures of ONGC. The company has adopted progressive policies in

scientific planning, acquisition, utilization, training and motivation of the team. At ONGC,

everybody matters, every soul counts.

ONGC has a unique distinction of being a company with in-house service capabilities in

all the activity areas of exploration and production of oil & gas and related oil-field services.

Needless to emphasize, this was made possible by the men & women behind the

machine. Over 18,000 technically-competent experienced scientists, engineers and specialist

professionals, mostly from distinguished Universities / Institutions of India and abroad form the

core of our executive profile. They include geo-logists, geo-physicists, geo-chemists, drilling

engineers, reservoir engineers, petroleum engineers, production engineers, engineering &

technical service providers, financial and human resource experts and IT professionals.

“As on 31 March 2013, the company had 32,923 employees, out of which 2,091 were

women (6.35%) and 143 were employees with disabilities (0.43%).”

ONGC- HR Vision, Mission & Objectives

HR Vision

"To build and nurture a world class Human capital for leadership in energy business".

HR Mission

leaders through engaged empowered and enthused employees".

HR Objectives

Enrich and sustain the culture of integrity, belongingness, teamwork, accountability and

innovation.

Attract, nurture, engage and retain talent for competitive advantage.

Enhance employee competencies continuously.

Build a joyous work place.

Promote high performance work systems.

Upgrade and innovate HR practices, systems and procedures to global benchmarks.

Promote work life balance.

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Measure and Audit HR performance.

Promote work life balance, integrate the employee family into the Organisational Fabric.

Inculcate a sense of Corporate Social responsibilities among employees.

Measuring HR Performance

HR Parameters have been incorporated in the MOU by ONGC since 1994-95, to

systematically and scientifically evalua"To adopt and continuously innovate best-in-class HR

practices to support business te effectiveness of HR Systems, which enables and facilitates time

bound initiatives.

HR Parameters of MoU for 2009-2010

Mentoring and coaching

HR Audit

Engagement Survey

Continuous professional education credit course for finance executives of ONGC.

A Motivated Team

HR policies at ONGC revolve around the basic tenet of creating a highly motivated,

vibrant & self-driven team. The Company cares for each & every employee and has in-built

systems to recognise & reward them periodically. Motivation plays an important role in HR

Development. In order to keep its employees motivated the company has incorporated schemes

such as Reward and Recognition Scheme, Grievance Handling Scheme and Suggestion

Scheme.

Incentive Schemes to Enhance Productivity

Productivity Honorarium Scheme

Job Incentive

Quarterly Incentive

Reserve Establishment Honorarium

Roll out of Succession Planning Model for identified key positions

Group Incentives for cohesive team working, with a view to enhance productivity

ONGC- Training & Development

An integral part of ONGC’s employee-centred policies is its thrust on their knowledge

upgradation and development. ONGC Academy, previously known as Institute of Management

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Development (IMD), which has an ISO 9001 certification, along with 7 other training institutes,

play a key role in keeping our workforce at pace with global standards.

ONGC Academy is the premier nodal agency responsible for developing the human

resource of ONGC. It also focuses on marketing its HRD expertise in the field of Exploration &

Production of Hydrocarbons. ONGC’s Sports Promotion Board, the Apex body, has a

Comprehensive Sports Policy through which top honours in sports at national and international

levels have been achieved.

ONGC- Transforming the Organization

ONGC has undertaken an organization transformation exercise in which HR has taken a

lead role as a change agent by evolving a communication strategy to ensure involvement and

participation among employees in various work centres. Exclusive workshops and

interactions/brainstorming sessions are organized to facilitate involvement of employees in this

project.

ONGC- Participative Culture

Policies and policy makers at ONGC have always had the interests of the large and multi-

disciplined workforce at heart and have been aware of the nuances and significance of cordial

Industrial Relations. By enabling workers to participate in management, they are provided with

an Informative, Consultative, Associative and Administrative forum for interactive participation

and for fostering an innovative culture.

In fact, ONGC has been one of the few organizations where this method has been implemented.

It has had a positive impact on the overall operations since it has led to enhanced efficiency and

productivity and reduced wastages and costs.

ONGC- A Model Corporate Citizen

Respect and dignity are the key values that underline the relationship ONGC has with its

human assets. Conscious about its responsibility to society ONGC has evolved guidelines for

Socio-Economic Development programmes in areas around its operations all over the country.

Education

Health Care and Family Welfare

Community Development

Promotion of Sports and Culture

Calamity Relief

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Development of Infrastructural Facilities

Development of the Socially & Economically Weaker Sections of Society Benefit and

Welfare

ONGC- Sports

Around 150 sportspersons including 95 international level performers are on the rolls of

ONGC representing your Company in 15 different games.

ONGC hosted the ONGC Nehru Cup International Invitational Tournament during 2007-

08.

Chess Queen Koneru Humpy was conferred with Padmashri and Badminton ace Chetan

Anand received the Arjuna Award.

Reigning World Billiards Champion Pankaj Advani retained his title after an 'all ONGC

Final' in which Dhruv Sitwala was the Runner-up

Arjuna Awardee Virender Sehwag became the first Indian and third cricketer to score

two triple Test centuries.

Your Company won the Petroleum Minister's PSPB Trophy for Overall Best

Performance in 2007-08 for the fifth year in succession

Corporate Social Responsibility

ONGC is spearheading the United Nations Global Compact - World's biggest corporate

citizenship initiative to bring Industry, UN bodies, NGOs, Civil societies and corporate

on the same platform.

During the year, your Company has undertaken various CSR projects at its work centres

and corporate level.

Women Empowerment

Women employees constitute about 5% of ONGC's workforce. Various programmes for

empowerment and development, including programme on gender sensitization are organized

regularly

Source: www.ongcindia.com

Figure: 1

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SWOT Analysis of ONGC

BrandName

ONGC Oil and Natural Gas Corporation

Category

Oil & Gas

Sector

Energy

Tagline/ Slogan

Making tomorrow brighter;

Nibhayezimmedaribharose se

USP

India’s biggest oil and gas exploration

organization

STP

Segment Corporate, countries, individuals looking to

fulfill energy needs

Target Group

Enterprises looking for energy for production,

people for petrol, diesel for vehicles and

domestic uses

Positioning

The future of India’s energy

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SWOT

Strengths 1.Indias largest crude oil and gas producer

2. Strong brand name

3.High profit margin

4.Has over40,000 employees

5.It produces about 30%of India’s crude

oil requirement

6.Contributes 77% of India’s crude oil

production and 81%of India’s natural gas

production.

Weakness

1.Legal issues

2.Employee management

3.Bureaucracy

4.Human rights and rehabilitation

Opportunity

1.Increasing fuel/oil prices

2.Increasing natural gas market

3.More oil well discoveries

4.Expand export market

Threats

1.Government regulations

2.High competition

3.Hybrid and electric cars in the market

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Competition

Competitors 1.Bharat Petroleum

2.Hindustan Petroleum

3.Reliance Industries

4.IOCL

5. Cairn Energy

Source: MOPNG

Product Portfolio

ONGC is engaged in the exploration, production, refining, transporting and marketing of crude

oil, natural gas, liquefied petroleum gas, natural gas liquid, ethane, propane and other products.

The company’s key product s and service includes the following products:

Crude oil

Natural gas

Value Added Products

Liquefied Petroleum Gas

Ethane/ Propane

Naphtha

Low Sulphur Heavy Stock (LSHS)

Superior Kerosene Oil (SKO)

High Speed Diesel (HSD)

Aviation Turbine Fuel (ATF)

Mineral Turpentine Oil (MTO)

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Energy consumption pattern in India

India is the second largest commercial energy consumer in Non-OECD East Asia, comprising 19

percent of the region’s total primary energy consumption. Economic growth in India has largely

been associated with increased energy consumption. While 60% of total energy needs in India

are met by commercial energy sources, remaining 40% are comprised of non-conventional fuels.

Over past few years, climate change has become one of the main concerns driving energy policy.

More than 150 countries, including India, have committed themselves under the United Nations

Framework Convention on Climate Change to formulate and implement mitigation and

adaptation measures to climate change. India accounts for over 3.5% of world carbon emissions.

Since energy use is a major source of emissions, it is necessary to focus on the management of

energy demand and supply as a means to abatement. While energy demand grows significantly

with economic growth, this coupling varies over time, depending on various other things.

Technological progress, energy efficiency programmes and structural changes contribute towards

the variation in energy demand. Understanding the various components of energy demand is

therefore important and necessary in order to deal with future emissions.

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ENERGY OF INDIA IN COMING YEARS

The Indian government planned to double its renewable energy capacity by 2017. Prime Minister

Manmohan Singh said that India would ramp up its use of wind, solar and biomass energies in

the coming years.

"It is proposed to double the renewable energy capacity in our country from 25,000 MW in 2012

to 55,000 megawatts by the year 2017." We have set ourselves a national target of increasing the

efficiency of energy use to bring about a 20 to 25 per cent reduction in the energy intensity of

our GDP by 2020.

This is not the first time that Singh has pledged to increase India's renewable energy output

dramatically. In the past he has vowed to make nuclear energy account for 25 percent of India's

power needs by 2050. And the Jawaharlal Nehru National Solar Mission created during his

tenure aims to create 20,000 megawatts of solar energy generating capacity by 2023.

The stakes are huge, even without the threat of global warming. Not only does India rely on dirty

coal for most of its power generation, but it also faces a looming coal shortage that will make it

hostage to import prices in the near future. Air pollution already ranks among the leading causes

of death. And the country desperately needs more power generating capacity.

Electricity shortages act as a constraint on economic growth, both preventing the development of

the manufacturing sector and costing existing manufacturers serious money — as the country's

ubiquitous backup generators, powered by diesel fuel, cost twice as much as energy supplied by

the overloaded grid.

Thenon-conventional sources of energy had reduced in price but were still higher than dirtier,

more conventional sources of power, like coal.It will soon be the second-largest contributor to

increasing global energy demands, accounting for 18 percent of the growth.

Singh said that"India is potentially a large market for production of such (solar) equipment and it

is also a potentially competitive, attractive production base for supplying other countries."

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RENEWABLE ENERGY SCENARIO IN INDIA

India is blessed with an abundance of sunlight, water and biomass. Vigorous efforts during the

past two decades are now bearing fruit as people in all walks of life are more aware of the

benefits of renewable energy, especially decentralized energy where required in villages and in

urban or semi-urban centers. India has the world’s largest program for renewable energy.

Government created the Department of Non-conventional Energy Sources (DNES) in 1982. In

1992 a full fledged Ministry of Non-conventional Energy Sources was established under the

overall charge of the Prime Minister.

The range of its activities cover

· Promotion of renewable energy technologies,

· Create an environment conducive to promote renewable energy technologies,

· Create an environment conducive for their commercialization,

· Renewable energy resource assessment,

· Research and development,

· Demonstration,

· Extension,

· Production of biogas units, solar thermal devices, solar Photovoltaics, cookstoves, wind energy

and small hydropower units

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Players in the Energy Sector

The following is a list of the world's largest Oil and gas companies, ordered by revenue in

millions of U.S. dollars according to the Fortune Global 500. Currently all companies with

revenue greater than $25 billion are included.

Company Revenue Headquarters

World Fuel Services 34,623 United States

Valero Energy 125,095 United States

Ultrapar 29,073 Brazil

Total 231,580 France

TNK-BP 48,909 Russia

Tesoro 29,927 United States

Surgutnefte gas 25,663 Russia

Sunoco 45,765 United States

Suncor Energy 40,231 Canada

Statoil 119,561 Norway

Sinopec 375,214 China

Showa Shell Sekiyu 28,497 Japan

Schlumberger 39,540 United States

S-Oil 28,808 South Korea

Royal Dutch Shell 484,489 Netherlands United

Kingdom

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Rosneft 65,093 Russia

Repsol YPF 81,122 Spain

Reliance Industries 76,119 India

PTT 79,690 Thailand

Plains All American Pipeline 34,275 United States

PKN Orlen 36,100 Poland

Petronas 97,355 Malaysia

Petrobras 145,915 Brazil

Company Revenue Headquarters

Pertamina 70,924 Indonesia

Pemex 125,344 Mexico

PDVSA 124,754 Venezuela

OMV Group 47,349 Austria

Oil and Natural Gas Corporation

Ltd.

30,746 India

Murphy Oil 31,446 United States

MOL Group 26,698 Hungary

Marathon Petroleum 73,645 United States

Lukoil 111,433 Russia

Korea Gas 25,721 South Korea

JX Holdings 119,258 Japan

SUMMER INTERNSHIP Page 30

International Petroleum Investment

Company

35,495 United Arab Emirates

Indian Oil 86,016 India

Idemitsu Kosan 48,828 Japan

Hindustan Petroleum 38,885 India

Hess Corporation 37,871 United States

GS Caltex 43,280 South Korea

GDF Suez 126,076 France

Gazprom 157,830 Russia

GasTerra 29,332 Netherlands

Gas Natural 29,305 Spain

Formosa Petrochemical Company 27,179 Taiwan

Exxon Mobil 452,926 United States

Enterprise Products 44,313 United States

ENI 153,676 Italy

Ecopetrol 35,520 Colombia

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CPC Corporation 32,769 Taiwan

Cosmo Oil Company 33,672 Japan

Conoco Phillips 237,272 United States

China National Petroleum 352,338 China

China National Offshore Oil

Corporation

75,514 China

China National Aviation Fuel Group 34,352 China

Chevron 245,621 United States

Centrica 36,860 United Kingdom

BP 386,463 United Kingdom

Bharat Petroleum 44,582 India

SOURCE : INTERNET

Here, we will prepare a project report on “Oil & Natural Gas Corporation Ltd.,” an

Indian company in Energy Sector as in next chapters.

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Introduction of LPG

Liquefied petroleum gas (LPG) is defined as a petroleum productcomposed predominantly of

any of the following hydrocarbons or mixturesthere of: propane, propylene, butanes (normal

butane or isobutane), andbutylenes. However, it is predominantly a mixture of BUTANE

andPROPANE in a fixed ratio, condensed to liquid state at normal ambienttemperature by the

application of pressure, conforming to specificationno. IS 4576.

Natural Gas and oil extraction

When natural gas and crude oil are drawn from the earth, a mixture of several different gases and

liquids are extracted, with LPG typically accounting for roughly a total of 5%. Before natural gas

and oil can be transported or used, the gases that make up LPG - which are slightly heavier – and

are separated out.

Crude Oil refining

The process of refining oil is complex and involves many stages. LPG is produced from oil at

several of these stages including atmospheric distillation, reforming, cracking and others. It is

produced because the gases of which it is composed (butane and propane) are trapped inside the

crude oil. In order to stabilise the crude oil before pipeline or tanker distribution, these

'associated' or natural gases are further processed into LPG.

In crude oil refining, the gases that make up LPG are the first products produced on the way to

making the heavier fuels such as diesel, jet fuel, fuel oil and gasoline. Roughly 3% of a typical

barrel of crude oil is refined into LPG, although as much as 40% of a barrel could be converted

into LPG.

Most Important Property of LPG

The most important property is that LPG products are gases at atmospheric temperatures and

pressures, but they can be liquefied and maintained in their liquid state with relative ease. For

example, propane,the hydrocarbon that comprises about 90 percent of most commercialLPG,

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occupies approximately 270 times less space as a liquid than it doesas a gas: about 270 cubic feet

of propane gas are condensed into 1 cubicfoot of propane liquid (at 60 °F). Butane has a slightly

lower ratio, but as a liquid still occupies less than 0.5 percent of the volume it would occupyas a

gas (again, at 60 °F).

Sources of LPG

These substances are generally extracted from natural gas or produced as a byproduct of the

refining of crude oil. Based on feedstock, there are three types of methods to produce LPG:

1. Crude oil: At Refineries

2. Natural Gas: At Fractionators / Producers

3. Condensate received with Gas: At Fractionators / Producers

ONGC produces LPG from its fractionators at Uran, Hazira,Ankleshwar and Gandhar.

Where is LPG used?

There are more than 1000 applications of LPG. Hundreds of millions of people currently use

LPG and depend on it for thousands of applications, in commercial business, industry,

transportation, farming, power generation, cooking, heating and for recreational purposes.

Only LPG can serve such a wide variety of uses such as cooking fuel for a family in South

Africa and a community kitchen in India, refrigeration for a shop owner in Brazil, autogas for

taxis in Tokyo, welding for car manufacturers in Germany, heat for the family home in Canada,

flame weeding for a rancher in Texas, heat to provide lift for the first solo non-stop round the

world balloon expedition, hair spray for the Hollywood starlets and life saving fuel for Mt

Everest climbers. LPG even powers the Olympic torch. That’s why it is referred to as the

world’s most multi-purpose energy

LPG applications in agriculture

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LPG is commonly used in the agricultural sector for thermal desiccation, crop-drying, fuelling of

farm vehicles and insect repellent. As a modern and environmentally friendly energy source,

LPG can play an integral role in the ongoing development of agriculture.

LPG applications in the automotive sector

LPG is the preferred alternative automotive transportation fuel. Autogas is today the most

accepted alternative fuel in the automotive sector with more than 13 million vehicles operating

worldwide. The added value of LPG as an automotive fuel is that it generates considerably fewer

emissions than other fossil fuels, contributing to the protection of the environment and human

health while also mitigating the threat of climate change

LPG in recreational applications

LPG's flexibility and environmentally friendly characteristics make it an ideal fuel for

recreational applications, both on land and on water.Whether one is staying in a tent, camper or

caravan, LPG is commonly used to fuel cooking. On a camping site or even in your own garden,

an LPG powered barbeque provides a constant temperature and is the best energy source

available in terms of reducing CO2 emissions.

LPG is also an attractive option for marine applications, including the fuelling of leisure-crafts.

Its negligible impact on the water allows end-users to enjoy lakes and rivers while helping to

preserve the quality of the natural environment.LPG even allows people to enjoy amazing

scenery from the air by fuelling hot air balloons

Cooking

LPG provides a multi-purpose and reliable energy supply, making it widely used in hotels and

restaurants. LPG is the preferred choice for many chefs because it provides immediate heat on

ignition, removing the need for a warming-up period. LPG also produces heat that responds

instantly to changes in setting and distributes the heat more broadly across the base of cooking

implements. Furthermore, LPG burns efficiently with no black smoke, leaving no marks on

cooking instruments and providing for easier wash-up.

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For developing rural communities LPG can provide a first modern alternative to traditional

cooking fuels (e.g. firewood, charcoal, dung), contributing to a better quality of life and

importantly, allowing women and children to spend less time collecting fuel, and enabling them

to pursue education or value-added economic activities within the community

Heating

Homes and hotels require a reliable source of energy for a range of applications including central

heating, hot water, heated swimming pools and air conditioning. LPG can meet all these needs

and has the added advantage of insuring individuals and businesses against the vulnerability to

cuts in power supply.

Power generation

As one of the cleanest conventional fuels available, LPG complements renewable energy sources

and technologies which depend on certain weather conditions or daylight. LPG also enables

highly efficient decentralized generation through small self-containing generators and micro-

combined heat and power. For these types of localized power generation, LPG's carbon footprint

is lower than that of diesel and significantly lower than gasoline

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Figure: 2

LPG Consumption Segment wise

Source: MOPNG

LPG in India is primarily a household cooking fuel

LPG remained primarily as urban cooking fuel

• Availability and accessibility was more in urban area

• Affordability (consumer income and expenditure) was high in urban area

• Health consciousness was higher amongst urbanites

• Alternative conventional cooking fuel was not available in urban are

89%

7%2%

2%

Domestic

Commercial

Industrial

Auto

SUMMER INTERNSHIP Page 37

Why use LPG?

LPG is an exceptional energy source due to its origin, benefits, applications and its industry. As a

clean, lower carbon, efficient and innovative energy it offers benefits to consumers, industry and

the environment. With an immediate and global availability, environmental benefits, its natural

by-product origin, transportation flexibility and diverse application, LPG plays a pivotal role in

the transition towards a more secure, sustainable and competitive energy model.

LPG is a clean-burning, sustainable and efficient fuel and a vital source of energy for hundreds

of millions of people throughout the world today. It is a multi-purpose energy with literally

thousands of applications. It is portable, can be transported, stored and used virtually anywhere

in the world and there are sufficient reserves to last for many decades. LPG also shows lower

greenhouse gas emissions than petrol, diesel, and electricity, on an energy-equivalent basis

LPG: a clean energy source

The quality of local air can have a serious impact on human health, plants, animals and even

buildings. Transport, ‘stationary combustion’ (cooking and heating) and power generation are

the primary sources of local air pollution. LPG can make a positive contribution to air quality

improvement compared to diesel, heating oil and solid fuels.

Looking at its carbon footprint – the sum of its greenhouse gas emissions – LPG is one of the

cleanest conventional fuels available. Originating mainly from natural gas production, LPG is

also non-toxic and has no impact on soil, water and underground aquifers.

LPG: a lower carbon energy source

As a low-carbon, low-polluting fuel, LPG is recognised by governments around the world for the

contribution it can make towards improved indoor and outdoor air quality and reduced

greenhouse gas emissions. In addition the carbon footprint of LPG is 20% lower than that of

heating oil and 50% lower than coal.

LPG: an efficient energy source

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LPG is an energy-rich fuel source with a higher calorific value per unit than other commonly

used fuels, including coal, natural gas, diesel, petrol, fuel oils and biomass-derived alcohols. This

means that an LPG flame burns hotter, an advantage that can translate into higher efficiency.

As a cost-effective energy source, LPG can be up to five times more efficient than traditional

fuels, resulting in less energy wastage and better use of our planet’s resources.

LPG: an innovative energy source

As one of the cleanest conventional fuels available, LPG complements renewable energy sources

and technologies which depend on certain weather conditions or daylight. LPG is a natural

partner for renewable energy.

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LPG IN INDIA OVERVIEW

DEMAND SUPPLY SCENARIO

India is the fourth largest LPG consumer in the world after the US, China, and Japan. The

country is also recognized as an emerging player in the CNG industry with plans to link 200

cities to natural gas within the next 5 years. Although the domestic LPG consumption in India is

growing annually, it is auto LPG, which is zooming off with better growth figures. The presence

of LPG for cooking purposes is currently limited to Tier-1, Tier-2, and Tier-3 cities, thus leaving

a vast untapped market in the form of small towns and villages.

The LPG demand in the country is all set to grow at a CAGR of around 6.5% CAGR during

2012-2014. With the rising plunge on pollution-free environment, this sector would receive the

required thrust in near future. It is anticipated that the CNG consumption in the country will

grow at a double-digit CAGR growth during 2012-2014. However, CNG infrastructure is at the

nascent stage of development and still requires huge investments to catch-up with the

international standards.

Maharashtra has the highest number of LPG customers in the country followed by Andhra

Pradesh and Tamil Nadu. It is expected that the rising awareness about fuel qualities and gas

companies, expansion strategies along with the supportive government initiatives will further

boost the growth of LPG consumers in the country, especially in the rural areas. Rapid surge in

LPG demand and continuously increasing number of LPG running vehicles have encouraged the

government to import LPG from international markets, particularly from the Middle-Eastern

countries.

The LPG being distributed is in 4 cylinder sizes. Domestic Cylinder 5kgand 14.2 kg,

Commercial Cylinder 19kg and Industrial Cylinder 35kg. LPG Domestic customer is supplied at

a subsidized rate and for industrial and commercial rate is market determined. This difference in

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pricing scheme often lead to black marketing but companies are now a days vigilant enough to

inhibit this practice. HPCL as a pioneer is including GPS device in its cylinders to restrain the

fraudulent practice.

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LPG SUPPLY CHAIN

Procurement

In India,LPG is either imported from outside or is produced as a by-product in the refineries and

petrochemical plants. Imported LPG arrives at the country’s ports by help of LPG tanker ships.

Storage

From both,the ports and the refineries,LPG is brought to the large storage facilities with the use

of pipelines. Here the LPG is stored under highly refrigerated and pressured condition.

Customer

ONGC is selling LPG only to the Oil Marketing Companies (IOC,HPCL & BPCL). Uran and

Hazira are tied up with all three customers

However Ankleshwar tied up with HPCL andGandhar are tied up with IOC

customer due to the infrastructure limitation.

Table: 2

Location Customer Custody transfer system

Uran HPCL Road & Rail

BPCL Road, Rail & Bottling

IOC Road & Rail

Hazira HPCL Road & Rail

BPCL Road, Rail & pipeline

IOC Road, Rail & pipeline

Ankleshwar HPCL Pipeline

Gandhar IOC Road

Source: ONGC Marketing Handbook (second edition 2008)

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PRICING

LPG being a controlled product, ONGC is to sell LPG only to theOMC’s for which pricing is

evaluated by IOC in line with the Import ParityPrice (IPP) on monthly basis, which is known as

Refinery Transfer Price(RTP).Import Parity Pricing is based on Port refineries (Haldia,

Mumbai,Vizag, Mangalore, Kochi and Jamnagar), LPG import handling ports(Kandla, Ratnagiri,

IPPL Haldia, MLIF).and port-based fractionators(Hazira, Uran, Usar). Pricing ex-North East

Refineries is based on Haldia.

LPG Selling rights to ONGC

LPG produced at ONGC sources is also being sold for non-domesticuse by the Oil Marketing

Companies. ONGC can earn higher revenue bydirect sale of bulk LPG to non-domestic

consumers through marketingmargins. ONGC once got the clearance of marketing rights of LPG

fromMOP&NG but the same was withdrawn by MOP&NG on a later date.

Obtaining marketing rights of LPG at Hazira for non-domestic sector willbring more revenue.

DISTRIBUTION AND RETAILING

From the storage facilities, LPG is directly distributed to bulk industrial purchasersvia large bulk

road tankers.For the domestic customers,LPG is distributed in packed from through dealers.

Dealer holds the stock of filled cylinders. When the customer’s LPG cylinder is emptied, it is

replaced by the local operating dealer at the customer’s location itself. The dealer recovers the

cost of transporting cylinders from commission on a per refill basis. A group of dealers in a

given area receive the filled cylinders from the designated bottling plant. A dealer sends the

empty cylinders to the required bottling station via truck. These bottling plant take back the

empty cylinders and load the truck with the filled ones. The filled cylinders are then sent back to

the dealer. The various bottling plant in turn receive the LPG from storage facilities with the use

of tankers. The tankers are dedicated to transporting LPG, and hence, the company pays the

transporters for both delivery and return trips to the storage facilities.

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LPG MARKETING

Till September, 1993 LPG was being marketed in the country by the Public Sector Oil Marketing

Companies (OMCs) only. Since LPG was under short supply, OMCs were importing the product

to meet the requirements. However, inadequate import infrastructure coupled with limited

allocation of Foreign Exchange at official rates made it difficult for OMCs to import LPG and

meet the full demand. In order to overcome this difficulty, Government issued a notification,

dated 3rd july,1993 introducing the concept of Parallel markets (private companies) were allowed

to import and market LPG in the country to packed and bulk consumers in both domestic and

non-domestic (commercial and industrial)sectors. Since then, parallel marketers have been

importing and marketing LPG under PMS.

MARKET SEGMENTS

The LPG market is segmented according to the purpose of the use of LPG as a fuel, i.e. for

domestic (90% of business),commercial and industrial use (rest 10%). According the weight of

the cylinder varies (standard weight), as usage depends on the type of consumer and to lessen the

transportation cost. In the industrial category, there are bulk users too, who are served in bullets

(huge tanks).The subsidized price of LPG is provided only for the domestic segment, and the

commercial and industrial rates are as per the market decided price.

BRAND POSITIONING

One of the important features is that neither the business persons nor the consumers are able to

see the product, therefore building the perception of trust and importance in the minds of the

consumers makes a difference. Deliverability assurance and safety measures are the key features

of the company providing the service.

As mentioned before that LPG business is mostly self-propelled. Demand, in absence of any

other substitute fuels as of now,implies that it overshoots the supply. Thus some direct marketing

SUMMER INTERNSHIP Page 44

measures are implemented in the form of pamphlets and stuff and some customer awareness

programs in mass media.

INTERNAL MARKETING

Though the LPG business is ruled by the domestic clients, the subsidy regime doesn’t allow the

companies to eke out profit from this division. Industry and commercial segment provides the

revenues but not enough to compensate for the losses made in the domestic segment. Thus, the

LPG SBU is a loss making unit.

Internal marketing is important to orient the distributors, who are the interface between the

consumers and the company, to act in accordance with ethics and see that there is no diversion of

cylinders. This arbitrage incentive is due to the fact , that domestic cylinders are priced low and

hence commercial enterprises have a tendency to acquire those at a premium, though lesser than

the designated commercial LPG product.

The steps taken by the Government of India/OMCs (oil marketing companies) to prevent

diversion of domestic cylinders are as under.

Customer contacts are done for customers with high consumption levels to confirm

genuineness of refill supplies made.

Press releases are issued periodically against misuse of domestic cylinders for

commercial purposes. Customer awareness campaigns are conducted periodically to

bring awareness in public.

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Customer Retention Techniques

The LPG business is mostly self-propelled and doesn’t need much marketing measures. In the

domestic category, the distributor represents the company and mostly the consumer chooses that

distributor which is closest to his /her locality. Though there are a few factors which improve the

service level of the business:

Booking through telephone or net

Prompt and assured delivery

Behavioral patterns shown by the delivery people

Safety and Authenticity(seal) of LPG cylinders

Again, few OMCs started taking measures to improve consumer satisfaction by providing home

delivery service of household goods by collaborating with Haldiram’sand other retail goods

providers. The commission is shared amongst the distributor and the company in the ratio of

70:30

For the industrial and consumers the reliability of providing the LPG cylinders in normal as well

as emergency times is of utmost priority, as the opportunity cost is huge in industry. Another

important aspect is the price of LPG, as the prices charged by the company is not regulated and

hence can be tinkered with.

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LPG PROGRAMS IN INDIA

Deepam LPG Scheme

An important scheme implemented for the expansion of domestic LPG use has been the

DeepamLPG scheme in the state of Andhra Pradesh. This project was launched on the 9thjuly

1999 for the distribution of domestic connections to women of below the poverty line (BPL) 41

families in the rural areas of the state. Each connection was accompanied by a one-off subsidy to

the extent of the initial cost, to overcome the barrier to fuel switching. It was meant to reduce

dependence on firewood, reduce the drudgery of collection of/cooking on firewood,reduce

pollution and improve the health of women. Salient features of this scheme are:

The scheme was administered by the state government Departments of rural

Development and Civil Supplies and distributed through OMCs.

The High Court directed that the scheme be confined only to “white cardholders” (i.e.

those below Rs 11,000/year/family).

The Department of Rural Development identified the beneficiaries; a target of 1.154

million spread over 22 districts was indicated. Later, the numbers were increased so that

by 2002 about 1.724 beneficiaries (including some of the urban poor) were listed.

The lists were given to the LPG dealers of the oil companies, who were also expected to

ensure training of the allotted in the use of LPG stoves.

The Department of civil supplies provided a one-time deposit of Rs 1,000/connection

towards the cylinder and regulator

Results in terms of the number of connections allotted: till March 2002,88% of the urban

target and 91% of the rural target had been met (NIRD,2002)

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Rajiv Gandhi Gramin LPG Vitrak

Ministry of Petroleum and Natural Gas has formulated a scheme,namely, Rajiv Gandhi Gramin

LPG VitrakYojna, which s going to be launched very soon. This envisages the increase in LPG

population coverage from 50% to almost 75% by 2015. The scheme is primarily to reach LPG in

villages, so that dependence on conventional fuels like wood, coal etc. is reduced. This will not

only help in conservation of forests but will also have positive impact on environment as well as

on the health of our rural womenfolk,

This Scheme would be implemented by the oil marketing companies (OMCs)namely Indian Oil

Corporation Limited (IOC), Bharat Petroleum Corporation Limited (BPCL) and Hindustan

Petroleum Corporation Limited (HPCL) in addition to their Marketing Plan for setting up regular

LPG distributorships. Identification of location would be finalized by the OMCs based on the

present penetration/coverage, minimum refill/sale potential for sustaining the RGGLV.

According to the program, the program will be sustainable for cluster of villages having about

4000 families and consumption of 7kg per month,out of which half may go for LPG. Contrary to

2500 cylinders, GLV will be set up with the potential of 1000 cylinders. The net income for the

proprietor expected is Rs 7664/- per month. The selection of the candidate will be done by draw

system. RGGLV will be setup by OMC who have its bottling plant nearest to the identified

cluster of villages.

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Petroleum Subsidy on SKO (PDS) and LPG (Domestic):

The total subsidy during 2011-12 provided by Government of India & Oil companies on SKO

and LPG were Rs.28,215& Rs.32,134 crore respectively and these marked an increase by

35.32% & 38.21% over the year 2010-11compared to Rs.20,415& Rs.23,746 crore respectively.

The total budget subsidy on SKO (PDS) & LPG (Domestic) increased by 36.66% over the year

2010-11. The trends in growth of subsidies of both SKO & LPG are depicted in Table and Graph

Figure:3

Subsidies on SKO (PDS) & LPG (Domestic)

Years Subsidy on SKO (PDS) %

Growth

Subsidy on LPG (Domestic) %

Growth

Fiscal Oil

Companies

Total Fiscal Oil

companies

Total

1 2 3 4 5 6 7 8 9

2004-05 1147 9480 10627 65.84 1783 8362 10145 10.78

2005-06 1057 14384 15441 45.30 1605 10246 11851 16.82

2006-07 970 17883 18853 22.10 1554 10701 12255 3.41

2007-08 978 19102 20080 6.51 1663 15523 17186 40.24

2008-09 974 28225 29199 45.41 1714 17600 19314 12.38

2009-10 956 17364 18320 -37.26 1814 14257 16071 -16.79

2010-11 931 19485 20415 11.44 1974 21772 23746 47.76

Source: Indian petroleum & Natural Gas Statistics 2011-2012

SUMMER INTERNSHIP Page 49

Graph: Percentage growth in subsidy on SKO (PDS) & LPG (Domestic)

65.84

45.3

22.1

6.51

45.41

-37.26

11.44

38.21

10.7816.82

3.41

40.24

12.38

-16.79

47.76

35.32

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

%growth in subsidy on

SKO(PDS)

%growth in subsidy on

LPG(Domestic)

SUMMER INTERNSHIP Page 50

COMPETITIVE ENVIRONMENT

Business Rivalries

There are mainly two categories of competitions existing in Indian LPG industry. They are as

follows:

Inter OMC competition

Threat from substitutes

Inter OMC competition

OMC’s is Indian is seen as the facilitator to the nation’s development. Hence, apart from

churning profit for sustainable existence and growth, it has to operate in accordance with the

nation’s interest. That’s why OMC’s are regulated such that to avoid unwanted friction among

themselves and concentrate their whole energy to nation’s cause. So, there exists a special type

of competition among the OMC’s of India.

In domestic segment, OMC has to sell its product at a price decided by the government. So, there

exists no scope of price war, which leaves the OMCs to compete on market share. But, to avoid

unwanted friction and hence deadweight loss to the society, the regulatory body, MOPMG tries

to maintain the optimum number of dealers in an area. In order to that the number of dealerships

of a company is decided by the committee in accordance to their market share and presence in

the region. Hence, chances of competition for market share in domestic segment are also very

limited.

Though, in industrial segment, with lack of price regulation and better scope for margin there is

an intense competition in the form of :

Price

Service

Promptness in delivery

Hours of catering or working hours

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Threat from substitutes

Today, PNG is considered to be most eligible fuel to replace LPG. Few, properties of PNG

which are regarded as giving it an edge over LPG are follows:

Ours PNG is Convenient

24 hours uninterrupted gas supply

No changing or handling of gas cylinders

No more last minute emergency

Make payments after you consume, through banks, drop boxes, ECS, Netetc

PNG is economical, works out to be up to 10% cheaper than LPG

PNG is clean

Being a gaseous fuel, very clean compared to any other fuel with more than 94%

Combustible particles

Burns with a flame always hence, no blackening of vessels.

Most preferred fuel in vehicles in Mumbai today.

Contribution for a cleaner society.

PNG is versatile

Apart from cooking other appliances like geyser, air conditioner, vehicles etc. can be

used on Natural Gas However, please do not attempt to alter/modify the existing

installation yourself or through any unauthorized person.

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Cap on LPG cylinders hikes sales of auto LPG, CNG

The cap on subsidized LPG cylinders has led to an increase in demand for auto LPG and CNG,

with both fuels showing a 10-20% increase in sales after September, when the cap was imposed.

Oil company officials said that the cap has checked the dangerous and illegal practice of

diversion of domestic LPG cylinders to non-cooking use such as in automobiles.

Auto LPG is a clean, high octane and eco-friendly fuel. The use of LPG as an automotive fuel

became legal in India in 2000. However, it is to be used within the prescribed safety norms and

conditions. Officials in oil marketing companies said that, before the cap came into force, many

would use domestic LPG cylinders to refill their vehicles, which is illegal.

It is risky and there are chances of leakage. However, people would do it as domestic LPG

cylinders were freely available and were cheaper than auto LPG. The per kg cost of using a

subsidized domestic LPG cylinder was approximately Rs 20, while that of auto LPG was Rs 50.

The CNG sales have also witnessed a 15-20% increase in January this year, The increase can be

attributed to people switching to CNG due to rise in price of diesel in January and to some

extent, the cap on subsidized LPG cylinders.

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Kerosene Demand To Dip on LPG use, Rural Electrification

India’s petroleum ministry is expecting kerosene demand to drop 18% by March 2017 as more

households shift to gas for cooking and electricity for lighting with more rural areas gaining

access to power.

Demand is projected to fall to 6.75 million tonnes per annum (mtpa) in 2016-17 from 8.28 mtpa

now.

The demand for kerosene is increasingly coming down due to higher penetration of LPG

(Liquified petroleum gas) cylinders and people in rural areas getting electricity connections

under RGGVY (Rajiv Gandhi GrameenVidyutikaranYojana).

RGGVY is part of India’s Bharat Nirman project to develop rural infrastructure and aimed at

providing electricity to villages and connecting poor households across the country.

Diesel demand is projected to grow to 81 mtpa by 2017 from 63 mtpa.

This assumes significance as the government-owned oil marketers such as Indian Oil Corp. Ltd,

Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd posted losses of Rs.29,262 crore

on account of selling kerosene at below-market prices.

As much as 35% of kerosene channelled through the public distribution system (PDS) is

diverted, according to a study by the National Council of Applied Economic Research

commissioned by the oil ministry. Of this, 18% is used to adulterate diesel.

The total loss from selling fuels below cost last fiscal was Rs.1.44 trillion, of which

Rs.80,935crore was due to diesel. The state-owned retailers are compensated by the government

for selling diesel, kerosene and cooking gas at fixed prices that are significantly lower than the

cost of production.

India subsidizes the prices of most fuels and its annual subsidy bill towards this is expected to be

Rs.1.67 trillion this year. India’s oil import bill increased from Rs.4.09 trillion in 2009-10 to

Rs.7.26 trillion in 2011-12.

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According to the 12th five-year Plan paper on energy, a key reform in the petroleum sector

involves “kerosene supplies to be progressively reduced considering improved electricity access

provided under RGGVY and LPG connections provided in rural areas”.

China and India will be the world’s largest and third largest economies and energy consumers by

2030, respectively, accounting for about 35% of the global population, gross domestic product

and energy demand, according to the BP Energy Outlook 2030.

The total amount of kerosene consumed through PDS was 8.92 million tonnes (mt) in 2010-11,

according to the oil ministry. There are 140 million LPG connections in the country, of which

99.57% are for domestic use, comprising 14.2kg LPG cylinders, according to official data.

The LPG customer population covers around 56% of the country’s total.

The government recently raised diesel prices and curbed the supply of subsidized cooking gas to

six cylinders per household per year to pare its subsidy bill.

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RECENT CHANGES IN REGULATION

Capping of LPG subsidized cylinders

The government raised the cap on the supply of subsidizedliquified petroleum gas (LPG)

cylinders to nine per household from the previous six under political pressure.

The move to raise the cap on subsidized LPG cylinders came along with partial deregulation in

diesel prices, which were last increased by Rs 5 in September last year.

The capping of cylinders to six in September was expected to bring down the revenue loss on

account of LPG by about Rs 5,300 crore. But now, the raising of the cap by three would nullify

the impact and push up subsidy by Rs 9,300 crore.

The cap of six cylinders met with widespread protests since only 44 per cent of population used

six or less cylinders in a year.

Oil marketing companies — Indian Oil Corporation, Bharat Petroleum Corporation and

Hindustan Petroleum —are incurring a daily revenue loss of Rs 389 crore in selling diesel, LPG

and kerosene.

OMCs raised LPG prices by Rs 46.50 on non-subsidised cylinders. The price of non-subsidised

LPG was last revised in November 2012. OMCs were forced to roll back Rs 45-a-cylinder hike.

They are selling these cylinders at Rs 895.50 each against Rs 410.50 for subsidised cylinders.

From April 1, 2013 consumers are getting nine cylinders

Indian Oil chairman R S Butola had earlier said that After capping, the use of domestic LPG

cylinders has flattened, while growth in commercial LPG cylinders has gone up significantly.The

principle of pricing a product at a market level will help, irrespective of whether subsidised LPG

cylinders are capped at six or nine.

The sheer notion of either having market price or having a limited amount of subsidy puts

resources at the most optimal use.

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LPG cap rise may fuel black marketing

There is growing fear among oil marketing companies that the increase in subsidized domestic

LPG cylinder cap from six to nine, may result in black marketing and diversion of domestic

cylinders, as customers can secure more subsidized cylinders than they may need.

Oil marketing company officials said that companies usually do not sell around nine cylinders

per customer per year, and the average sale per customer is usually seven cylinders. The extra

cylinders per customer can most likely be misused, once again opening avenues for black-

marketing of domestic cylinders. Customers, who earlier indulged in such practices or those

looking for quick money, may also sell the extra domestic cylinders to commercial

establishments, which is illegal.

"The average consumption in rural areas is around 100 kg per customer per year. This leaves an

excess of around 28 kg of domestic LPG, which may even be diverted to urban areas in black or

for non-domestic usage."

many cylinders on way to delivery to genuine consumers are diverted to black market. As there

are many consumers, who do not have registered connection due to various reasons, they depend

on black marketing and are ready to pay more than double the cost.

The gangs involved in black marketing stock the cylinders in godowns and deliver as and when

there is demand from unregistered consumer. They target residential areas and industrial places

where migrant people live in large numbers.

Also due to poor enforcement, a large number of food stalls and factories use the cylinders meant

for domestic use. Such cylinders are purchased from the black market as authorities have failed

to check the illegal practice.

April 1, each household will get nine subsidized cooking gas cylinders for the next 12 months,

against six earlier. Also, consumers will get a quota of five subsidized cylinders for the period

September 2012-March 2013, against three earlier.

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KYC (Know your customer) Norms Implementation For LPG connections

The public sector oil marketing companies have succeeded in blocking a significant number of

multiple LPG connections in the last six months. Of the just over 14 crore cooking gas

connections in the country, 10-15 per cent were multiple connections held by a single customer.

These connections have been blocked through the Know Your Customer (KYC) scheme, which

was meant to help the OMCs identify those with more than one connection. As on April 1, the

OMCs had successfully verified almost 75 per cent of such customers.

CUSTOMER BASE

To begin with, the KYC form was only for multiple connection holders belonging to the ‘Same

Name, Same Address’ (SNSA) category, which has now been extended to ‘Different Name,

Same Address’ (DNSA).

Of the total customer base, about 2.43 crore fell in the DNSA category. Of this 2.43 crore, the

companies have verified 1.81 crore against KYC criteria, Of the 1.81 crore, the number of

genuine customers is 1.75 crore.

KYC norms are the first step towards smooth implementation of the Direct Benefits Transfer

(DBT) of subsidized domestic LPG, as it helps identify customers in each segment and ensures

that the capping of subsidized cylinders to nine a year per household is implemented smoothly.

Now, with the KYC system in place, OMCs are preparing to collect Aadhaarnumbers from

customers for the rollout of DBT, planned to be introduced from May 15.

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Direct Cash Transfer via Aadhar Card

Direct cash transfer has been introduced by government of India and it has been incorporated in

India from 1stjan 2013 via this scheme the subsidy amount will be directly go into the account of

beneficiaries.

The government has implemented the scheme of Direct Cash Transfer in 51 districts of India

and by the end of 2013 the scheme will cover the whole nation.

Although, the scheme comes with a good motive to facilitate the beneficiaries of subsidy money,

to implement this government required solid infrastructure of banking for this reason, the scheme

is being conducted as a pilot project and experts are studying about various difficulties in

connection with the implementation of this scheme.

LPG Subsidy Directly in Bank Accounts

Government’s ambitious direct cash transfer programme rolls out in 18 districts of the country,

as a result of which cooking gas (LPG) consumers will get Rs 435 in their bank accounts when

they book an LPG cylinder.

The scheme was to be rolled out in 20 districts initially but the launch in Mysore in Karnataka

and Mandi in Himachal Pradesh has been put off by a month due to assembly and Parliamentary

by-polls.

After the launch of the scheme, the consumers in 18 districts like North Goa and Pondicherry

will get Rs 435 in their bank accounts every time they book for an LPG refill.

These consumers then will have to buy cooking gas at market price which is double the Rs

410.50 rate for a 14.2-kg per cylinder in Delhi.

The government intends to extend the scheme to rest of the country before end of the year but

wants to see results in the 20 districts first. The 20 districts selected have high Aadhaar or unique

identification number penetration.

While as many as 89 per cent of the LPG consuming population in these districts have Aadhaar

number, government will give a three-month grace period to them to procure the UID number

and seed it with their bank accounts where cash subsidy has to be transferred.

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After three months, that is from September 1, only consumers having Aadhaar and banks

accounts linked to them will get cash subsidy and the rest will have to buy LPG at market price.

The government anticipates a saving of Rs 8,000 to 10,000 crore in LPG subsidyannually after

the scheme is rolled out all over the country.

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AADHAAR

Introduction

LPG for household consumption is nearly 89% of total LPG off-take in India. Total LPG

consumption in the country for the year 2011-12 is projected to be more than 16.5 MMT

(Million Metric Tons) and is expected to grow at 8-9% as envisaged in Vision 2015 document of

Ministry of Petroleum and Natural Gas. OMCs are holding a customer base of more than 133

million households currently. More than 11000 LPG distributors home deliver nearly 3 million

domestic LPG cylinders every day to cater to this mammoth customer base constituting more

than half of country’s population.

LPG for Domestic Cooking is heavily subsidized. In order to restrict the use of subsidized LPG

only for genuine domestic customers, every household is permitted for only one registered LPG

connection in the name of one of the family members. However every registered customer is

entitled to receive refills as per their domestic cooking need.

Challenges in LPG Distribution & Leveraging Aadhaar

LPG is an exceptional fuel. It is considered as a green fuel and has wide range of applications.

The environment friendliness and usability for multiple applications coined with the arbitrage

available in its pricing entice the market players to divert the product meant for domestic

cooking for other applications.

All LPG distribution operations are recorded using robust software provided by OMCs to

distributors. The information thus generated is captured and made into meaningful reports

providing business insights to OMCs. Hence, the market players use ways and means outside the

software realm to manipulate and take advantage of arbitrage available in inherent vulnerability

of SubsidisedDomestic LPG Marketing.

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Integration of Aadhaar in LPG Distribution - Process Re-engineering

Current Process

1. OMC Distributor registers a prospective customer in adistributor application.(Prospective

customer obtains a connection post fulfillment of official requirements for release of

connection for domestic LPG applicable to the OMCs.)

2. Customer places a refill request to the distributor through various channels (Depending

on the channel offered by the distributor i.e. manual, telephone, IVRS, SMS and web).

3. The refill request is updated automatically or the distributor enters the same in the

application.

4. Distributor generates a cash memo against the bookings.

5. Delivery boy carries the printed copy of cash memo.

6. Delivery boy delivers filled cylinder to customer premises.

7. Delivery boy receives empty cylinder and payment at subsidized price against the

delivery and submits acknowledged cash memo and empty cylinder back to the

distributor.

8. Delivered cash memo details are entered into distributor application.

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Aadhaar Integrated Process

1. At the time of enrolment Aadhaar number is validated through biometric and demographic

authentication.

2. Customer places a refill request to the distributor through various channels.

3. The refill request is updated automatically or the distributor enters the same in the application.

4. Distributor loads the details of the day's delivery into a PoS device.

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5. The delivery boy carries the PoS device and filled cylinders to customer premises.

6. Aadhaar Authentication request of customer sent to CIDR (UIDAI system).

7. Online verification response from CIDR to PoS device, followed by receipt of empty cylinder,

printing of cash memo and collects payment at market price against delivery.

8. The information from handheld device is uploaded into OMCs central system real time.

9. Central server sends a batch file at predefined frequency with Aadhaar Numbers of Customer

(beneficiary) and subsidy amount to be paid to Sponsor Bank.

10. Sponsor Bank initiates cash transfer through NPCI Gateway to the bank account of the

Customer.

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LPG Demand Outlook

2011-2012 2012-2013 2013-2014 2014-2015

LPG Demand 14920 16140 17418 18680

Projected growth 8% 8.1% 7.9% 7.3%

INDIGENOUS

PRODUCTION

Refineries 5963 6903 7033 7513

Fractionators 2112 2112 2112 2112

RIL 2500 2000 2000 2000

Essar 800 800 2000 2000

Total Production 11375 11815 13145 13625

Import Required 3545 4325 4273 5055

Source: MOPNG

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InfrastucturePlan

Sr.no Infrastructure Capacity in TMT Project Investment

2009-10 2014-15 USD Million

1 Import handling terminals 4700 6500 220

2 Pipelines capacity 532

3 Tankage (storage capacity) 685 912 700

4 Bottling capacity 12097 18037 450

Source: MOPNG

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Rural Marketing

Issues

Economic condition and literacy levels is lower

Cooking habits, closed kitchens, smoke

Easy availability of cheaper alternate fuels

Logistic constraints – poor connectivity

Additional transportation costs – distances

Challenges

Most rural households use firewood

Availability of other alternate fuels for cooking

People not fully aware of the impact of pollution from traditional fuels

Distribution cost are higher as rural households are scattered

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Source: www.ruralelec.org

LPG rural marketing is a package of

Creating LPG awareness- lack of knowledge about product, its application and safe

handling

Overcoming psychological barriers- fear of accident, misconception of taste and quality

of food cooked on LPG

Promoting own brand

Developing bottling facilities

Creating cost effective distribution channel- high cost of distribution network in rural

markets hinders growth

Enrolling households through micro finance- cooperative banks and

grameensevasahkarimandalis

Educating households

Providing timely supplies- same day delivery

53%

22%

48%

15%

18%

37%

14%

% users

firewood

crop residue

cowdung cake

coal and charcoal

kerosene

LPG

others

Figure: 6

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Imparting effective after sales service

Meeting safety standards- mass training programs at schools, colleges, panchayat, videos

on wheels training program at meals/hats.

HURDLES

Availability of Cheaper Fuels

Cow Dung - It is a Indoor pollution should be used as natural fertilizer and soil enhancer

to increase agriculture productivity.

Jungle wood – women and children waste a lot of time in gathering wood. Time should

be used for productive household work and education for economic and social

development.

Kerosene –It is a waste of time in ques. Handling and spillage problems and also

polluting and unsafe in comparison to LPG

Coal- handling problems, polluting, not easily available, ignition problem in rainy season

Residue- It should be used as fertilizer and recycled for economic growth

In rural India, an average woman spends around 8 hours per day in kitchen in the most

suffocating and unhygienic environment due to use of traditional fuels. She spends additional 2-4

hours in collection of these fuels.

All this availability of cheaper fuels can be overcome by giving LPG education support to rural

peoples through Audio Visual Programs, Group Discussions, Village Demos and Safety

Workshops all this activities will be result into quick response, safer, cleaner, home delivered,

environment friendly, convenient in use, higher burner efficiency, reduces deforestation and

higher calorific value

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Rural Retail Strategies

Introduction of Rural Mobile Vehicles (RMVs)

Low cost distribution – Bulk LPG moves directly to the designated filling point

Less Inventory required- Customer will come with his own cylinder

No Logistics constraints – can reach in remote/ far flung areas.

No administrative hassles – Minimum paperwork, no refill booking and no backlog.

Introduction of RasoiGhar Concept

Low Cost – Consumer can be charged per hour of usage of gas, provides cooking at

affordable price

Time Saving – No morehours of collecting woods

Provides hands on experience to housewives on LPG usage

Provides education on – safe and effective use of LPG and its ecofriendliness, importance

of preventing deforestation

Helps overcome psychological barrier for use of LPG

Training & Safety Awareness

Customers safety clinics at village schools and colleges at taluka levels

Mass training programs and live demonstration of safe use of LPG at village haats and

panchayats

Safety addresses through Road shows and video on wheels etc.

Micro Financing- Micro Credits through Cooperative- Banks and

GrameensevasahkariMandalis.

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VISION 2015

Toextend the usage of LPG for cooking purposes in rural / under-served areas so that standard of

life in rural areas improves and the women folk in the backward / under-developed areas of the

country can reap the benefits of cooking on LPG stoves rather than use kerosene/fire-wood. This

shift from kerosene/fire-wood in rural India will also result in environment protection / reduction

in cutting down of trees in forest areas for use as firewood

• All Blocks in the country to have minimum one LPG distributor

• All districts - minimum 50% coverage

• All States - minimum 60% coverage

• All India - minimum 75% coverage

• Release 5.5 crore new LPG connections

To fulfill the vision

• New scheme - Rajiv Gandhi Gramin LPG VitarakYojana (RGGLVY)has been launched to

reach India in villages.

• Release LPG connection to BPL families predominantly in rural India.

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Vision 2015 of Govt. of India

1. Increase in Domestic LPG Connections:

•Focus on areas where LPG penetration is low by giving incentives ‐Raise population coverage

from 50% to 75%.

•Increasing LPG customer from 107 millions to 160 millions by 2015

•Switch Over from Kerosene to LPG

2.Common LPG Kitchen‐Making LPG affordable:

Common LPG Kitchen facility to all the villages in the country, having a population of more

than 5000.

• Corporate Social Responsibility (CSR) Funds by PSU Oil Companies for implementing the

scheme.

•Cylinder Manifold/Cylinders, stoves and related accessories viz. pressure regulators, Surakhsa

hoses, are provided by the OMCs free of cost.

-Cooking platform also provided free of cost, if required.

Parameters for selection of village

– Population of the Village must be more than 5000.

– Less than 50% of the village households have domestic LPG connections.

•Total 1933 no of Community Kitchens have been installed under this scheme by PSU Oil

Marketing Companies

•2.27 Crores have been spent under this scheme

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Community Kitchen Scheme- Reasons for not many takers

•Poor response, particularly from the Gram Panchayats

•Viability of operation

•Cooking habits

•Carrying utensils cleaning

•Convenience

•Community bias

Rural and migrant population, deprived section of the society in the and people visiting the

Government Hospitals and Health Centers from remote villages have been benefitted from this

scheme.

3. RajivGandhiGraminLPGVitaran

(Low Cost Rural Distribution Model):

•Shall improve reach of LPG

•A low cost model of distribution sustainable for cluster of villages having about 4500 families

•Expected Refill Sales: 600 cylinders of 14.2 kg per month

Specially adopted micro credits for Rural LPG Connections-

Without any collateral security

With minimum documentation

With long pay back periods

Monthly collection/as per the crop cycle

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FINDINGS

• LPG cylinder cap from six to nine, may result in illegal usage of domestic LPG to non-

cooking use such as automobiles

• In Rural markets, cost of distribution is high compare to urban due to logistic constraints

and consumer spread

• Low income- Totally dependent on crop production and rainfall

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RECOMMENDATION

• In order to restrict the use of subsidized LPG only for genuine domestic customers, every

household is permitted for only one registered LPG connection in the name of one of the

family members.

• Improved infrastructure and road conditions will increase reach of distribution network

• Micro credits for rural LPG

with minimum documentation

With long pay back periods

Monthly collection/as per the crop cycle

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CONCLUSION

We have seen the contrast between the different market segments prevailing in India LPG

industry. To be more precise, we saw how the domestic segment is quite different from its

counterpart industrial and bulk segment, be it the implications of subsidy and logistic involved in

LPG distribution and how the number of agencies in a region are optimized to reduce the dead

weight loss to the society. We had also focused on the marketing strategy which we found to be

difficult or at least peculiar, due to the fact that customer couldn’t see the product which makes it

by urge homogenous.we deal with the scope of growth for LPG in Indian market and threat from

its close and worthy substitute;PNG.

Lastly, RGGLV is providing better accessibility and better subsidy administration provides

opportunity to target and provide assistance for intended beneficiaries.

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Bibliography

ONGC- Marketing Handbook (second edition 2008)

Indian Petroleum & Natural Gas Statistics 2011-12

http://ppac.org.in/

http://www.ongcindia.com/wps/wcm/connect/ongcindia/home/

http://www.exceptionalenergy.com/

http://www.business-standard.com/home-page

http://ficci-petrotechretail.in/

http://ruralelec.org/

http://petrofed.winwinhosting.net/

http://articles.timesofindia.indiatimes.com/

http://petroleum.nic.in/

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