A DISSERTATION REPORT

ON THE TOPIC
“FUTURE MARKET STRATEGIES IN
GAS RETAILING”
DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT
OF THE REQUIREMENT
FOR
BACHELORS DEGREE IN BUSINESS ADMINISTRATION
(PETRO MARKETING)
By
CHETAN SHARMA
R250207011
Under the guidance of
Mr. Ash Narayan Shah (Associate Professor)

University Of Petroleum and Energy Studies

ACKNOWLEDGEMENT
I am privileged to take this opportunity in expressing my deep sense of gratitud
e to Mr. Ash Narayan Shah (Associate Professor) for having spared his valuable t
ime and guidance which helped me throughout my research. He was a constant sourc
e of inspiration during the study.
I am also thankful to the other teaching staff of University Of Petroleum & Ener
gy Studies without whose support and help, this project wouldn’t have been possibl
e. It was only due to their guidance that this project could be brought to this
form in time and in an efficient manner.

(Chetan
Sharma)
TABLE OF CONTENTS
CHAPTER NO. TITLE PAG
E NO.
Preface
Executive Summary
I Introduction
11
1) Retailing
12-13
1.1 Wheel of Retailing
14
1.2 Brand Building Methodology 15
1.3 Retail positioning Map
16
1.4 Knowing Your Consumer
17
II Indian Petroleum Sector – An overview
18-19
2.1 Gas Availability
20-21
2.2 Gas Marketing Scenario
in India 22-26
III Gas Marketing Scenario-World
 27
IV Benchmark and price discovery mechanism
28-29
4.1Passing on the price increase 3
0-31
4.2 Pricing Strategies in India
32-33
4.3 Post APM
34

4
4.4 Current Scenario
34-35
V Emerging Trends in the Fuel Retailing Sector
36-37
VI Deregulation of the petroleum sector
38-41
VII NELP:New Exploration Licencing Policy 42
7.1 NELP II 43
7.2 NELP VII 44
7.3 NELP VIII 45
VIII Challenges faced by Oil marketing companies
46-47
IX Committees
9.1Kelkar Committee
48-50
9.2Shankar Committee
50- 51
9.3Rangarajan Committee
51
X Gas Retailing
52-53
XI Natural Gas as a commodity
54-55
11.1Physical and Financial Trading
55
11.2 The Financial Market
55-57
11.3 Natural Gas Marketer
57-59
XII Guide To Retail Marketing
60-61
XIII Gas Retail Strategy:
62-64
13.1marketing strategies in Gas retailing
65-66
13.2 Business Customer Strategies
66-69
XIV Emerging Trends in the fuel retailing sector:
14.1 Changing infrastructure
70
14.2Upgrading technology
71- 72
14.3 Non fuel initiatives
72-74
14.4 Changing consumer expectations
75-76
 14.5 Government initiatives
76-77
14.6 Convenience Stores
78-79
14.7Food Service
79-80
14.8 Ancillary Service
81
14.9 Price based differentiation
81-82
14.10 Grocery retailing
82
14.11 High Volumer ,Low Margin Operating Model
82-83
XV Consumer experience based differentiation
84-85
XVI Quality and Quantity Based Differentiation
86-88
XVII Network planning
89

XVIII Supply chain op

timization 90
-91
CASES: British Gas (U.K)
92-95
U.S.A Gas Market
95-96
Research Methodology 97-98 Conc
lusion
99-101 References 102-103

PREFACE
The study was conducted to study the Emerging trends, options, challenge
s, market strategies prevalent in the gas retailing sector in India as compared
to the International Market.
The first section gives an introduction of the retailing sector as a wh
ole. It explains points like how to build a brand or an offer and know your cust
omer. Then it gives an overview of the Indian petroleum sector as in oil and nat
ural gas value chain, Indian energy scenario, and the industry structure. It als
o explains the gas availability in India and worldwide, Gas retailing scenario.
Then the focus shifts more specifically towards fuel retailing sector where in i
t is shown how the price increase in different countries is passed on to the gov
ernment, oil companies and consumers. It also gives an idea of the retail SBU in
oil companies and fuel retail milestones in India.
The second section shows the research methodology adopted to carry out
the study.
The third section elucidates the facts and findings. It clearly makes
out the trends emerging in the fuel retailing sector in India and abroad with re
spect to deregulation of the petroleum sector, increasing vehicle sales, technol
ogy up gradation, branded fuels, and non fuel initiatives, etc. Then it illumina
tes the options or opportunities available to the oil marketing companies as dif
ferent differentiation strategies, supply chain optimization, network planning,
Information technology, etc. It then reveals the challenges that the oil marketi
ng companies are/ might be exposed to in the future like decreasing profitabilit
y of the retail outlets due to the ever expanding network, regulatory environmen
t affecting pricing of petro products, managing technology employed, and superma
rkets posing a threat to the independent fuel retailers.
The last but one section talks about the conclusion of the study and
some recommendations provided to help the Indian oil marketing companies cope u
p with the challenges to come and emerge as market leaders.
The last section speaks of the books, research papers, annual reports
and internet links which have been referred during the course of the study.

EXECUTIVE SUMMARY
There are various talks of the emerging retail boom in India, "with one modern s
tore for every 400,000 population" at present. Among the factors that are drivin
g this boom are convenience of shopping, store accessibility, quality of product
s, loyalty programmes and product assortment. From a broader economic perspectiv
e, the diffusion of supermarkets can be conceptualized as a system of demand by
consumers for supermarket services, and their supply in developing countries. Ga
s retail sector is not far away.
Petroleum & Natural Gas constitutes over 16% of GDP and includes transportation,
refining and marketing of petroleum products and gas. India has a crude oil ref
ining capacity of about 148 MMT. Production of petroleum products has grown at 6
.5% p.a. during the last 3 years. The oil and gas industry in recent years has b
een characterized by rising consumption of oil products, declining crude product
ion and low reserve accretion. India remains one of the least-explored countries
in the world, with a well density among the lowest in the world. With demand fo
r 100 million tonne, India is the fourth largest oil consumption zone in Asia, e
ven though on a per capita basis the consumption is a mere 0.1 tonne, the lowest
in the region- This makes the prospects of the Indian Oil industry even more ex
citing.
Under-recoveries in marketing exert pressure on profitability and weaken financi
al position. The net under-recoveries suffered in selling MS, HSD, SKO (PDS) and
LPG (domestic) had a negative impact on the overall marketing margins and profi
tability of the OMCs in 2005-06, with the impact varying across companies.
On the policy and regulatory front, the issues of privatization and de-regulatio
n continue to provide challenges due to lack of political consensus. While the A
dministered Price Mechanism (APM) stands dismantled in theory, marketing compani
es have little autonomy in pricing decisions. Cross subsidies in LPG and Kerosen
e continue while the effective duty protection available to domestic refiners ha
s been progressively reduced.
The government has now allowed new entrants, including the private sector, to se
t up shops for selling petroleum products with a condition that they would have
to also serve remote and uneconomic areas. Companies investing Rs. 2,000 crore i
n the petroleum sector have been granted permission to market petrol, diesel and
jet fuel.
One of the more visible transformations in the retail business of auto fuels is
the recognition by the oil companies that non-fuel activities could be an import
ant source of revenue at their retail outlets. So we have convenience stores, fa
st food centers and other such amenities finding a place at petrol stations. Thi
s is a very welcome change. However, the possibilities are immense and efforts i
n this direction too slow and limited. The retail outlets have the potential to
become a one-stop shop for meeting innumerable needs of the customers on the one
hand, and increasing the revenues of the outlet on the other.
The expectations of customers have been changing as customer belonging to the tr
ucker community is now demanding higher levels of product & service delivery. Bu
sinesses are putting intense pressure on entire logistics cost optimization: tra
vel times under scrutiny. Also the Urban customer has become more vocal in deman
ding services like one Stop Shop, rest & recreation for highway travel, allied f
acilities like ATMs, Cyber cafes, courier services etc.
There are various options which the Petroleum sector companies are scrutinizing.
Some of them would be non-fuel retailing at fuel retail outlets, fuel at malls,
 entering non-fuel retail as a business model, using technology enablers for aut
omation, going for fuel based or service based differentiation, optimizing their
supply chain network, etc.
But there are various challenges awaiting these companies and some of which they
are facing currently. Some of the challenges include low profitability, decreas
ing throughput per retail outlet (per pump throughput (ppt)), pricing and market
ing policy of fuel which is till now influenced by the Government decisions, net
work planning dilemmas due to non-uniform tax structure across different states,
non-level playing field, etc.
These opportunities and challenges are proving to be an exciting time for the In
dian oil and gas sector. With new product specifications, setting up of grass ro
ot refineries, overseas acquisitions and construction of new LNG terminals, Indi
a will play a significant role in the global energy market. The Oil marketing co
mpanies are beginning to realize the importance of a greater understanding of co
nsumers’ needs and making their core objective as continuously adding value to it’s
customers through innovative means. The fuel retail business has come a long way
from the traditional retailing and the oil marketing companies are doing their
best to attract and retain consumers by giving them all possible amenities and s
ervices to manage their economics in the best possible way.
INTRODUCTION
The oil and gas industry has already taken its first steps towards a major retai
l reform through deregulation of the petro –marketing business. With the retail re
form, state owned oil majors are plunging into the marketing business with renew
ed vitality and partnering with private partners to upgrade their facade design
and service at their petrol kiosks to provide a new retailing experience to thei
r customers.
This changing retail landscape leads to new challenges for petroleum products re
tailing (traditional as well as fuels like CNG and PNG) including opportunities
in non-fuel activities.
There has been a growing concern for availability of primary commercial energy t
o meet the country’s growth imperatives. Our economy is growing at a brisk rate of
around 9% and is projected to become the 2nd largest economy of the world by 20
50 .Such growth requires a corresponding increase in the sources of energy as we
ll as in supply infrastructure an gas retailing. Under these circumstances, the
requirement of adequate and reliable energy supply at economic prices for optima
l and inclusive growth of the country is a prime concern today.
To develop and operate cost efficient and effective retail market arrangements,
which are fair and equitable, to facilitate competition in the gas retail market
.
Maintaining relationship between gas shipper and gas supplier.
Growing concern of Gas as a potential source of clean and efficient energy suppl
y.
Service station and convenience retailing.
RETAILING
The traditional utility today finds itself facing the most challenging market co
nditions that it has ever experienced. Deregulation is bringing in new competiti
on, not only from other utilities but potentially from competitors with very dif
ferent backgrounds. These new market entrants can utilize a variety of different
strengths to threaten the traditional business model. They may leverage an exis
ting customer base or use technology in general, and the Internet in particular,
to leapfrog into the traditional utilities’ market space and to steal business fr
om them.
Retailing is defined as “A business that sells products and/or services to
consumers for their personal/family use”.
This definition includes the interface of retailers with both vendors and consum
ers, as well as other processes like supply chain management that impact retaile
rs. Retailers have to do the following tasks:
Analyze their customers
Develop strategies
Choose markets and channels in which to compete
Make location decisions
Find, design, purchase, price and promote merchandise and services
Organize their operations and manage their employees and stores
Create an atmosphere that is inviting to customer and conductive for buying
With growing competition and deregulation, the rules of the game in the petroleu
m retailing industry in India will undergo some changes in the next few years. T
he revolution in the Indian telecom sector is a recent example of the impact of
free market dynamics on the structure of the industry and the strategies of vari
ous players. Deregulation of the petroleum retailing sector in India will undoub
tedly lead to a similar battle for market share, with new players attempting to
gain share from current incumbents. This will exert a downward pressure on profi
t margins and force industry players to adapt their organizations and strategy.
To succeed in this environment, the two key questions are: How can the industry
prepare for the change? What will be the most effective strategies for petroleu
m retailers in India in the medium term?
WHEEL OF RETAILING
Emergence of new retailing forms and decline of old retailing forms coul
d be explained by “Wheel of Retailing”. According to this, many new types of retaili
ng institutions begin as low-status, low-margin and low-price operations. They b
ecome effective competitors of more conventional outlets, which have grown fat o
ver the years. Their success gradually leads them to upgrade their services and
proffer additional services. This increases their costs and forces price increas
es until they finally resemble the conventional outlets that they displaced. The
y, in turn, become vulnerable to still newer types of low-cost, low-margin opera
tions
BRAND BUILDING METHODOLOGY
From what seems at the face, there is opportunity for petroleum retailers in Ind
ia to develop differentiated value propositions that will boost their revenues a
nd improve competitiveness and profitability in the new market economy. Some im
portant points to consider are:
Strong brands drive revenue growth
In times of increased competition, firms often adopt strategies aimed either at
improving cost effectiveness or at growing revenues. In growth markets, the majo
r imperative should be revenue enhancement through profitable share and market g
rowth.
To drive revenue growth, petroleum retailers may have to either attract new cons
umers or increase their share of the existing consumer’s wallet.
Creating strong brand equity will be a key to achieving these objectiv
es, consistently and profitably. Empirical evidence shows that strong brands
add perceived value which can command a price and/or volume premium by differen
tiating from commodity products.
RETAIL POSITIONING MAP
By combining different service levels of retailing namely Self service,
Self selection, Limited service, and Full service, and different assortment brea
dths, we can distinguish four broad positioning strategies available to retailer
s:
Bloomingdale’s: Stores that feature a broad product assortment and high value adde
d. Stores in this quadrant pay close attention to store design, product quality,
service and image. Their profit margin is high, and if they are fortunate enoug
h to have high volume, they will be very profitable.
Tiffany: Stores that feature in a narrow product assortment and high value added
. Such stores cultivate an exclusive image and tend to operate on a high margin
and low volume.
Sunglass Hut: Stores that feature a narrow line and low value added. Such stores
 keep their costs and prices low by centralizing buying, merchandising, advertis
ing, and distribution.
Wal-Mart: Stores that feature a broad line and low value added. They focus on ke
eping prices low so that they have an image of being a place for good buys. They
make up for low margin by high volume
.
KNOWING YOUR CONSUMER
To develop a strong brand and product proposition, a key imperative is t
o understand your target consumer’s psyche, behavior and needs. Segmentation is a
powerful tool to help marketers identify the most profitable consumer segments a
nd to develop an offer which fulfils their needs better than competitors. Many s
uccessful global petroleum brands have used detailed psychographic segmentation
as the foundation of building strong brands.
As the consumers in India have not been exposed to differential pricing in petro
leum, the price sensitive consumer is not as well defined as in other markets. C
omparing the drivers of petrol station choice with more developed markets such a
s US, there are some stark differences which may give some pointers as to how co
nsumers may evolve in India. In the U.S., while location (71%) is the primary pa
rameter, price (56%) is also a very important factor. Product performance or qua
lity (24%) is the third most important factor. However, there is a big differenc
e in consumer’s interpretation of quality. In India, quality is interpreted as “no a
dulteration”, but in the U.S., it means impact on fuel efficiency and engine perfo
rmance. Quantity (interpreted in India as getting the right amount of fuel, i.e.
integrity) is not a parameter for consideration in a market such as U.S. As the
Indian market evolves, parameters such as integrity of fuel quantity and purity
are likely to become hygiene factors, and not bases for differentiation. Market
ers would be able to evolve their brand offering in line with the development of
consumer needs- from purity to higher order needs such as performance, fuel eff
iciency or even the quality of the buying experience.
THE INDIAN PETROLEUM SECTOR – AN OVERVIEW OIL AND NATURAL GAS SECTOR
The oil industry can be divided into three major components: upstream, midstream
and downstream. The upstream industry includes exploration and production activ
ities, hence is also referred as the exploration and production (E&P) sector. Th
e midstream industry processes, stores, markets and transports commodities inclu
ding crude oil, natural gas, natural gas liquids (NGLs) like ethane propane and
butane and sulphur. The downstream industry includes oil refineries, petrochemic
al plants, petroleum products distributors, retail outlets and natural gas distr
ibution companies. The downstream industry provides consumers thousands of produ
cts such as gasoline, diesel, jet fuel, heating oil, asphalt, lubricants, synthe
tic rubber, plastics, fertilizers, antifreeze, pesticides, pharmaceuticals, natu
ral gas and propane. Both internationally and within India the oil and gas secto
r is characterized by existence of "integrated" companies, which are present in
all these three sectors.
The flow chart below shows oil value chain depicting the entire process under wh
ich both upstream and downstream segments are covered. To start with, crude oil
is explored and produced (Upstream) and then transformed into various petroleum
products with different end uses in refineries and finally marketed to retail cu
stomers (Downstream). Except Aviation Turbine Fuel (ATF) and Liquefied Petroleum
gas (LPG), all the end products are sent to intermediate storage plants through
terminal/depots and finally to retail customers. As regards ATF it is distribut
ed directly to the Airfields or Air stations and refined LPG is dispatched to LP
G storage/bottling plants for liquefaction and marketing to retail customers. Pi
pelines are mostly used to transfer the petroleum products and by products. For
onshore fields, coastal tankers are used.
GAS AVAILABILITY
GAIL India, the country’s largest marketer and transporter of gas, has bagged the
rights to market the entire gas produced from the Panna-Mukta and Tapti (PMT) fi
elds jointly which would add around Rs 550 crore to the company’s revenues, a seni
or company official said.
The gas field in the western offshore, which is jointly operated by Reliance, Br
itish Gas and ONGC, currently produces 17 million cubic metres per day (mcmd) of
gas. GAIL will get to transport and market the entire volume from April 1, 2008
. It currently markets 4.8 mcmd of gas.
In proportion to their equity in the block, ONGC, RIL and British Gas market 12.
2 mcmd of gas from the PMT field.
ONGC holds 40 per cent stake in these fields, while Reliance and BG India hold 3
0 per cent each.
In March last year, the petroleum ministry had allowed the joint venture partner
s to directly market 5.6 mcmd gas from these fields for two years till March 31,
2008, and give the remaining 4.8 mcmd to GAIL.
The output from these fields has now increased to around 17 mcmd. While GAIL’s mar
keting share has remained the same, the joint venture partners have increased th
eir direct sale of gas PD and 90 MMSCFD of Gas.
Panna Gas Field:
Panna gas field is 430 sq. kms in area, located 50 km east of the Bombay High fi
eld (95 km NW of the Mumbai city) on the basin of the River Panna, which is also
home to the Panna Tiger Reserve. It lies immediately to the north of the Bassei
n gas field separated by a shallow NE-SW trending syncline. The average water de
pth is 45 m.
Structure of Panna field is a broad, composite domal with approximately 60 to 80
m of vertical closure at the Middle Eocene level.
Mukta Gas Field:
The Mukta gas field is 777 sq.kms in area, located 100 km Northwest of the Mumba
i city. It is contiguous with the Panna block to the east and lies in an average
water depth of 65 m. Present field production is 30000 BO
Tapti Gas Field:
Tapti field covers an area of 1471 sq.kms and lies 160 km north-north west of th
e Mumbai city along the basin of the River Tapti.
After processing, crude oil is loaded to a stand by Tanker through SBM loading
facility and gas is dispatched through 18" & 22 kms export line tied to ONGC s 3
6" & 42" gas line going to Hazira. Facility comprises dehydration and sweetening
plant for providing fuel for power generation and gas lift system.
Tapti Processing Platform (TPP) was designed, constructed and installed to handl
e 180 MMSCFD of Gas and 100000 barrels of liquid (both water and condensate). Af
ter recent de-bottlenecking the handling capacity has been enhanced to 210 MMSCF
D.
GAS Marketing scenario in India
The success of compressed natural gas (CNG) in Mumbai and Delhi has led Bharat P
etroleum Corporation Ltd to intensify its focus on gas retailing.
The company, which has been supplying CNG in Delhi through its joint venture wit
h GAIL (India) Ltd, Indraprastha Gas, it is now talking to Reliance Industries L
td for possible gas supply to Bangalore and Hyderabad.
BPCL is also trying to tie-up with natural gas buyers in Gujarat including ferti
liser and power companies for selling liquefied natural gas to be brought in at
Dahej by Petronet LNG Ltd in January 2004. BPCL holds 10 per cent stake in Petro
net.
RNRL gas retailing through gas procured from RIL
Anil Ambani Group s proposed Rs 1,200 crore entries into retailing of gas to hou
seholds and automobiles.
As per the January 9, 2006 GSMA, RIL committed to supply 28 million standard cub
ic meters per day of gas, which may increase to 40 mmscmd under certain conditio
ns, to RNRL for power generation.
It projected a demand for gas (both CNG and piped natural gas to households and
industries) in Mumbai at 2-2.5 mmscmd and 2.2-2.75 mmscmd in Delhi.
GAIL Gas applies for retail distribution license
The city gas distribution subsidiary of state-run GAIL (India) Ltd,
GAIL Gas Ltd has applied for a licence on to set up compressed natural gas, or C
NG, stations and piped gas network in six cities.
GAIL will chip in with an initial equity of Rs200 crore in the subsidiary, while
another Rs300 crore would be debt.
Energy is an essential requirement for economic development and an important pre
- requisite for improving quality of life. Within commercial energy, oil & gas h
ave been playing an increasingly important role in the development of economies
throughout the world and India is no exception. In the last 50 years, the oil &
gas sector has taken giant strides to meet the growing energy needs of the India
n economy.
The country has built up a large petroleum industrial network encompassing every
facet of the oil & gas business including exploration, production, refining, tr
ansportation and marketing. It is imperative to have a long-term policy for the
hydrocarbon sector in order to facilitate meeting the long-term needs of the cou
ntry. Issues such as energy security for strategic and defence purposes, making
the hydrocarbon sector globally competitive and ensuring the development of free
market in the hydrocarbon sector need to be addressed whilst formulating a hydr
ocarbon policy for India. The Govt. of India has come out with a policy document
"India Hydrocarbon Vision 2025- which lays down the framework which would guide
policies for the hydrocarbon sector for the next 25 years.
The radical restructuring of the Indian economy since 1991 has led to opening up
of the economy to the private sector. Recent initiatives in Oil & Gas explorati
on, Natural Gas, Refining marketing and infrastructure have resulted in enormous
opportunities for private enterprise in the high growth areas. Out of 26 sedime
ntary basins in the country, production has so far been undertaken in only 7 bas
ins and almost two-third of the total sedimentary area remains unexplored/poorly
explored. Out of a hydrocarbon resource base of around 30 billion tonnes, in pl
ace reserves account for 6.8 billion tonnes. The E&P policy entails carrying out
extensive and intensive exploration to achieve a Reserve Replacement Ratio of m
ore than one, while achieving a zero impact on the environment. One of the major
milestones in Exploration is the opening up d vast areas in non-producing, fron
tier basins and deep-water offshore areas both by DGH as well as National Oil co
mpanies. Reconnoitry surveys in deep water areas led to offering 12 deep-water b
locks in NELP-99 out of which 7 blocks have been awarded. ONGC has already disco
vered oil in deep water offshore east coast and we may see more discoveries as f
urther areas are opened up this year. The NELP has provided internationally comp
etitive terms keeping in view the relative prospectively perceptions of Indian b
asins along with expeditious and time bound finalisation of contracts.
The demand for hydrocarbon in the country is growing at the rate of 6.5-7% per a
nnum am India already is the eight largest consumer of 011 and is expected to be
the fifth largest consumer in the next twenty years. With domestic crude produc
tion remaining almost static for the past five years, India has to depend largel
y on import. Without doubt Exploration policies and techniques aimed at maximisi
ng reserves accretion will be single most important factor for sustainable growt
h, calling for continued research and development in frontiers of technology to
evolve cost effective methods for adding petroleum resources.
Another area of focus is the requirement of more natural gas in the country and
India Is likely to emerge as the largest growth center for use of natural gas. T
o reduce pollution, accommodate rising electric power generation and diversifyin
g its energy portfolio, numerous projects are under way to increase India s usag
e of the green fuel. The natural gas policy framework envisages conventional gas
availability through domestic production as well as pipeline and LNG imports be
sides tapping unconventional sources such as CBM, Gas hydrates and underground c
oal gasification. The Central and State Governments have approved several sites
for LNG imports and Petronet LNG lid; a joint venture company is the torchbearer
in this arena. The Govt. is also considering to produce coal bed methane and se
veral blocks would be soon on offer with the best terms available in the world.
The CBM policy and the best fiscal terms for CBM were approved by the Govt. in 1
997. A National Gas Hydrates Programme is in place and various R &. D studies ar
e in progress to develop vast resources of Gas hydrates in Western and Eastern o
ffshore and Andarnan areas. India is amongst the only 4 - 5 countries in the wor
ld where R &. D work on gas hydrates has started.
According to recent World Bank study, India is the 4th richest country in terms
of Purchasing Power Parity. This factor should help in evolving a total deregula
tion policy for overseas E&P business to obtain quality E&P projects abroad. Thi
s would supplement domestic availability of oil and ensure adequate and cost eff
ective hydrocarbon energy through acquisition of overseas reserves. One would li
ke to see more fiscal and tax benefits to make Indian companies more globally co
mpetitive.
In the downstream sector, the lubricants market was deregulated in the early 199
0 5 and is now intensely competitive. Complete deregulation of the marketing sec
tor is envisaged by April 2002. To meet the enormous demand for petroleum produc
ts, the Indian refining sector has seen one of the highest growth rates in refin
ing capacity in the world. India has added around 50 MMTPA of refining capacity
just in the last 4 years. Total refining capacity has now reached a level of 112
MMTPA and the country has become almost self-sufficient In refining capacity .T
he objectives of the refining and marketing policy are to maintain 90% self-suff
iciency of middle distillates with the mix of national, foreign and domestic: pr
ivate companies, to develop a globally competitive Industry with the free market
and healthy competition, develop appropriate Infrastructure like ports and pipe
lines, provide better customer services and achieve product quality norms. Altho
ugh the density of India s road and railway network is comparable to Europe, it
needs to be supplemented by an extensive pipeline and Oil & Gas storage network.
Since the major demand requirement would be met by petroleum import, augmentati
on of facilities at major ports and development of minor ports assumes significa
nt importance.
Although the need to use increasing quantum of energy by less developed countrie
s for economic development is well appreciated, the adverse impact of use of fos
sil fuels in general and hydrocarbon in particular on the environment cannot be
wished away. A rational tariff and pricing policy to address these concerns is r
equired which would provide incentives for use of cleaner, greener fuels, mainta
in a balance between boosting Govt s. Revenue and alignment of duties with Asia-
Pacific countries as well as moving prices to international levels. Phasing out
subsidies and cross subsidies is also an important step in this direction. Intro
duction of unleaded petrol, low sulphur petrol & diesel and incentives for use o
f CNG and LPG fuels have led to reduction at exhaust and toxic emissions.
To maintain long-term profitability and strengthen competitive edge of companies
, India has embarked upon a restructuring and disinvestment process and steps ha
ve been taken to establish necessary regulatory frameworks for the hydrocarbon s
ector. New business alliances have emerge in the upstream and downstream sector
and the policies adopted call for greater transparency, level playing fields for
all companies, freedom of entry and exit etc. Information technology is making
markets more efficient resource production less speculative & costly and monitor
ing use of hydrocarbons more effective, while making available multiple choices
to customers. With the third largest pool of technical manpower, developed basic
and communication infrastructure, mature financial markets, developed banking s
ystem and a commitment to the economic reforms process, India invites you to sha
re its path of progress on the fast track of development. India provides large i
nvestment opportunities and the foreign investor will find a stable macro-econom
ic, legal and fiscal environment in a country which has followed a democratic tr
adition during its 53 years of Independence.
GAS Marketing scenario (World)
China announced revival of its plan to build a giant $2.9 bn oil and gas pipelin
e across Myanmar, in a major move to get a uphold in gas retailing in Asian ener
gy markets.
China, which has outbid Indian oil companies in a number of major contracts in M
yanmar, announced work on the new pipeline connecting Myanmar with its Yunnan pr
ovince would begin.
The project includes constructing two separate pipelines one worth $1.5 bn oil p
ipeline and the other $1.4 bn gas pipeline, with the country s major China Natur
al Petroleum Corporation holding a 50.9% stake in the project.
Benchmark and Price Discovery Mechanism
As the world market for natural gas is fragmented in different regional markets,
it is not possible to talk about a world price for natural gas. Although there
is a market liberalization trend all over the world, in many countries natural g
as markets are still highly regulated. As a result of different degrees of marke
t regulation, natural gas prices differ among countries. In North America, for e
xample, where the market is highly liberalized, prices are very competitive and
respond to demand and supply forces. After liberalization, natural gas prices ha
ve declined significantly. On the contrary, in the Russian Federation, where the
re is a clear monopoly, domestic prices are kept artificially low while gas is s
old in foreign markets at higher prices in order to recover loses. In Europe, sa
les price for natural gas is most often based on competition with alternative fu
els.
Natural gas prices may be measured at different stages of the supply chain. At t
he beginning, there is the wellhead price. Prices are also measured for differen
t end-user groups as residential, commercial, industrial consumer or electric ut
ilities. Prices at the wellhead show high volatility depending on weather and di
fferent market factors. Increasing efficiencies in transport, storage and delive
ry allow for consumers to reduce the impact of price volatility.
In general, the main components of natural gas price are:
- wellhead price (the cost of natural gas itself or commodity cost)
- long-distance transportation cost
- local distribution cost
In North America, wellhead prices were the first to be deregulated. Transportati
on costs are still regulated by National Energy Boards, while local regulatory b
oards regulate local distribution costs.
The largest share of the final price is made up by distribution costs. As most l
arge industrial and commercial gas users tend to buy gas from producers or marke
t makers, they reduce their price considerably.
The major demand factors are weather and economic activity. Due to the importanc
e of the weather factor, natural gas demand is highly seasonal. Other forces aff
ecting demand are population changes and natural gas user trends. Changes in leg
islation concerning air pollution control may lead to increasing demand for this
clean fuel. Supply factors are transport availability and accessibility as well
as the physical amount of natural gas being produced and the level of stocks.
Natural gas competes with other sources of energy as oil, electricity or coal. N
atural gas price is particularly pegged to that of oil, since oil is natural gas
closest substitute and supply of oil and natural gas are closely linked.
Like most commodities, natural gas prices are cyclical. Their increase as a resu
lt of higher demand encourages exploration and drilling (as it happened in 2000)
. Although it takes some time for the production industry to respond to a price
signal, once production increases prices tend to fall. However, market fundament
als indicate that in the future natural gas prices may not fall to the low level
s of the past years.
Main international benchmarks for natural gas prices in North America are Henry
Hub (New York Mercantile Exchange) in USA and AECO (Natural Gas Exchange) in Can
ada. In Europe relevant benchmarks at present are the Heren Index (British Natio
nal Balancing Point) or the Zeebruge Hub (Belgium). IPE (International Petroleum
Exchange) Natural Gas futures price is also expected to become an international
benchmark as Europe develops competitive markets.
PASSING ON THE PRICE INCREASE
Developed and emerging economies have passed on price increases to varying level
s as is evident by the following data:
Emerging
Economies
Retail
Fuel Prices
Price volatility absorbed by
Explanation
/ Remarks
Government Oil Company Consumer

USA

Deregulated

Motor fuels retail price directly correlated with world crude oil price (fiscal
component lowest in developed world). Govt. watches fuel marketers closely to pr
event price cartels
UK

Deregulated

Motor fuels most expensive (source of fiscal income for the Govt.) and distribut
ion margins among lowest in Europe

China
Regulated

Retail prices indexed to international spot prices plus taxes and a fixedmargin.
Govt has no right to intervene in pricesetting.

India
Regulated
Partially

Proportion of price hike passed to consumer with. Govt and oil companies absorb
significant portions of price hikes.

Malaysia
Regulated

Some cost passed to consumer, while balance absorbed by govt through reduced tax
es.
Brazil

Deregulated

Brazilian consumer benefits from availability of local fuel substitute Ethanol a

nd may switch to either fuel depending on the market price.

Russia
Deregulated

Margins have also increased as Oil companies have passed on additional cost alon
g with price increase.

Thailand

Deregulated

Increased competition leading to margin pressure to oil companies. Reintroductio

n of ‘oil fund’ for petrol/diesel due to volatile international prices.
PRICING STRATEGIES IN INDIA:
From the Oil-Pool Account to Government Bonds
First, there was the APM.On 1 April 20023, the Administered Pricing Mechanism (A
PM) for petroleum products was abolished as part of the continuing reform of the
petroleum sector towards a sector based on market mechanism. In theory, India’s p
ublic downstream oil companies would now be free to set retail prices of all pet
roleum products based on an international parity pricing formula under the super
vision of a petroleum sector regulator. The Government would abstain from influe
ncing petroleum product pricing. Up to then, prices were controlled (or .adminis
tered.) for two transport fuels, petrol and high speed diesel, and two cooking f
uels, kerosene and LPG.
The subsidy for the four products was not part of the Government budget but came
out of the so-called oil pool account. The oil pool account was funded by surch
arges on petroleum products to be dispensed in times of rapidly increasing inter
national prices and re-filled during times of lower prices. With the beginning o
f the new FY on 1 April 2002, the APM and with it the oil pool account was aboli
shed.
Subsidies for the two cooking fuels are considered an important social instrumen
t to help poorer households shift from biomass to modern fuels. Following the ab
olishment of the APM; the Government would thus provide subsidies for kerosene a
nd LPG ex-ante in its annual budget. Subsidies would not exceed 15% of the LPG a
nd 33% of the kerosene import parity price respectively. Within 3 to a maximum o
f 5 years all budget subsidies on LPG and kerosene would be abolished and market
prices would be in place for all petroleum products in India. Petrol, diesel, L
PG and kerosene account for about 60% of India’s total petroleum product consumpti
on. Diesel is India’s single most important fuel as most of its vehicles, commerci
al and private, have diesel engines. Over 75% of India’s crude requirement is impo
rted.

Consumption of major petroleum products in India

(Source: Ministry of Petroleum Basic Statistics)

POST APM
The practice of retail price setting was different from the theory right from th
e beginning of the post-APM period. The so-called public downstream Oil Marketin
g Companies (OMC), implemented regular retail price adjustments for petrol and d
iesel during the first two FYs following the abolishment of the APM. Despite the
se regular price increases the OMC incurred minor shortfalls for the sale of pet
roleum and diesel. However, those shortfalls were mitigated through the refining
margins which now benefited from the import-parity pricing formula.
CURRENT SCENARIO
The demand for petroleum products has been constantly and steadily increasing in
India. It has grown at a CAGR of ~2.8% over last five years. The industry is ex
pected to grow faster in the future on account of increased economic activity. I
n terms of demand mix, HSD and naphtha constitute more than 50% of the total dem
and (by volume). Going forward, LPG, MS, and HSD are expected to be the major de
mand drivers.
Refining capacity depends on the technology used in refineries, capable of proce
ssing crude production into clean fuels. In the recent age of decreasing oil pro
duction refining capacity have to have well supportive technology, which meet in
creasingly more stringent environmental Standards. With the increase in global o
il demand and stagnant reserve, refining capacity deserves new capacity addition
to meet demand. But the graph shows slightly increasing trend of refining capac
ity till date in last decade. Refinery throuput, as opposed to designed capacity
, is computed by dividing the number of refined barrels of oil processed by the
actual number of days the refinery was in operation. Refined capacity is lower t
han refined throuput in the graph below implying under-utilization of capability
of processing crude in the existing refineries and lack of up-gradation. There
are 18 refineries operating in the country, 17 in the Public Sector and one in t
he Private Sector, with a total installed capacity of 127.37 million metric tone
s per annum (MMTPA).
The Indian Oil and Gas sector is one of the six core industries in India and has
very significant forward linkages with the entire economy. The oil & gas sector
meets more than two third of the total primary energy needs in the country. The
sector has been instrumental in putting India on the world map. At present Indi
a is the sixth largest crude oil consumer in the world and the ninth largest cru
de oil importer. The country is also increasing its share in the global refining
market. At present Indian refining sector is the sixth largest in the world. Th
is position is expected to be strengthened with plans of Reliance Petroleum Limi
ted to commission another refinery with a capacity of 29 MTPA next to its 33 MTP
A refinery at Jamnagar, Gujarat. As a result of this the Reliance refinery would
be world’s largest single place refinery.

EMERGING TRENDS IN THE FUEL RETAILING SECTOR

A lot of changes are coming to Indian petrol marketing, stepping into broader re
tail liberalization. Along with PSUs (IOCL, IBP, BPCL and HPCL), although Relian
ce is India s biggest homegrown private-sector player, this incipient retail rev
olution extends to foreign multinationals, which will get to sell directly to In
dians for the first time. The wheel has turned full circle since India nationali
zed subsidiaries of Shell (now Bharat Petroleum) and US Esso (now Hindustan Petr
oleum) in 1974, turning petroleum into a state affair. Shell, Reliance and anoth
er private domestic concern, Essar Oil, are concentrating on highways where 330,
000 truckers guzzle $10 billion worth of diesel every year as the cities are cro
wded by the State oil companies.
The new entrants are offering choices to Indian motorists. Most pumps have been
isolated entities, selling a cocktail of kerosene, a highly subsidized product,
and gasoline. Today there are pumps every few kilometers. Tired truckers, who ea
rlier curled up in their vehicles for a nap and urinated by the roadside, now us
e motels, restrooms and telephones offered by Reliance s new pumps. And urban In
dians, who until recently drove outdated cars and relied on word of mouth to fin
d a clean pump, now drive large Fords and Hondas and demand better fuel and serv
ice.
Competition is forcing Indian Oil, Bharat Petroleum and Hindustan Petroleum, whi
ch together run more than 20,000 outlets nationwide, to clean up their acts with
various anti adulteration steps. The highway-building program should induce big
increases in Indian oil consumption, currently only a tenth that of the U.S. On
ly 7 in every 1,000 Indians own a car, as compared with 12 in neighboring Pakist
an. Surely $50-a-barrel oil will slow things in a largely poor country like Indi
a, but under normal circumstances the gap with the West will close.
India requires an investment of at least $450 million in the petroleum sector to
gain retail rights. And it is tough to make your board understand why a bureauc
rat or a minister sitting in New Delhi should fix the price of your gasoline and
diesel when you have put that kind of money into the country. India deregulated
the oil sector in 2002, but, as with many things in this country, the gesture w
as purely symbolic. India s foray into freer petroleum retail is a teaser to thr
owing open an estimated $200 billion broader retail market (just under Wal-Mart
s total sales) to foreign direct investment. Supermarkets and department stores
make up only 2% of this market, with the rest coming from 12 million mom-and-pop
stores, according to a Jardine Matheson report. India badly lags its modern ben
chmark, China, in this aspect of consumerism--although it is just ahead of China
in opening gasoline retailing.
Name of the company Number of retail outlets
IOCL (with IBP) 17600
BPCL 7332
HPCL 7313
RELIANCE 1367
ESSAR 1149
SHELL 40
ONGC 2
DEREGULATION OF THE PETROLEUM SECTOR
During the last 25 years, functioning of the oil industry was governed by the Ad
ministered Pricing Mechanism. The APM served to achieve the following primary go
als:
Ensure availability of certain products at subsidized rates to the economically
weaker sections of the society and for priority sectors like Fertilizers through
a system of cross subsidization of products,
Ensure stable prices, so that the domestic market is insulated from the volatili
ty of prices in the international market,
Regulate returns to the Oil companies at reasonable levels, consistent with effi
ciency of operations, to generate sufficient resources for encouraging growth of
infrastructure facilities,
Minimize the cross haulage of products by making available products at a uniform
price ex-all refineries, and
Achieve social objectives such as demand management.
During this period, the oil industry approached every need of the consumers in a
coordinated way. The supply plan mechanism, under which the product was made av
ailable to all the players irrespective of the original ownership of the product
, provided for coordinated logistics movements. The coastal, pipeline and rail m
ovements were planned on industry basis. As a result, the infrastructure was als
o developed on industry basis, with one of the companies acting as lead giving h
ospitality to the companies which were not represented.However; the APM also had
certain major problems. The need to bring domestic prices in line with the inte
rnational prices, the new environment regulation requiring considerable investme
nt in the oil sector forced the Government to have a look at the regulated regim
e.
To start with Government deregulated the Lubricants marketing in 1993. This sect
or immediately witnessed entry of new players and number of competitors increase
d multifold. The new players brought in new Unique Selling Propositions (USPs) i
ncluding international brands like Shell, Caltex, Mobil, Elf, Total etc., improv
ed products and the market became very active. On the other hand, a lot of compa
nies also offered cheaper alternatives, not always meeting the minimum specifica
tions. The Government deregulated refining sector and Industrial fuels marketing
in 1998. This gave rise to import parity pricing of the industrial fuels. Furna
ce oil and Naphtha prices, which remained fixed over long periods like an year o
r so -started moving in line with the international prices. The periodicity was
initially one month. However, it was observed that even this period could result
in price distortions -resulting in imports from the nearby markets. Eventually
the prices started changing every 15 days and the cycle got settled. Today, a ma
jor portion of direct fuels marketing is being done by the refineries directly
in their own economical zone with certain product exchanges matching quantities
on a ton -to - ton basis. The next step was in 2001, wherein the ATF prices were
deregulated, which prices started reflecting international trends.
Finally effective 1st April 2002, domestic and transportation fuels were also de
regulated. This has led to fluctuating MS and HSD prices -changing every 15 days
. The domestic fuels viz. SKO and LPG are still subsidized and oil companies hav
e retained the selling prices of these products despite of increase in internati
onal prices. The retail fuels followed the ATF model and the major change, which
took place as a result of deregulation, but was not felt by the common man, was
the change in distribution system and pattern. The deregulation also brought in
customer focus in the working of the oil companies. Petro-products, which were
a commodity till then, were being seen differently. The companies desired to est
ablish their "Brand Image" in the market. They realized that only the customers
could make them grow and proper attention was given to their needs.
The international format of a New Generation Outlet was introduced by BPCL to th
e Indian customers. These outlets, in addition to being attractive and sleek, ar
e very efficient in customer handling and services. They included additional ser
vices like ATMs, in and out stores, Car Wash, etc. The companies introduced loya
lty programme and ease of payments through Petro Card for urban consumers and
through Smart Fleet card for major fleet operators. Both these programmes are
based on Smartcard technology. Deregulation opened avenues for marketing improve
d branded products. IOCL came up with Xtra Premium, and Xtra Mile, BPCL came up
with Speed93, Speed 97, Hi-Speed Diesel, and HPCL introduced Power petrol and Tu
rbojet Diesel.
APM dismantled in 2002, but government still involved in fuel pricing; pricing d
ecisions based on social considerations. Private companies allowed marketing MS
& HSD - imports also decanalized in 2003. Public sector oil marketing companies
are technically allowed to sell petrol and diesel at market prices, although the
y end by selling these at below market price, since their largest shareholder, t
he government of India, regulates product pricing, in the hope that ruling party
politicians win elections. After all, diesel is a mass consumption product. The
same logic applies to LPG and kerosene pricing. Taxes make a good part of the p
rice paid for petrol and diesel, which account for 50% of the petro products con
sumed in the country. In the four big metros, tax as a proportion of the final p
rice is as high as 57% in the case of petrol, 37% for diesel, 23% for kerosene a
nd 22% for LPG. Reliance on the petroleum sector for garnering taxes is as high
as 20% for the central government. In the case of states, it is around 50%.
The oil companies are not allowed to raise prices by that level, because of the
existence of the price control system that exists as part of the Indian planning
. Oil policy in India requires shifting away from the interests of socialists, t
he interests of oil PSUs and the interests of oil companies like Reliance. Inste
ad, we need to apply the first principles of a market economy. Better health of
oil companies requires the sector must be exposed to competition. At present, a
host of barriers make it difficult for the private sector to import and sell pet
roleum products in the country. In the 1990s, India found its way out of a mess
in the industrial sector - where there were thousands of incompetent companies -
by cutting customs duties and opening up to imports. The same story applies in
the petroleum sector. We should focus on opening up the Indian market for petrol
eum products to global competition. Anyone should be allowed to open petrol pump
s, buy petrol from anywhere in the world and sell to customers. Each of these st
eps should be jealously protected from the meddling of the ministry of oil and i
t’s cronies in the oil sector. This will help destroy the monopoly of oil companie
s and force them to work in a competitive framework.
The oil industry is on a threshold of change. It is changing its character from
a Government controlled - faceless - bureaucratic in nature to a vibrant, custom
er oriented industry. The battlefield of competition would be the market place -
where the customer would be the king. The retail market would be witnessing entr
y of new players like RIL, Essar and some multinationals.
NEW EXPLORATION LICENSING POLICY (NELP)

• Identification of areas in Indian sedimentary basins which can be opened for exp
loration and production: -
o Preparation of Basin Information Dockets.
o Preparation of Data Packages for blocks on offer.
• Promotional activities for NELP: -
o Activities related to fixation of Marketing Consultant.
o Interaction with E&P Companies globally
o Arranging Data Rooms at different venues for NELP data viewing.
o Arrangements for viewing of data on ‘Web’.
• Co-ordination with G&G Group and Processing Group to fulfill the
requirement of data for E&P companies – Sale of data (Regional).
Respond to query about the data to E&P companies.
•Co-ordinate with Ministry right from the declaration of NELP to bid
receiving.
• Co-ordination in the process of bid evaluation: -
o Formation of teams.
o Co-ordination with Ministry.
• Preparation of DGH Annual Activity Report.
• Preparation of PSC documents after the award of blocks.
• Suggesting areas for geological, geochemical and geophysical.
Exploration in different parts of Indian sedimentary basins where
hydrocarbon explorations are either poor or nil.
• Any other assignment directed by Director General (DGH) from time to
time.
New Exploration Licensing Policy II
Under the New Exploration Licensing Policy (NELP-II) for exploration of oil and
natural gas, the Government of India announced a second offer of exploration blo
cks. Companies are invited to bid for the 25 exploration blocks on offer. A tota
l of 16 offshore blocks including 8 deep-water blocks (beyond 400 m isobaths) an
d 9 on land blocks, are on offer. Companies may bid for one or more blocks, sing
ly or in association with other companies, through an unincorporated or incorpor
ated venture.
MAIN FEATURES OF TERMS OFFERED
The successful bidder would be required to enter into a Production Sharing Contr
act (PSC), which will be negotiated based on the Model Production Sharing Contra
ct (MPSC). Some of the features of the attractive terms offered by the Governmen
t are:
• The possibility of a seismic option in the first phase of the exploration period
.
• No minimum expenditure commitment during the exploration period.
• No mandatory state participation.
• No carried interest by National Oil Companies (NOCs).
• Income Tax Holiday for seven years from start of commercial production.
• No customs duty on imports required for petroleum operations.
• Biddable cost recovery limit up to 100%.
• Option to amortize exploration and drilling expenditures over a period of 10 yea
rs from first commercial production.
• Freedom to the contractor for marketing of oil and gas in the domestic market.
• Provision for assignment.
India launching NELP VII
India announced the auctioning of 80-85 oil and gas blocks for exploration and p
roduction in the seventh licensing.
The seventh and last offshore licensing round under India s New Exploration Lice
nsing Policy (NELP), which saw the release of a record 57 oil and gas blocks, wa
s launched. Of the total blocks to be offered, nine were in shallow water, 19 a
re in deepwater and 29 in onshore. Most of the deepwater blocks will be off th
e country s western coast.
India s seventh licensing round aimed at attracting international majors and com
panies with deepwater exploration and production experience. In addition, the l
atest auction saw Indian-born billionaire steel baron Lakshmi Mittal taking part
in the bidding for the first time.

Oil regulator Directorate General of Hydrocarbons (DGH) carved out 80-85 blocks
to be offered for bidding under NELP-VII. The total acreage of the blocks on off
er is about 0.4 million square kilometers. Offshore blocks on both east and west
coast would be offered, in addition to a few on-land blocks.

Although the government had promised marketing freedom and market price for oil
and gas found by companies investing in NELP rounds, there were attempts to regu
late price of gas to be produced by Reliance Industries from its NELP-I block, K
G-D6.
NELP-VII saw a partial introduction of Open Acreage system alongside bids for
a specific number of blocks on offer. Under this system, companies picked and ch
oose areas they want to explore. For this, a National Data Repository was set up
.
Road shows for NELP-VII were held in two parts. In the first part, the eastern h
emisphere was covered with investor conferences in Moscow, Kuala Lumpur and Sydn
ey/Perth during November and early December. Western oil locations including Lon
don and Houston were covered in January.
New Exploration Licensing Policy VIII
ON 8th August 2009 in Mumbai
PRESENTATIONS BY :
MOPNG
DGH
CII
Indian & Foreign Oil & Gas Operators
The largest ever offerings were made under NELP – V III.
A total number of 70 blocks were offered in NELP – VIII (24 DW+28SW+18OL=70)
Revised and attractive bidding terms were kept in play.
The non E&P companies also given opportunity during NELP- VIII
Weightage was given to the experienced players in Deep Water
Simplified productions haring under CBM
Online registration at www.indianelpviii.com
Challenges faced by oil marketing companies:
The last few years have seen several developments in Indian petroleum sector tha
t continues to make a transition from a fully controlled industry to one that is
driven entirely by market forces. However, the highly sensitive nature of the i
ndustry and the potential impact of a fully decontrolled price regime on the var
ious stakeholders have resulted in a situation where the industry is buffeted by
a host of conflicting forces. For instance, while the refining margins remain b
uoyant, fetching large profits for stand-alone refineries spiraling crude prices
and inability of OMC’S to increase the retail prices in proportion to the rise in
crude prices and the inability of OMC’s to increase retail prices in proportion t
o the rise in crude price simply that the marketing sides of the business have s
tarted incurring large losses.
Growing competition in retail markets has prompted the OMC’s to aggressively expan
d their retail networks. While this strategy has acted as a protective factor ag
ainst competitive pressures, it also has resulted in a sharp decline in the per
pump throughput. The latter is a key factor determining the viability of any ret
ail outlet, given the low margins (gross margin of around 1.75) in the automobil
e fuel dispensing business.
Petroleum Manufacturing
Integrated Petroleum and Energy companies face a great number of advanced pricin
g challenges in achieving profitability. Destructive pricing practices includin
g “cost-plus” and “match the competition,” create unnecessary discounting and pricing er
osion, and quoting below breakeven prices which result in lost revenue and profi
t opportunities. Improving pricing is the most powerful way to improve business
and financial performance for integrated petroleum and energy industry companies
.
Fuels pricing, for example, is driven based on spot price, a significant attribu
te for pricing fuels in a given region, while long-term deals for lubricants req
uire segmentation or differentiated customer, product, and market strategies wit
h a high-visibility into contract, product mix, and customer profitability based
on all the cost-to-serve components. It is critical that customer needs are me
t across the value chain while remaining profitable on a transaction and contrac
t basis. Petroleum and energy industry leaders are at a competitive disadvantag
e if sales, marketing, finance, operations, and management have limited visibili
ty into pocket price and pocket margin, lack a uniform pricing strategy, practic
e unscientific ad-hoc pricing, and lack relevant and timely data.
Pricing Challenges in the Petroleum / Energy Industry
The most successful industry-leading petroleum and energy industry companies imp
rove revenues and generate a high ROI by addressing complex pricing problems inc
luding:
Lack of visibility into competitor’s pricing strategy: Sales managers need to be
able to proactively respond to a significant deviation from historical behavior
by a competitor as this impacts price position drastically versus these same com
petitors the next day.
“One size fits all” pricing: Actionable differences in customer segment purchase be
haviors allow pricing based on customer value or product end use creating increm
ental revenue.
Reactive rather than proactive pricing: The ability to anticipate demand patter
ns and change prices based on expected demand behavior shows price leadership an
d prevents potential margin erosion that can be caused by matching the competiti
on on lower prices. Further benefits are found from predicting optimal prices a
nd volume ratability, effective arbitrage, customer compliance tracking, and a n
umber of other proactive pricing strategies.
Lack of visibility into key components of cost-to-serve: Sales Managers need ad
equate negotiation tools providing critical data including cost to serve, willin
gness to pay, customer price history and market conditions. Additive costs, tra
nsportation and other relevant line items are usually fixed however the relation
ship between spot price costs should be visible and monitored for any negative i
mpact to margins.
Effective management of rebates, services and discounts: Those evaluating long-
term teams must consider the impact on the cost-to-serve and ultimately profitab
ility given additional discounting and services related to selling of products i
ncluding installation, special parts, or other initial investments in equipment
and services for new and existing customers and products.
KELKAR COMMITTEE:
Though economic reforms started in 1991, tax reforms; somehow have not got the d
ue attention. The architect of liberalization process the then Finance Minister
Mr. Manmohan Singh made some attempt based on the Raja Chelliah Committee recomm
endations. His successors Mr. P. Chidambaram and Mr. Yashwant Sinha carried this
forward a bit more in direct and indirect taxes. But the fact remains the refor
ms in this crucial area have been ad-hoc and root cause of the problem still rem
ains.
The objective of rationalizing cumbersome tax structure in a bid to reverse dete
riorating public finances, improve tax-GDP ratio by making tax administration si
mple, tax base wide with low tax rates.
Kelkar panel, which submitted its consultations papers on direct and indirect ta
xes separately, is justified in observing that the most direct way to raise tax
GDP ratio is to remove most of the plethora of exemptions granted on import and
excise taxes for a variety of reasons, mostly for non economic considerations; w
iden the indirect tax net by expanding the service tax base; and to improve taxp
ayers compliance.
To boost exports and FDI, the government must sharply reduce the transaction cos
ts and the proposed indirect tax reforms are expected to reduce transaction cost
s by 50 per cent. Accordingly, it has proposed two-tier customs duty with 10 per
cent for raw material imports and 20 per cent for finished products. It has exe
mpted from duty life saving drugs, government imports for defence, security and
atomic energy and RBI imports. Higher duty of up to 150 per cent has been recomm
ended for specified agriculture products and demerit goods.
On excise, it has recommended again a two-tier system with 8 per cent rate for f
ood products and 16 per cent for all other items. It has suggested removal of mo
st of the exemptions but provided separate rates for agriculture products and to
bacco besides zero percent duty on life saving drugs and security related items.
Apart from total automation of tax administration, the panel on direct taxes ha
s sought to move towards institution of a simple and transparent system, reduce
transaction costs of revenue collection, alignment of incentives and widening th
e base.
To deal with such situations, Mr. Kelkar has justifiably suggested that no tax e
xemptions be given to contributions to charitable institutions and instead gover
nment could give grant to genuine institutions, which could be monitored. Now wh
at is happening is there is no record of how much money is collected and for wha
t purpose. Also such exemptions have only increased paperwork of the tax authori
ties. By removing such exemptions, Government not only improves tax collections
but also keep a tab on those institutions.
The broad thrust of the Task Force recommendations is in favour of simplificatio
ns of the tax policy, reduction of tax rates and removal of anomalies as well as
improvement of administration of tax collection system. The proposed tax rental
arrangement for taxing agriculture income is also welcome though it is beset wi
th constitutional hurdles particularly from State Governments. As the whole stru
cture is strongly designed to be revenue neutral, there should not be any quarre
l with the proposals. But one month after the proposals have been made, there is
a widespread criticism from several quarters. The industry is not happy. Though
it welcomed the lowering of corporate tax and reductions in customs and excise
duties, it is against removal of exemptions. Likewise the personal income tax pa
yers too happy with the proposals to raise tax slabs but were critical of the mo
ve to do away with exemptions and concessions for savings and interest on housin
g loans.
The convention unequivocally demanded the scrapping of the committee report for
following reasons:
Terms of reference was flawed as import-substitution for enhancing self-reliance
– so vital for the country – was mixed up with boost for defence exports. The goal
of making self-reliant defence systems was relegated in favour of commercial def
ence business for the benefit of private corporates, backed by foreign MNCs.
The constitution of the committee was seriously lop-sided in favour of private s
ector. The competitors of public sector in private sector were in the committee
thus having a clear conflict of interest. This itself poses a question mark on t
he credibility of such a one-sided report, which naturally has been devoted to h
ighlight the achievements and strength of the few private companies, ignoring an
d some time ridiculing the achievements of infrastructural capabilities and expe
rtise available with government-run defence industries and R&D. Not a single tra
de union/association representative of employees, who are the major stakeholders
, was included in the committee. On this score alone the report needs to be scra
pped.
Security perception, so vital for nature of preparedness of armed forces vis-à-vis
long-term production/ acquisition of programme and defence system is totally mi
ssing. No evaluation has been made to assess strength, weakness, opportunity and
threat to the existing defence industries, infrastructure, expertise and R&D. N
o exercise has been undertaken in the report either at macro level or at micro l
evel for achieving self-reliance with technological up gradation and R&D input t
o achieve optimal capacity utilization in public sector defence industry to addr
ess India’s security needs.
Kelkar Committee Report unabashedly pleads for entry of private sector at every
level, not as a supplementary player, but as a major player, creating “Raksha Utpa
dan Ratna” in private sector. This would mean that public funds are assured to pri
vate sector in the name of R&D for earning profit through defence exports that t
oo with tax concession.
Private sector would be mostly in collaboration with foreign firms under the cov
er of Indian private sector. Defence MNCs would be given clear entry in the most
strategic area of the country. This will jeopardise nation’s security. With the s
pectre of terrorism looming large, free access to private sector– both Indian and
foreign – in arms and ammunition manufacturing would be a serious security hazard
for the country.

SHANKAR COMMITTEE:
In, Shankar Committee, the Government had dismantled the cost-plus pricing and d
ecided to align the consumer price of gas to international prices. The official
said that prices should not be determined by costs alone. Companies should be al
lowed some margin in the prices over total cost. Upstream companies can further
invest the surplus generated because of margins in exploration business.
This mechanism has very clearly determined the producer price to the gas produce
rs to compensate them for the cost of production and a reasonable rate of return
. Gas producers continue to get their entitled producer price.
RANGARAJAN COMMITTEE:
The C Rangarajan Committee on the pricing and taxation regime for petroleum prod
ucts is learnt to be of the view that the cost-plus method of compensating publi
c sector oil marketing companies is not a suitable model, keeping in view their
strong focus on efficiency and globalization.
It is also expected to recommend moderate taxation for the sector, better target
ing of subsidies at households below the poverty line and gradual price correcti
ons instead of a "one-time" increase.
On the issue of subsidies on PDS kerosene and domestic LPG, the committee has un
derlined the need for carrying out price corrections "to bring down the huge los
ses being sustained by the oil companies on this front".
The committee s hand may have been strengthened due to state governments not voi
cing any objections to hiking of LPG prices in view of the "limited use of LPG b
y BPL households".
Rangarajan was clear that "there is need for a subsidy which can be targeted at
such households and data available with the Planning Commission can be utilized
for this purpose".
In fact, Rangarajan s comments on taxation at one committee meeting gave a clear
hint. In that meeting, he elaborated that "taxation should strike a balance bet
ween government revenue and consumer interest. It should not result in extra gai
ns to the exchequer in times of volatile international prices".
An insight into the committee s report is also available from the fact that the
finance ministry told the committee that export parity pricing, with regard to a
lternative models for pricing of sensitive petroleum products, "cannot be legall
y enforced". But it was willing to suggest this methodology to petroleum PSUs.
Taking this position, the finance ministry also pitched for a clear and unambigu
ous policy on tariffs applicable to the petroleum sector
GAS Retailing
There has been a growing concern for availability of primary commercial energy t
o meet the country’s growth imperatives. Our economy is growing at a brisk rate of
around 9% and is projected to become the 2nd largest economy of the world by 20
50 .Such growth requires a corresponding increase in the sources of energy as we
ll as in supply infrastructure. Under these circumstances, the requirement of ad
equate and reliable energy supply at economic prices for optimal and inclusive g
rowth of the country is a prime concern today.
It is in this context that the role of natural gas as a potential source of clea
n and efficient energy supply becomes important parts of the country and ongoing
exploration activities; natural gas is poised to play an important role in the
development of our economy GAIL has so far implemented City gas projects in 13 c
ities independently/through JV route and has formed 8 joint ventures for this pu
rpose. Further, with a planned network expansion of more than 12,000 Kms of high
pressure trunk pipelines by 2011-12, GAIL is hopeful that as many as 200 cities
are likely to be on city gas distribution map of India in due course connecting
the cities and towns falling in the catchment areas of its gas pipelines.
Reliance Industries, India s largest company by market capitalization, and GAIL
India, the largest transporter and marketer of gas, have sought licences to sell
natural gas to households and vehicles across 60 cities in India.
RIL and GAIL India, through their wholly-owned subsidiaries Reliance Gas Corpora
tion and GAIL Gas, have submitted expressions of interest to the Petroleum and N
atural Gas Regulatory Board for cities, including Hyderabad, Chennai, Kolkata, B
angalore, Jhansi and Sonepat.
setting up gas infrastructure in these cities would involve an investment of aro
und Rs 48,000 crore (around $11.5 billion) over the next 4-5 years
Reliance Gas has given EoIs for 54 cities and GAIL Gas has shown interest in eig
ht cities.
Natural gas marketing is a relatively new addition to the natural gas industry,
beginning in the mid-1980. Prior to the deregulation of the natural gas commodit
y market and the introduction of open access for everyone to natural gas pipelin
es, there was no role for natural gas marketers. Producers sold to pipelines, wh
o sold to local distribution companies and other large volume natural gas users.
Local distribution companies sold the natural gas purchased from the pipelines
to retail end users, including commercial and residential customers. Price regul
ation at all levels of this supply chain left no place for others to buy and sel
l natural gas. However, with the newly accessible competitive markets introduced
gradually over the past fifteen years, natural gas marketing has become an inte
gral component of the natural gas industry. In fact, the first marketers were a
direct result of interstate pipelines attempting to recoup losses associated wit
h long term contracts entered into as a result of the oversupply problems of the
early 1980s.
Natural gas marketing may be defined as the selling of natural gas. In even loos
er terms, marketing can be referred to as the process of coordinating, at variou
s levels, the business of bringing natural gas from the wellhead to end-users. T
he role of natural gas marketers is quite complex, and does not fit exactly into
any one spot in the natural gas supply chain. Marketers may be affiliates of pr
oducers, pipelines, and local utilities, or may be separate business entities un
affiliated with any other players in the natural gas industry. Marketers, in wha
tever form, find buyers for natural gas, ensure secure supplies of natural gas i
n the market, and provide a pathway for natural gas to reach the end-user. It is
natural gas marketers that ensure a liquid, transparent market exists for natur
al gas. Marketing natural gas can include all of the intermediate steps that a p
articular purchase requires; including arranging transportation, storage, accoun
ting, and basically any other step required to facilitate the sale of natural ga
s.
Essentially, marketers are primarily concerned with selling natural gas, either
to resellers (other marketers and distribution companies), or end users. On aver
age, most natural gas can have three to four separate owners before it actually
reaches the end-user. In addition to the buying and selling of natural gas, mark
eter’s uses their expertise in financial instruments and markets to both reduce th
eir exposure to risks inherent to commodities, and earn money through speculatin
g as to future market movements.
Natural Gas as a Commodity
Natural gas is sold as a commodity, much like pork bellies, corn, copper, and oi
l. The basic characteristic of a commodity is that it is essentially the same pr
oduct no matter where it is located. Natural gas, after processing, fits this de
scription. Commodity markets are inherently volatile, meaning the price of commo
dities can change often, and at times drastically. Natural gas is no exception;
in fact, it is one of the most volatile commodities currently on the market.
The price of natural gas is set by market forces; the buying and selling of the
commodity by market players, based on supply and demand, determines the average
price of natural gas. There are two distinct markets for natural gas:
the spot market
the futures market.
Essentially, the spot market is the daily market, where natural gas is bought an
d sold right now . To get the price of natural gas on a specific day, it is the
spot market price that is most informative.
The futures market consists of buying and selling natural gas under contract at
least one month, and up to 36 months, in advance. For example, under a simplifie
d futures contract, one could enter into an agreement today, for delivery of the
physical gas in two months.
Natural gas is priced and traded at different locations throughout the country.
These locations, referred to as market hubs , exist across the country and are
located at the intersection of major pipeline systems. There are over 30 major m
arket hubs in the U.S., the principle of which is known as the Henry Hub, locate
d in Louisiana. The futures contracts that are traded on the NYMEX are Henry Hub
contracts, meaning they reflect the price of natural gas for physical delivery
at this hub. The price at which natural gas trades differs across the major hubs
, depending on the supply and demand for natural gas at that particular point. T
he difference between the Henry Hub price and another hub is called the location
differential. In addition to market hubs, other major pricing locations include
citygates . Citygates are the locations at which distribution companies receiv
e gas from a pipeline. Citygates at major metropolitan centers can offer another
point at which natural gas is priced.
Physical and Financial Trading
There are two primary types of natural gas marketing and trading: physical tradi
ng and financial trading. Physical natural gas marketing is the more basic type,
which involves buying and selling the physical commodity. Financial trading, on
the other hand, involves derivatives and sophisticated financial instruments in
which the buyer and seller never take physical delivery of the natural gas.
Like all commodity markets, the inherent volatility of the price of natural gas
requires the use of financial derivatives to hedge against the risk of price mov
ement. Buyers and sellers of natural gas hedge using derivatives to reduce price
risk. Speculators, on the other hand, assume greater risk in order to profit of
f of changes in the price of natural gas. Some marketers who actively buy and se
ll in either the physical or financial markets are referred to as natural gas t
raders ; trading natural gas on the spot market to earn as high a return as poss
ible, and trading financial derivatives and other complex contracts to either he
dge risk associated with this physical trading, or speculate about market moveme
nts. Most marketing companies have elaborate trading floors, including televisio
ns and pricing boards providing the traders with as much market information as p
ossible.

The Financial Market

In addition to trading physical natural gas, there is a significant market for n
atural gas derivatives and financial instruments in the United States. In fact,
it has been estimated that the value of trading that occurs on the financial mar
ket is 10 to 12 times greater than the value of physical natural gas trading.

Derivatives are financial instruments that derive their value from an underlyi
ng fundamental; in this case the price of natural gas. Derivatives can range fro
m being quite simple, to being exceedingly complex. Traditionally, most derivati
ves are traded on the over-the-counter (OTC) market, which is essentially a grou
p of market players interested in exchanging certain derivatives among themselve
s, as opposed to through a market like the NYMEX. Basic types of derivatives inc
lude futures, options, and financial swaps.
There are two possible objectives to trading in financial natural gas markets: h
edging and speculation. Trading in the physical market involves a certain degree
of risk. Price volatility in the natural gas markets can result in financial ex
posure for marketers and other market players as the price changes over time. Tr
ading financial derivatives can help to mitigate, or hedge this risk. A hedgin
g strategy is created to reduce the risk of losing money. Purchasing homeowner s
insurance is a common hedging activity. Similarly, a marketer who plans on sell
ing natural gas in the spot market for the next month may be worried about falli
ng prices, and can use a variety of financial instruments to hedge against the p
ossibility of natural gas being worth less in the future. Countless strategies e
xist to hedge against price risk in the natural gas market, including natural ga
s futures, derivatives based on weather conditions to mitigate the risk of weath
er affecting the supply of natural gas (and thus its market price), etc. To lear
n more about the basics of hedging in the natural gas market visit the New York
Mercantile Exchange.
Financial natural gas markets may also be used by market participants who wish t
o speculate about price movements or related events that may come about in the f
uture. The main difference between speculation and hedging is that the objective
of hedging is to reduce risk, whereas the objective of speculation is to take o
n risk in the hope of earning a financial return. Speculators hope to forecast f
uture events or price movements correctly, and profit through these forecasts us
ing financial derivatives. Trading in the financial markets for speculative purp
ose is essentially making an investment in financial markets tied to natural gas
, and financial speculators need not have any vested interest in the buying or s
elling of natural gas itself, only in the inherent underlying value that is repr
esented in financial derivatives. While great profits may be made if the expecta
tions of a speculator prove correct, great losses may also be incurred if these
expectations are wrong. While the instruments used for hedging and speculation a
re the same, the way in which they are used determines whether or not they in fa
ct reduce, or increase, the risk of losing money.
Now that some of the basics of the natural gas market have been covered, we can
examine the function of natural gas marketers.
Natural Gas Marketers
Any party who engages in the sale of natural gas can be termed a marketer, howev
er they are usually specialized business entities dedicated solely to transactin
g in the physical and financial energy markets. It is commonplace for natural ga
s marketers to be active in a number of energy markets, taking advantage of thei
r knowledge of these markets to diversify their business. Many natural gas marke
ters are also involved in the marketing of electricity, and in certain instances
crude oil.
Marketers can be producers of natural gas, pipeline marketing affiliates, distri
bution utility marketing affiliates, independent marketers, and large volume use
rs of natural gas. A recent study of the origins of natural gas marketers found
that 27 percent of the top 30 natural gas marketers in 2000 were entities spun o
ff from interstate pipeline companies. An equal percentage was made up of entiti
es affiliated with local distribution companies. About 30 percent of the top nat
ural gas marketers were originally affiliated with producers, and entities forme
d from large volume natural gas consumers comprise 6 percent. Finally, independe
nt, newly formed entities represent 10 percent of top natural gas marketers.
Marketing companies, whether affiliated with another member of the natural gas i
ndustry or not, can vary in size and the scope of their operations. Some marketi
ng companies may offer a full range of services, marketing numerous forms of ene
rgy and financial products, while others may be more limited in their scope. For
instance, most marketing firms affiliated with producers do not sell natural ga
s from third parties; they are more concerned with selling their own production,
and hedging to protect their profit margin from these sales.
There are basically five different classifications of marketing companies: major
nationally integrated marketers,
producer marketers,
small geographically focused marketers,
aggregators,
Brokers.
The major nationally integrated marketers are the big players , offering a full
range of services, and marketing numerous different products. They operate on a
nationwide basis, and have large amounts of capital to support their trading an
d marketing operations. Producer marketers are those entities generally concerne
d with selling their own natural gas production, or the production of their affi
liated natural gas production company. Smaller marketers target particular geogr
aphic areas, and specific natural gas markets. Many marketing entities affiliate
d with LDCs are of this type, focusing on marketing gas for the geographic area
in which their affiliated distributor operates. Aggregators generally gather sma
ll volumes from various sources, combine them, and sell the larger volumes for m
ore favorable prices and terms than would be possible selling the smaller volume
s separately. Brokers are a unique class of marketers in that they never actuall
y take ownership of any natural gas themselves. They simply act as facilitators,
bringing buyers and sellers of natural gas together.
All marketing companies must have, in addition to the core trading group, signif
icant backroom operations. These support staff are responsible for coordinatin
g everything related to the sale and purchase of physical and financial natural
gas; including arranging transportation and storage, posting completed transacti
ons, billing, accounting, and any other activity that is required to complete th
e purchases and sales arranged by the traders. Since marketers generally work wi
th very slim profit margins, the efficiency and effectiveness of these backroom
operations can make a large impact on the profitability of the entire marketing
operation.
In addition to the traders and backroom staff, marketing companies typically hav
e extensive risk management operations. The risk management team is responsible
for ensuring that the traders do not expose the marketing company to excessive r
isk. Top-level management is responsible for setting guidelines and risk limitat
ions for the marketing operations, and it is up to the risk management team to e
nsure that traders comply with these directives. Risk management operations are
quite complex, and rely on complex statistical, mathematical, and financial theo
ry to ensure that risk exposure is kept under control. Most large losses associa
ted with marketing operations occur when risk management policies are ignored or
are not enforced within the company itself.
The marketing of natural gas is an integral part of the natural gas supply chain
. Natural gas marketers ensure that a viable market for natural gas exists at al
l times. Efficient and effective physical and financial markets are the only way
 to ensure that a fair and equitable commodity price, reflective of the supply a
nd demand for that commodity, is maintained.
Guide to Retail Marketing
The right gas retail marketing strategies are essential for fuel retail business
.
Effective retail marketing strategies are essential for every type of fuel retai
ler. Retail marketing begins with brand recognition. You create brand recognitio
n through advertising, design and the media. It is important to get your logo, n
ame and slogan out in front of your potential customers eyes on a frequent basi
s. Whether you own a chain of gas stations or a single fuel retail shop, a great
retail marketing plan will ensure the financial success of your business.
From online marketing via a website to media advertisements, you need a retail g
as marketing plan for your business. An effective plan includes direct and indir
ect marketing strategies. When determining the elements of retailer marketing pl
an, consider the following tips:
1. Stand out from the crowd and offer promotions and technological advances not
found at other service stations.
2. Know your audience and the best way to connect with them as a gas retailer, w
hether it is on the Internet or via print, television or other forms of advertis
ing.
3. Offer an incentive, such as a special credit card for your gas station or gea
r that has your business’ name and logo.

Action Steps
The best contacts and resources to help to get it done
Use the latest technology available for service stations
Customers look for convenience and entertainment in a fuel retailer. Keep retail
gas marketing plan up to date by including the latest and greatest in fuel reta
il technology, it is essential to attract and retain customers for business.
Boost retail gas marketing plan with direct advertising
Direct marketing targets the appropriate customers for your business. These mar
keting campaigns operate via three main sources: postal mail, email and text mes
saging. Each method is effective in keeping your company s name and logo in fron
t of your customers.
Include promotional items in your gas retail marketing plan
Promotions grab the attention of children and adults of all ages. Kids are sure
to drag their parents to gas station if you offer fun promotional items, and som
e adults will frequent your retail business for the right giveaways. The best pr
omotional items attract business and keep your company name in front of current
and potential customers.
Offer promotional items inside your gas stations or convenience stores. Customer
s are more likely to come in for the freebie and purchase something else to go w
ith it.
Full service gas stations have a built-in retail marketing plan in that they do
all the work for their customers; many are set up so customers don t even have t
o leave their car to pay.

GAS Retail Strategy

The energy market is fast paced, and is difficult to follow and comprehend. We a
rm our customers with useful and practical guidance that leads to transactions w
ith less risk and more price certainty.
Fixed Price - a flat pricing option set for a specified period of time and f
or a specific volume for both the commodity and transportation components.
Fixed Basis plus NYMEX - a fixed transportation component for a specified peri
od and volume, combined with a floating NYMEX (commodity portion) which will set
tle on a monthly interval according to the New York Mercantile Exchange’s Natural
Gas (NG) contract settlement price.
Indexed Products - a published price based on a survey for a relative delivery
location. The published price will occur daily or monthly depending on the name
d source. The Index product may be converted to a Fixed Price or Fixed Basis plu
s NYMEX for forward months.
Alternate Fuels and Dual-Fuel Opportunities- Provide alternate fuels to replace
the higher-price commodity when the opportunity is present in the market. Also
offer Recall Incentives that can be structured into a transaction upfront, or le
ave exposure to market open to potentially capture more value as extreme market
conditions evolve
The gas industry seeks to play an important role in the growth of the energy sec
tor in India. Hydrocarbon Vision projects a natural gas demand of 313 Mcmd and 3
91 Mcmd by the years 2011-12 and 2024-25, respectively, from the existing demand
and supply of 115 Mcmd and 65 Mcmd, respectively.
Natural Gas is primarily used in gas-based power projects (utility and captive)
and also by the fertilizer sector as feedstock in the manufacturing process. Nat
ural gas is being used as fuel by the transport sector and has major usage in th
e industrial sector as eco friendly fuel. At present, gas based power projects a
ccount for 11% of power generation and are expected double their share in energy
supply by the year 2011-12. The Government intends promoting Liquefied Natural
Gas (LNG) imports for consumption in power projects.
The U.S. gasoline marketing sector is marked by a high degree of competition. Re
finers use a variety of distribution methods and channels to bring gasoline to c
onsumers in order to compete in this marketplace. They can, for example, own and
operate the retail outlets themselves (company operated outlets), or they can f
ranchise the outlet to an independent dealer and directly supply it with gasolin
e, or they can use a “jobber,” a person or firm who gains the right to franchise the
brand in a particular area. These marketing strategies, with their different le
vels of control and investment by refiners and associated pricing practices, can
come into conflict with each other when they coexist in the same marketplace. A
s a consequence, critics periodically call for the elimination of some of these
marketing strategies and practices. Among them, critics claim refiner restrictio
ns on where jobbers can sell branded gasoline (referred to as “non-price vertical
restraints”) reduces competition. Refiners have also been criticized for zone pric
ing. This is the practice whereby refiners set uniform wholesale prices and supp
ly branded gasoline directly to their company-operated and franchised dealer sta
tions within a small but distinct geographic area called a “price zone.” Research sh
ows that the elimination of zone pricing
would result in higher average prices for consumer’s .Similarly, eliminating the a
bility of refiners to restrict where their brand can be distributed would likely
reduce their investments in distribution outlets and harm consumers. Thus, from
a competitive viewpoint and a consumer perspective, calls for the elimination o
f non-price vertical restraints and zone pricing in the gasoline marketing secto
r are misplaced. These strategies are the result of competition between various
forms of distribution in gasoline marketing. This competition promotes efficienc
y, which benefits consumers by bringing product to market for less.
Improving retail performance in a competitive environment:
Operational Execution:
Maintain # 1 share of urban market position.
 Leverage products, technology and best-in-class operating models.

Manage Cost:
Focus on controllable and operating model improvements.
Reduce pumping costs and wholesale handling expenses.
Enhance Revenue:
Margin improvement and develop profitable categories.
Grow high value sales and competitive position

MARKETING STRATEGIES IN GAS RETAILING:

Grow Volume:

Invest in green field sites

Exploit card technology advantage
Commercial road transport
Diesel demand

Grow NPR (Non-Petroleum Revenue):

Build C-Stores toward a destination convenience offer

Reposition car wash for revenue growth
Refine and judiciously expand new Neighbours store concept
Focus on gross margin growth
Broaden capabilities

Manage Expenses:

Retail licensee model evolution

Leverage Petro-Points program
Optimize resources

Marketing: Strategic Growth:

In retail innovative offerings are key.

Food service
Logistics
Information technology
Car wash technical skills
Highway Strategy
Food service
Integration
In, gas retailing one should continue to:
focus on managing controllable expenses
innovatively leverage our brand and technology
Grow Retail by:
developing non-petroleum revenue opportunities
judiciously expand Neighbors into larger Canadian urban markets
Glide car wash offer
Expanding diesel network while maintaining best-in-class position among the majo
rs in the Controlled channel.
Business Customer Strategies
In today s dynamic business and regulatory environment, utilities are striving t
o better understand their customers and to consider their customers perspective
s in decisions regarding products and services, marketing strategies, program de
sign, and effective customer service. At the same time, most electric and natura
l gas utilities are under increasing pressure to cut costs, build revenue, and e
nhance customer satisfaction.
This service should address the following topics:
Pricing, rate, and billing options
Energy management, including demand response, energy efficiency, and conservatio
n programs
Communication approaches, such as online self-service, Web site tools, and in-pr
emise metering and information displays
Other timely topics, such as likelihood to adopt new technologies, opinions abou
t environmental issues, and corporate image
Clubbing petrol with LPG:
To target domestic customer’s bouquet of petrol and LPG can be offered to middle i
ncome group consumers. It could be major initiative for building brand value and
also for brand recall. Major discounts and reward schemes can also be offered f
or these customers.
Collaboration with OEM’s /authorized dealers of automobiles:
OEM’s (Original Equipment Manufacture), automobile manufacturers and dealers, etc
will be another very good strategy .such strategy has been implemented very succ
essfully in FMCG products retailing.
Customer Service:
Increase customer retention, facilitate acquisition.
Expand profitable customer relationships
Continuously deliver relevant high quality experience to customer
Continually know more about customers answers, communicate it with the organizat
ion
Help deliver the products as customer demands
Increase customer equity
Improve cost management
Quality assurance

Program Management:
Several petroleum companies retain in alliances to manage environmental service
s for retail and distribution assets over broad geographic areas. Services typic
ally include due diligence, integrated site closure, and regulatory compliance—oft
en tied to various state reimbursements fund programs. These programs also facil
itate development of “continuous improvement programs” that address a variety of str
ategic and tactical issues. Major retail petroleum companies extensively perform
environmental due diligence on large asset portfolios. Projects range from sing
le sites to portfolios of 100-plus properties. Due diligence services at retail
sites typically include record review, site investigation, historical research,
construction inspection, and report preparation.
• Site Characterization and Risk Assessment :
For retail petroleum clients, perform environmental site and risk assessments.
Services include soil and groundwater sampling, installation of groundwater moni
toring wells, aquifer testing, geotechnical testing, interpretation and reportin
g, and development of health and safety plans.
• Remediation and Regulatory Closure :
Retail petroleum facilities face special regulatory challenges including: healt
h and safety precautions, utility and subsurface conduit clearances, offsite imp
acts, vapor intrusion, and various miscellaneous disruptions to station operatio
ns. These services include UST removal, dewatering activities, soil excavation,
groundwater extraction/treatment, soil vapor extraction, dual-phase extraction,
bioventing, and air sparging.
• Compliance Management
Built on years of service to major retail petroleum clients, practice to assist
the retail petroleum industry with regulatory compliance. Developed regulatory
compliance tools to support these operations, including: spill prevention, contr
ol, and countermeasure plans; storm water management plans; integrated contingen
cy plans; air, water, waste permits; and environmental compliance evaluations/au
dits. We have worked with several major oil companies to develop compliance prog
rams for retail petroleum .
CHANGING INFRASTRUCTURE
New generation retail outlets provide all sorts of benefits to the consumers alo
ng with filling of fuel. With the emergence of organized retailing in the countr
y and a growing demand from consumers for a superior shopping experience, Conven
ience Retailing has emerged as a key business area for petroleum companies given
their wide retail presence, existing customer base and strategically located si
tes. Convenience need gaps have been felt in various fields and research has sho
wn that the urban consumer today seeks convenience in shopping for their basic r
equirements so that their precious time is reserved for more fruitful pursuits.
Petrol retail outlets provide the right framework for setting up convenience ret
ail chains where the consumer has the opportunity of combining shopping with the
fuelling occasion. Petro retail Outlets nowadays are equipped with state-of-the
-art infrastructure, including Multi-Product Dispensers to pre-set price and qua
ntity of fuel and Electronic Air Gauges facilitating precise inflation of tiers.
Attractive Canopies are suitably designed to provide shelter and adequate light
ing of the forecourt at most Retail Outlets. On the non-fuel front also, oil mar
keting companies have introduced various services including convenience stores,
food services, and Ancillary services. For e.g. BPCL has introduced In & Out’, th
ese malls offer the customer a broad range of facilities and brands to choose fr
om. ATM s, Cybercafé, Courier services, Laundry, Photo Studio, Music, Fast Food, G
reeting Cards, Courier Services, Bill Payments, Movies / Entertainment Tickets,
etc. have made Bharat Petroleum s Retail Outlets a happening place and indeed an
rewarding experience for consumers. Similarly other companies have their own c
onvenience stores and other services like free air, free vehicle servicing etc.
which they provide to their consumers to attract and retain them.

UPGRADING TECHNOLOGIES
The companies are also going in for various innovative technologies especially u
sing Information Technology for various E-Retail solutions at their ROs. Some of
these include high quality dispensing units, intensive use of RFID (Remote freq
uency identification device), etc.
Drivers for “Emerging Technology” in Petroleum Retail are :
Efficient Customer Service & Enhanced Level of Customer Assurance.
Compliance to stringent Environment, Health & Safety (EHS) standards.
Need to fuel vehicles using “alternate fuels”
Miscellaneous.
Cost Reduction
 Ease of Construction / Maintenance.
Better Control over Site Operation
Benefits to consumers include:
Assurance of fuel quality and the amount being dispensed
The ability to use a variety of payment methods, such as cash, debit or credit c
ard, or loyalty card, at the pump
Cashless transactions and self-service operations
An extension of the automation system that could also control operations of conv
enience stores located at retail outlets, car washes and other value-added servi
ces they provide.
Benefits to oil companies include:
Improved customer retention and an increase in market share as a result of great
er customer loyalty.
The ability to offer various loyalty programs to fleet owners.
Improvement in retail station operational efficiency and asset utilization.
The ability to study demand of products and loads at various outlets to make tac
tical and strategic marketing decisions regarding petroleum retailing.
Greater visibility into the outlet operations.
Access to online data that will help monitor and prevent fraudulent practices.
NON- FUEL INITIATIVES
One of the more visible transformations in the retail business of auto fuels is
the recognition by the oil companies that non-fuel activities could be an import
ant source of revenue at their retail outlets. So we have convenience stores, fa
st food centers and other such amenities finding a place at petrol stations. Thi
s is a very welcome change. However, the possibilities are immense and efforts i
n this direction too slow and limited. The guidelines issued by the Ministry of
Road Transport and Highways stipulate that the petrol stations should be a compo
site rest area for the highway users and provide all the products and services t
hat a highway user may require under one roof. These could range from convenient
stores, restaurants, cyber cafes etc. for the car users to dhabas, dormitories,
dhobi services etc. for the truckers.
Realizing the importance of a greater understanding of consumers’ needs and consis
tent with its core objective of continuously adding value to it’s customers throug
h innovative means, Bharat Petroleum has launched its convenience retailing init
iative under the “In&Out” brand. Bharat Petroleum is the 2nd largest oil marketing c
ompany in the country with over 6000 retail outlets spread across the length and
breadth of the country. The In&Out chain of convenience stores is being set up
in the urban markets at strategically located retail outlet sites with high cust
omer footfalls.
The “In & Out” store at Bharat Petroleum petrol pumps, which was launched in 2001, o
ffers a convenience proposition where a number of typical household errands are
aggregated under one roof for the benefit of the customers. Today there are more
than 240 In&Out stores across India, which bring in unmatched convenience at th
e petrol station. Strategic alliances have been formed with major brand owners a
nd retailers in the country to further strengthen the convenience proposition.
Pictorial view of The In & Out store of BPCL
Similarly to power up its growth strategy, IOCL is looking into getting into alt
ogether new areas, non-fuel retailing being one of them. It plans to start fuel
services at shopping malls. For this, it has already had discussions with the An
sals and Kishore Biyani’s Future Group. That should be up and running soon. IOC’s re
tail initiative is to beef up the Convenio stores (they sell a wide range of pac
kaged foods, and hot and cold drinks) that it had set up at select petrol pumps
a few years ago. It has hired retail consultancy Technopak to help formulate a s
trategy to redo the outlets.
Forecourt activities by Indian Oil Companies
Indian Oil Corporation Limited :
• Entered into tie-ups with Akbarally’s for convenience stores, Apollo Hospitals for
pharmacies, Dominos Pizza for pizza outlets and ICICI Bank, Centurion Bank and
Bank of Punjab for ATMs.
• Formed an alliance with MTNL to enable its customers to make their payments at s
elect outlets in Delhi and Mumbai.
• Introduced the first Jubilee retail outlet along Highways with numerous services
such as first aid area, mini mall with post office and banking facilities and s
pare part retail shops.
• Introduced the ‘Top Gear’ outlets featuring fast food restaurants, pharmacies and a
to car wash facilities.
Hindustan Petroleum Corporation Limited :
• Entered into tie-ups with Cafe Coffee Day, Baskin Robbins, Subway, Crossword, Gi
tanjali Gems Limited and McDonalds to set up outlets at select locations.
• Introduced several convenience facilities at their outlets such as
• HP Speed Mart (Convenience Store)
• ATM’s
• Automatic Car Wash
• Commissioned India’s first public access Internet kiosk
Bharat Petroleum Corporation Limited
• Launched convenience retail initiative under ‘In&Out’ brand offering a wide range o
services.
• Entered into tie-ups with McDonalds, Cafe Coffee Day, Planet M and Music World t
o set up outlets at select locations.
• Tied up with Cross Roads (Car helpline) to offer customers value added services
such as discounts on lubricants and engine oil and free petro cards.
CHANGING CONSUMER EXPECTATIONS
The consumers nowadays are the ultimate drivers forcing a company to make its op
erations more efficient and effective. In this era of cut throat competition, th
e companies are doing their best to attract new and retain old customers. But th
e expectations of the consumers have been witnessing a never stopping scenario.
The next generation petro-retailer will adopt a consumer centric organizational
model aligned to a distinct value proposition.
Q & Q still are the major forces to influence a customer’s choice of a fuel retail
outlet. The companies should thus build on strategies to ensure them of the Q &
Q of its fuel. The consumer also demands a higher level of product delivery and
customer service. That’s why companies have come up with various technology drive
n solutions to make the customer stay at the retail outlet fast and satisfying.
The companies have come up various ideas like automated dispensing units, Smart
cards, etc. Quality is again ascertained by the company in terms of branded fuel
s assuring the consumer of improved and efficient vehicle performance.
Oil companies are working towards optimizing their entire supply chain eg. FedEx’s
agreement with HPCL mentioned in the previous chapter. The customer has been be
coming more and more conscious of fuel efficiency and engine performance. In thi
s respect, the oil cos. convince the customers to buy branded/premium fuels whic
h are meant for better engine performance and other
benefits to the consumers. Also cos. Have come up with other recreational facili
ties especially for outlets at the highways like dhabas, onestop trucker shops (
BPCL), etc.To better service the customers, the oil cos. also give them other fa
cilities like clean & Hygienic place to eat & wash, rest & recreation for highwa
y travel, allied facilities like ATMs, Cyber cafes, courier services, convenienc
e stores etc. Thus we see that the companies are now changing their outlook and
strategy just to please the customer.
GOVERNMENT INITIATIVES
The biggest initiative taken by the Government includes allowing the entry of th
e private player like Reliance,Essar, Shell,etc. in the downstream retail sector
. A level playing field is an absolutely essential requirement for players to su
rvive in any competitive market. A competitive market makes the industry efficie
nt and effective. The expert committee report on the integrated energy policy ma
kes the following recommendation for a competitive environment across the energy
sectors:
“Apart from pricing policies, an environment that allows multiple players in each
element of the energy value chain to compete under transparent and level terms i
s essential in realizing efficiency gain within the energy sector”.
The Indian petroleum industry pursued the policy of liberalization in the year 2
002 and subsequently private players made huge investments along all segments of
the petroleum value chain. Private sector investment in retail marketing amount
ed to over Rs 7000 crores (appx. $ 1.56 billion), including investment by dealer
s and transporters. Private sector presence in retail marketing has led to multi
farious benefits to stakeholders. It has created direct and indirect employment
opportunities for more than 70,000 people. Private players have introduced bette
r technology, aimed at enhancing customer satisfaction by delivering unadulterat
ed fuel and better service quality.These efforts were severely affected after th
e announcement of oil bonds to PSUs. The Govt. is extending a subsidy of Rs. 3.3
9/ litre on MS and Rs 5.77/ litre on HSD to PSUs. As a result, private players h
ave shut down assets which delivered substantial value to customers. Common carr
ier infrastructure and product sharing may be actively considered by the regulat
or. Market based pricing is under consideration as well.

THE PAST………. AND THE PRESENT (A Pictorial View)

CONVENIENCE STORES
The concept of convenience stores has not as yet taken off in India. Most consum
ers in India today are unwilling to pay the price premiums required to support t
he organized convenience store business model; the ‘MRP’ regime also restricts the c
-store operators’ ability to charge a premium for the higher service levels that i
t may provide. Coupled with this are the difficulties in operating a profitable
convenience store business model in India where the supply chain for most produ
cts remains highly fragmented and inefficient.
The critical issue is to develop a product assortment that would drive both traf
fic and consumer purchases; this being a function of the consumer group which th
e brand targets. For example, for the ‘Routine Chore Doer’, the product offer could
hinge on fresh fruits and vegetables, e.g. a ‘Mother Dairy’ vegetable stall at every
petrol pump. Operating a c-store requires an entirely different set of capabi
lities from petroleum retailing---- sourcing and supply chain management are cri
tical skills for a c-store operator and may need to be outsourced by Indian petr
oleum marketers as they build other consumer facing skills. A reduced risk model
could be an alliance with an established retail chain e.g. Foodworld or Subhiks
ha which would provide the required skill synergies and also ensure immediate co
nsumer credibility and trials. This model has worked well in more mature markets
where consumers require greater choice and assortment mix. It is also important
that the petroleum c-store operator develop a strategy that differentiates its
convenience store from other similar stores as well as the traditional retailer.
There are multiple opportunities for differentiation in the convenience store m
arket; the key is to make a consumer-based choice.
For an international brand entering the market in India, targeting the ‘Prestige s
eeker’ consumer segment, the ‘smart shop’ ---- clean, well-lit, wide aisles----may off
er a differentiated value proposition. A convenience store operator can selec
t from eight levers which provide a basis for differentiation depending on the
needs of the target consumer segments.

Petro-retailers in India will need to adapt global business models to su

it the local environment
Source: AT Kearney
FOOD SERVICE
This is an emerging sector in the non-petroleum range of products from sandwiche
s to full branded fast food operations. The critical issues are: what services s
hould be offered, and how should they be provided? In the U.S., food prepared on
-site for take-away is a significant category of foodservice sales and caters to
the habit of grazing i.e. eating ‘on-the-move’. In India, eating-out is more of a s
ocial event, and thus the platform of ‘food on the go’ maybe less relevant.
Convenience stores are likely to be ‘destinations’ and not ‘traffic interceptors’ in I
ndia. Therefore, full- fledged fast food operations could offer greater appeal a
t petroleum stations. The exact nature of food service provided is a function of
the target consumer; a Barista coffee pub appeals to a very different consumer
type from a ‘Chinese van’ consumer, but a Haldirams and a McDonalds may be complem
entary.
An interesting option could be to capitalise on the growth of organised Indian f
ast food retailing, using relatively well located and spacious real estate (petr
ol stations) to establish ‘chaat’corners jointly with brands such as Haldirams, part
icularly in the smaller towns. Petroleum marketers can adopt a number of operati
ng models for food service. From an alliance with an established brand such as
McDonald’s to the retailer s own brand/label. Factors to be considered in deciding
which food service model to adopt:
1. Space available (including parking)
2. Labour implications
3. Skills/ resource requirements
4. Consumer demographics/psychographics
5. Competitive environment.
Branded food service offers the benefit of immediate brand recognition by consum
ers. It also provides assurance of quality, freshness and consistency. In India,
where the concept of food service at petroleum stations itself is new, an allia
nce or joint venture is likely to be the most suitable operating model.
ANCILLARY SERVICES
Ancillary services complement regular convenience stores and food service by pro
viding additional reasons for consumers to visit the non-fuel area of the statio
ns while increasing the retailers’ share of the consumers’ wallet on each visit. The
range of ancillary services that can be sold through petroleum stations is larg
e, and includes ATMs, insurance sales agents, courier services, pre-paid card
sales, laundry services, car wash, newspaper and magazine stand, and even lotter
ies. The key question is how much would consumers be willing to pay for these se
rvices? Car wash services are currently available through the unorganized secto
r for as little as Rs.150 per month at one’s doorstep; can a petrol service statio
n compete profitably with this? There may be a latent demand for laundry servi
ces among taxi, truck and auto drivers but not among urban private car owners.
Key success factors in value added product/services based differentiation strate
gies :
Manage barriers to trial and usage, such as consumer’ perceptions of differentials
in price, selection and service.
Customize the assortment and offering to local market conditions.
Maintain low operating costs and tight inventory control.
Manage suppliers and optimize sourcing.
Build consumer loyalty through CRM, loyalty programs and incentives.
PRICE BASED DIFFERENTIATION
This is an obvious differentiator for any product or service, and in mar
kets such as the USA where as many as 56% of petroleum buyers cite price as a re
ason for selecting their brand. It is a powerful platform for differentiation. I
n India, where there are a large number of ‘bargain hunters’, a price-based strategy
could be potentially very powerful. The challenge of such a strategy however, i
s to maintain uniqueness and sustainability. When a number of petroleum retailer
s adopt a low price positioning, other factors such as the associated offering
s to ensure customer retention become critical.
Internationally, there are 2 broad categories of petroretailers which differenti
ate themselves based on price– the grocery retailers selling petroleum and the hig
h volume, low margin convenience store retailer.
GROCERY RETAILING
Hypermarket retailers are rapidly gaining share of the fuel market in the West.
In the USA, hypermarkets have 3.3% of the market value, and in Europe, 5.2% of t
he number of petroleum retailing locations. Hypermarkets discount petroleum by a
s much as 6-12% and are projected to account for over 16% of the U.S. market by
2005. These retailers use fuel sales as a loss leader to attract consumer traffi
c to their stores”. In India, hypermarket operations are still nascent and unlikel
y to be a near term threat to petroleum marketers. However the likely success of
the hypermarket retail model in India will pose a longer term threat to petrore
tailers here.
HIGH VOLUME, LOW MARGIN OPERATING MODEL
Exemplified by companies such as QuikTrip and RaceTrac in the U.S., these retail
ers have developed operating models building on the high price elasticity in pet
roleum retailing. Selling petroleum at prices that are typically 5% less than th
e average market price, companies such as QuikTrip are able to achieve as much
as 75% higher sales throughputs through their stations. Although their margin
s are as much as 40% lower than the majors, their overall profitability is high.
As in the hypermarket model, they use the higher traffic through their stations
to drive sales in their convenience stores, which also typically sell at discou
nts to the market. The challenge to such a strategy in the Indian context is tha
t non-fuel sales are currently so low that the discount retailers would be unabl
e to boost overall profitability of their petrol stations sufficiently through t
his route. Like QuikTrip, discount petroleum marketers in India would also need
to develop other consumer hooks such as ‘consumer experience’ to build consumer loya
lty.
Key success factors for price based differentiation strategies:
Ability to self more profitable products/services to subsidize lower margin los
s leader petroleum sales.
High degree of consumer price elasticity which ensures that lower margins are c
ompensated through greater volumes
Supply chain optimization and sourcing efficiencies to deliver lower priced fuel
consistently
Non-price based strategies to build consumer loyalty. For example, service exper
ience.
CONSUMER EXPERIENCE BASED DIFFERENTIATION
Petroleum marketing has a strong service element which can be used as a powerful
lever for differentiation, especially in a commodity market environment. The co
nsumer experience, or ‘Moment of Truth’, as it is also called, has been very success
fully used by petroleum brands internationally to protect market share and to ga
rner loyalty. A leading Oil and Gas company in Canada has clearly differentiated
its consumer experience by ensuring warm and caring attitude towards its c
onsumers. It builds “environmental consciousness” and “community orientation” in its ove
rall image through sponsorships and theme creation. The company also continuousl
y improves and up-dates the retail ambience through systematic renovation at the
ir premises.
In USA, Quiktrip also uses consumer experience to reinforce its price based st
rategy. Surveys of Quiktrip consumers show extremely high value attached to thei
r overall experience at the pump premises. While Quiktrip ensures a warm and con
genial experience for its consumers by recruiting and grooming highly motivated
individuals, it also strikes the right chord with its consumers by storing the
ir favourite drinks and snacks. Quiktrip management believes in reflecting an im
age of “we do everything right” in all its direct and indirect consumer interaction.
Technology can also be used to greatly enhance the consumer experience. Many pe
troleum majors have adopted latest technology to ensure that consumers have a fa
st and hassle free service. These are mainly in terms of the “swipe at pump” facilit
ies, “at pump ordering” of non-fuel items through wireless microphones, customized e
lectronic reports for corporate fleet programs etc. Mobil Speedpass is a good ex
ample of successful differentiation through technology-enabled services. (Mobil
Speedpass Automatic miniature radio transponders attached to key chain or affixe
d to vehicles’ rear window. Transponder automatically transmits unique, secure ten
digits that are recognized by an electronic system located at the pump. These e
lectronic devices enable automatic charging of fuel purchases to a designate cre
dit or check card. All these are at no direct or indirect cost to consumers).
In India, where many shoppers are highly relationship oriented, personalization
of the consumer experience could offer potential for differentiation and maintai
ning loyalty. Consumers attach significant importance to the “experience” within the
premises in terms of quick service, attendant disposition and overall ambience
in choosing their petrol pumps. Most have a stronger loyalty to the specific sta
tion than the petroleum brand. Developing a brand offering for the ‘trust seeker’ wi
th a promise of “We make you feel special” could be a powerful strategy as long as t
he retailer is able to ensure consistency of delivery across locations and over
time. An experience based differentiation strategy could be particularly relevan
t to existing petroleum retailers in India, who would benefit from strengthening
of their bond with the existing consumer franchise, thereby increasing the barr
iers to entry for new players.
Key success factors in service based differentiation strategies:
Ensure quality of the human interface through people selection, training and dev
elopment.
Ensure consistency of service delivery across locations and over time.
Systemize the consumer experience delivery process.
Establish service recovery procedures.
Use technology to enable better consumer experience.
QUALITY & QUANTITY BASED DIFFERENTIATION
Customer are still cynical about Q&Q, however they would like to take it for gra
nted that the fuel provided to them is of utmost quality and perfect quantity. A
large base of ‘trust seeker’ segment exists who would be loyal to a company for a l
ong time if they are satisfied with the Quality and quantity provided to them. C
hallenges are organization wide implementation of checks & balances and communic
ation of the same to customers. Companies are coming out with various anti-adult
eration measures to give the customers the best quality of fuel.
Q & Q – A systems Approach
One recent example of how seriously companies are working in this matter is the ‘R
evolutionary Marker System to eliminate adulteration of motor fuels’. The new gene
ration marker system will also ensure quality to customers of diesel and petrol.
The adulteration of diesel and petrol with marker-blended kerosene would immedi
ately show-up when tested using a simple kit through a simple visual check. The
oil industry has now become vigilant against the unscrupulous-habitual adulterat
ors so that best products and services are provided to the consumers.
The new marker system being introduced for the first time by the Oil Industry in
alignment with the international practices is expected to curb to a large exten
t auto fuel adulteration using kerosene. Adulteration in auto fuels is essential
ly driven by the huge price difference between auto fuels like petrol & diesel a
nd potential adulterants like kerosene, Naphtha and other industrial aromatic so
lvents. In the first phase, the marker will be introduced in the entire quantity
 of kerosene that is supplied by Oil Marketing Companies (OMCs). Based on examin
ation by Petroleum Planning & Analysis Cell along with Oil Marketing Companies,
the marker system developed by M/s Authentix was found to meet the various chara
cteristics and requirements identified by the Oil Industry. The dosing of marker
s in kerosene will now be carried out at Oil Terminals/Depots of OMCs.
The revolutionary marker will provide a new thrust to the oil companies, which h
ave been facing the scourge of adulteration for a long time now. Field trials us
ing the marker were initially conducted successfully by the oil industry, after
which it is now slated for an all-India launch. All kerosene supplied by OMCs wi
ll now be marked at the Terminals/Depots of the oil companies. In the first inst
ance, test kits will be provided to the field officers of OMCs to enable them to
check for adulteration of auto fuels during their inspections. The tests are si
mple and it is possible to visually detect even small traces of kerosene e.g. 1%
in auto fuels using a simple but highly accurate and effective test kit.
Speaking about other measures to check adulteration Shri Murli Deora informed th
at the Petroleum Ministry has been taking several steps to check adulteration of
auto fuels. Periodic monitoring undertaken by the OMCs in conjunction with the
State Government authorities and the tracking of Tank Trucks through Global Posi
tioning System are some of the recent initiatives. The Oil Marketing Companies h
ave also launched automated facilities in their retail outlets with tank level s
ensors and digital dispensers connected to a server that monitors that quantity
of the product stored and dispensed through the nozzles. With the help of cuttin
g edge technology, the oil companies now control the entire supply chain from Oi
l Terminals to Retail Outlets. The various IT-enabled initiatives are therefore
aimed at securing product transfer between the supply locations and petrol stati
ons. It covers the entire retail outlet forecourt & back office operations, incl
uding monitoring through electronic gauges, temperature and density measurement
through sensors, besides dispenser unit controls that are linked to an automatic
bill printing facility. The nefarious elements, which indulge in adulteration,
need to be tackled by efficient coordination with the policing authorities at bo
th the Centre and state Government levels.
NETWORK PLANNING
An optimized network is needed with enhanced capital productivity, high throughp
ut per RO & high market effectiveness. Network planning is required to maximize
the returns from the existing retail infrastructure and to plan future investmen
ts and other changes that maintain or improve that return."
By:
Implementation of Strategic Plans
Acquisition/rationalisation/rebuild/conversion
Improved decision making
Improving competitive advantage
Managing change
The journey of network planning starts with site classification, competition ass
essment (no.of competitors in a particular area), individual site strategy depen
ding on the kind of consumers coming in, proposal evaluation working on financia
l, technical, marketing and economic feasibility of a proposed plan, network opt
imization (COCO,CODO,DODO,DOCO,etc. procurement, etc.), performance measurement
with regular and sudden audits. The strategy for each location, ranging from inv
estment to disposal is driven by this analysis.
The retail strategy must govern the entire network planning process. The main is
sues to be considered include maximizing volume, profitability, control, non-fue
l activities, optimization - (operational improvements), and investment required
. Network planning tools involve people, information, communication techniques,
benchmarking techniques, performance potential of the employees and the site sel
ected, economic evaluation of the proposal, implementation of the plan, audit an
d evaluation. To sum it up, continual development and integration is the key.
SUPPLY CHAIN OPTIMIZATION
The main focus here is the least cost of placement with no stock outs. For this
the companies use various supply chain tools like, complex demand forecasting mo
dels, automated inventory monitoring, scheduling tools, tanker capacity
Utilization tools, vehicle tracking system/Telematics, integrated supply chain s
olutions, end to end Q&Q implementation, etc.
Supply chain starts before physical distribution. It involves procuring the righ
t inputs (raw materials, components and capital equipment), converting them effi
ciently into finished products, and dispatching them to final destinations. The
supply chain view sees markets as destination points, and amounts to a linear vi
ew of the flow. A broader view sees a company at the center of a value network t
hat includes its suppliers and its suppliers’ suppliers and its immediate customer
s and their end customers. The company should first think of the target market a
nd then design the supply chain backward from that point.
The following strategic and competitive areas can be used to their full advantag
e if a supply chain management system is properly implemented :
• Fulfillment – “ Ensuring the right quantity of parts for production or products for
sale arrive at the right time.” This is enabled through efficient communication, e
nsuring that orders be placed with the appropriate time
available to be filled.
• Logistics – “Keeping the cost of transporting materials as low as possible consiste
t with safe and reliable delivery.” Here the supply chain enables a company to hav
e constant contact with its distribution team. Efficient vehicle tracking system
s have been developed by companies in this respect.
• Production – “Ensuring production lines function smoothly because high-quality part
are available when needed.” Production can run smoothly as a result of fulfillmen
t and logistics being implemented correctly.
• Revenue and Profit – “Ensuring no sales are lost because shelves are empty.” Managi
the supply chain improves a company’s flexibility to respond to unforeseen changes
in demand and supply.
• Costs - “Keeping the cost of purchased parts and products at acceptable levels.” Su
ply chain management reduces costs by increasing inventory turnover on the shop
floor and in the warehouse.
• Cooperation – “Cooperation among supply chain partners ensures mutual success.” Col
orative planning, forecasting and replenishment (CPFR) is a longer-term commitme
nt, joint work on quality, and support by the buyer of the supplier’s managerial,
technological and capacity development. This relationship allows a company to ha
ve access to current, reliable information, obtain lower inventory levels, cut l
ead times, enhance product quality, improve forecasting accuracy, and ultimately
improve customer service and overall profits.

CASES
BRITISH GAS (UK)
In the early 1900s the gas market in the United Kingdom was mainly run by county
councils and small private firms.
In 1948 that all changed with The Gas Act 1948 brought in by Clement Attlee s La
bour government. The act nationalized the UK gas industry and 1062 privately own
ed and municipal gas companies were merged into twelve Area Gas Boards each a se
parate body with its own management structure. Each Area Board was divided into
geographical groups or divisions which were often further divided into smaller d
istricts. These boards simply became known as the "Gas Board", a term people sti
ll use when referring to British Gas.
During the 1950s the use of gas increased greatly with British Gas creating high
street showrooms to promote the use of gas. By the 1960s the UK was importing 3
00,000 tons of liquefied natural gas from Africa every year.
In January 1973, British Gas was restructured by the Gas Act 1972 which centrali
zed the company creating the British Gas Corporation and turning the area boards
into regions of the new company.
The Gas Act 1986 led to the privatization of the company, and on 8 December 1986
 its shares floated on the London stock market. In the hope of encouraging indiv
iduals to become shareholders, the offer was intensely advertised with the "If y
ou see Sid, tell him" campaign. The initial public offering of 135p per share va
lued the company at £9 billion, the highest equity offering ever at the time.
In preparation for the opening of the gas supply markets to competition in 1996,
British Gas plc had to go through a major restructuring which separated the com
pany into five divisions.
Public Gas Supply (Domestic gas supply).
Contract Trading (Business Supply)
Transportation and Storage later named Transco (Transporting and storage of gas)
.
Service and Installation (Later named Services).
Retail (Later named Energy Centres).
British Gas is defined “As the largest energy company” in the UK, with over 15 milli
on customers and an extensive product range. British Gas continues to be the fir
st choice for customers home needs. British Gas is the main gas company in the U
K.
British Gas is committed to providing an exemplary service; British Gas launched
its online home, house.co.uk, in 2001 making access to its products and service
s even easier. Designed to be the leading website for home needs in the UK, hous
e.co.uk aims to provide an online home management service designed to help custo
mers run their homes more smoothly.
It is true that the UK energy market is indeed a highly competitive market for e
lectricity and GAS, and one cannot ignore the fact that there exist energy deal
comparison sites such as uSwitch and EnergyLinx, but as British Gas are the lead
ing energy supply company they are confident to win against the competition by
offering a better deal to the customer .
British Gas products and services:
Gas and electricity
It supply both gas and electricity to domestic customers across Britain. With no
standing charges, online account management and its new free evening and weeken
d telephone calls package benefits the customer by providing excellent customer
service and value for money pricing.
As well as being a leading provider of gas and electricity, British Gas also off
ers Homecare, which is a maintenance contract to look after the essential parts
of the home. For example the gas Boiler and Controls, Central heating, plumbing
and drains, and electrics.
British Gas are the experts on Central heating systems, whether customer is thin
king of installing gas central heating or would like to improve existing syste
m, British Gas can offer the products, installation service and expert advice t
o suit ones needs.
Extra Services by British Gas:
As well as providing customers with a choice of products they can suit to their
lifestyle, it is committed to providing the exemplary service expected from Brit
ish Gas, including several exclusive online services:
Manage your bills online – customers can experience the convenience of viewing and
paying for bills online at any time of the day or night. What’s more, if they cho
ose paperless billing, they’ll save time, receive a discount and help the environm
ent.
Moving home – it currently offer a dedicated service to assist British Gas home mo
vers. As part of the service, home movers can make use of just one contact point
to handle all enquiries. With one call customers can update each and every one
of their British Gas accounts, from gas to burglar alarm support.
British Gas is one of the leading suppliers of gas and electricity to homes thro
ughout the UK.
British Gas trade under a number of different names, Scottish Gas in Scotland,N
wy Prydain in Wales and house.co.uk when online.
In terms of price, British Gas and each of its gas and electricity brands is at
the upper end of the market. Being a customer of British Gas it would be almost
impossible that one could not get a better deal by moving away from them.
At first glance there is talk about savings of up to £91 by moving both supplies t
o them, but these are only savings against the already high British Gas prices.
Currently British Gas has around 18.6 million customer accounts.
Features of BRITISH GAS:
• Customer can fix their Dual Fuel, Gas or Electricity energy prices at the new ra
te until 31st January 2012.

• Cheapest available online tariff of any energy supplier

• The greenest energy supplier
• Home Care scheme - cover for all boiler breakdowns, repairs and inspecti
ons

Advantages:
The offer to fix your energy prices for 3 years, is one of the longest in the ma
rket,
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ergy prices for next 3 Years.
USA NATURAL GAS MARKET:
Liquefied natural gas (LNG) imports into the U.S. remain low as high-demand, pre
mium-price markets in Asia and Spain continue to draw the majority of LNG supply
, leaving terminals in the U.S. and northern Europe underutilized. An unexpected
rise in U.S. natural gas production also is filling domestic needs, keeping U.S
. natural gas prices low relative to prices in other countries.
Unexpected twist in the market
Imports of LNG into the U.S. remain low as demand for natural gas in Asia-Pacifi
c and European continues to attract cargoes with higher relative prices.
On the supply side, repairs, maintenance and delays in new liquefaction projects
have limited the availability of LNG so far this year. While a significant inc
rease in global liquefaction capacity is projected in 2009, continuing natural g
as demand growth and higher relative prices in parts of Europe and Asia are expe
cted to attract much of the new supply.
U.S. and global demand for natural gas and LNG has increased dramatically over t
he past 12 months. While demand for natural gas in the United States has grown s
ignificantly over this period as well, natural gas production in the U.S. has al
so seen an exceptionally large increase," the company stated. "In Texas alone, n
atural gas supplies grew by 15 percent between the first quarter of 2007 and the
first quarter of 2008. Under current market conditions, U.S. production of natu
ral gas is expected to continue to increase for the next few years.
As rising U.S. demand has been met with rising domestic production, U.S. natural
gas prices have remained well below those seen in international markets. This i
mbalance between U.S. and international prices has led to a dramatic reduction o
f LNG imports into the United State
In the U.S., the only terminals currently operating on a regular basis are at El
ba Island off South Carolina and the Everett LNG terminal in Boston. The Cypress
pipeline that links Elba Island to the Florida gas market has been a home run f
or BG, with pipeline capacity being utilized at more than 90 percent of capacity
.

Natural gas represented 24 percent of the energy consumed and 27 percent of the
energy produced in the United States .The industrial sector was the largest user
of natural gas—for plant operations, cogeneration of electric power, and as an in
dustrial feedstock. In addition, natural gas is the largest energy source consum
ed in the residential sector and the fastest growing energy source for electrici
ty generation. In recent months, the high prices of natural gas used in the indu
strial, residential and commercial, and electricity generation sectors have caus
ed exceptional public concern about the present and future operation of the natu
ral gas industry and markets.
The U.S. natural gas market is composed primarily of producers, pipeline compani
es, storage companies, LDCs, marketers (sometimes also referred to as
“aggregators”) and consumers. These are functional distinctions that are oversimplif
ied in the current gas market, because some companies in the industry combine va
rious segments, with ownership of production wells, pipelines, storage facilitie
s, and even LDCs.
However, in US Retail fuel prices are deregulated and price volatility is absorb
ed by Consumer. Motor fuels retail price directly correlated with world crude oi
l price (fiscal component lowest in developed world). Govt. watches fuel markete
rs closely to prevent price carters.
RESEARCH METHODOLOGY
Rationale for the study
Retailing is defined as a business that sells products and/or services to consum
ers for their personal or family use. In the era of customer retention and custo
mer delightment and the thin margin of profitability due to cut throat competiti
on, every downstream company has to provide its best. The company which identifi
es its customers and its needs will emerge as the leader.
Descriptive Title of the study
The descriptive title of the study was the emerging trends, options and challen
ges in gas retailing with the changing industry and political scenarios and ever
increasing customer expectations.
Type of research:
The study was descriptive and conclusive as it was being done with aim of reachi
ng a definite conclusion.
Contribution from study:
Gas retailing is the major revenue generator for the downstream companies. With
so many private players coming into petro retail marketing, the company which pr
ovides better customer services and Quality and Quantity assurance will be the m
ajor gainer in terms of both market share and revenue. A customer chooses a firm
over others because it offers the greatest positive combination of end-result b
enefits and price (i.e. the greatest value) in the perception of that customer.
This study showed what are the existing difficulties and shortcomings in this se
ctor and what the companies should do about it from the point of view of the peo
ple who are in direct contact with the customers.
CONCLUSION
Retailing is the most active and attractive sector of the last decade. While the
retailing industry itself has been present through history in our country, it i
s only the recent past that has witnessed so much dynamism. It s the latest band
wagon that has witnessed hordes of players leaping onto it. While international
retail store chains have caught the fancy of many travelers abroad, the action w
as missing from the Indian business scene, at least till recently. The emergence
of retailing in India has more to do with the increasing purchasing power of bu
yers, specially post- liberalization, increase in product variety, and the incre
asing economies of scale, with the aid of modern supply and distribution managem
ent solutions.
A definition of retailing is essential in order to be in a position to assess th
e impact of retailing and its future potential. The current
retailing revolution
has been provided an impetus from multiple sources. These revolutionaries inc
lude many conventional stores upgrading themselves to modern retailing, companie
s in competitive environments entering the market directly to ensure exclusive v
isibility for their products and professional chain stores coming up to meet the
need of the manufacturers who do not fall into either of the above categories.
Attractiveness, accessibility and affordability seem to be the key offerings of
the retailing chain.
Retailing is a technology-intensive industry. Successful retailers today work cl
osely with their vendors to predict consumer demand, shorten lead times, reduce
inventory holding and thereby, save cost. Wal-Mart pioneered the concept of buil
ding a competitive advantage through distribution and information systems in the
retailing industry. They introduced two innovative logistics techniques - cross
-docking and electronic data interchange. Today, online systems link point-of-sa
les terminals to the main office where detailed analyses on sales by item, class
ification, stores or vendor are carried out online. Besides vendors,

the focus o
f the retailing sector is to develop the link with the consumer. Data Warehousi


ng is an established concept in the advanced nations. With the help of databas
e retailing , information on existing and potential customers is tracked. Beside
s knowing what was purchased and by whom, information on softer issues such as d
emographics and psychographics is captured.
We are at a time when gaining a customers trust is critical. It is a daily proc
ess, on purpose. It is a time to maximize potential, ethically and to deal with
conflict and problems, with credibility.
The petroleum retailers are also not left behind. Forecourt retailing is yet to
emerge in a big way in India. But with renewed thrust from the oil companies, th
e concept is poised for the next stage of evolution. The concept of forecourt re
tailing at petrol stations is not new. It began in the 1980s when British Petrol
eum launched its first convenience store. In India, where consumer interface was
recognised as a key factor, the concept was taken up in the late 1990s by India
n Oil Corporation, which started its multi-purpose distribution centres at petro
l pumps in semi-urban and rural areas. The concept has been in vogue ever since.
But recently it shot into limelight with oil companies trying to milk this reve
nue stream for more moolah.
The oil marketing companies need to clearly identify customer needs and establis
h a strong corporate brand targeting select customer bases. The companies need t
o drive product and service offerings at retail outlets based on identified cust
omer needs. They should develop cost-effective retail outlets, upgrade existing
assets for better throughput and customer service. They should orient their dist
ribution pattern and logistics in tune with demand in target markets and develop
superior franchisee selection and training systems along with appropriate risk-
reward mechanisms to drive performance.
In this respect, the oil companies have been coming up continuously with various
initiatives to differentiate themselves from other competitors and attract cust
omers. They have come up with various loyalty programs, cash card payment soluti
ons, convenience stores, ancillary services, food outlets, various other value a
dded service at the retail outlets to give the customers value for their money.
Although the above matter to a large extent in bringing people to a retail outle
t, the main drivers include convenient location, branded fuels and assurance of
quality and quantity. Thus the companies should look for network expansion, supp
ly chain optimization, steps towards anti adulteration measures and aggressive b
randing strategies,etc. to give the consumers the best they can.
Oil companies have made sporadic attempts at exploring non fuel retail(NFR) oppo
rtunities in India – Car Wash, ATMs, Co Branded Credit Cards, Cyber Cafes, Conveni
ence Stores, Food Outlets, etc. Though one-off success stories have been reporte
d no cohesive strategy has emerged as yet on the NFR front. With the third large
st distribution network (after post offices and FMCG outlets ) there is a lot of
untapped potential left for exploring in this arena. The next few years should
see all Oil Marketing Companies experimenting in this field.
Moreover, Gas Retailers can take British Gas as an example of effective Gas reta
iling, the methods they have adopted, such as convenience to customer of paying
bills online, the home care scheme; with one call customers can update each and
every one of their British Gas accounts, from gas to burglar alarm support.

Ultimately,
“It’s the customer who will emerge as the winner. The company who identifies its cu
stomers and his needs and provides satisfactory services will emerge as the lead
er”
REFERENCES
11.1) BOOKS & RESEARCH PAPERS
Dr. Varshney, R.L. and Dr. Gupta, S.L. Marketing Management – An Indian Perspectiv
e, 18th ed, Sultan Chand & Sons, New Delhi,pp. 859-93.
Kotler, Philip; Keller, Kevin Marketing Management , PEARSON Education,12th edit
ion
Strategic Shift in Indian Downstream Sector, by AT Kearney
Issues in Deregulation of the oil & gas sector, By RK Narang, Ardhendu Sen, and
Leena Srivastava (TERI, New Delhi).
Petro Retailing’, Study Material, University of Petroleum & Energy Studies.
INTERNET LINKS
• www.infraline.com
• www.energyinstt.org.uk
• www.imagesretail.com
• www.atkearney.com
• www.iocl.com
• www.bharatpetroleum.com
• www.ril.com
• www.hindustanpetroleum.com
• www.retail-leaders.org
• www.zeenews.com
• www.efkon.com
• www.retaildesigndiva.com
• www.findarticles.com
• www.petroleumbazaar.com
• www.ndtv.com
• www.forbes.com
• www.rediff.com
• www.google.com
• www.dogpile.com
• www.answers.com
• www.fuel4arts.com
• www.hpcl.com