India ranks third in energy consumption globally after China and the US. The petroleum and natural gas sector, inclusive of refining, transportation, and marketing of these products, contributes about 15% to India’s GDP. Its share of global primary energy demand is going to jump from 6% today to 11% by 2040.
India is the third-biggest oil importer after the US and China. It is heavily dependent on crude oil and LNG imports with 82.8% import dependence for crude oil and 45.3% for natural gas/LNG. The net foreign exchange outgo is 64.305 billion US$ in the financial year 2018-19 on account of crude oil imports.
In the case of Crude Oil and Natural Gas, during the period 2008-09 to 2017- 18 the Production increased by 0.63% and (-) 0.06% whereas Consumption increased by 4.59% & 4.82%. During the same period, the imports of Natural Gas and Crude Oil increased at CAGR of 9.44% and 5.20% respectively. (Energy Statistics 2018)
India accounts for more than a quarter of net global primary energy demand growth between 2017-2040. This speaks about the constantly increasing energy demand and the scope of growth for oil and gas companies in India.
In the account of the above growth in consumption as well as production, the country’s oil and gas market is undergoing a rapid transformation with significant new investment opportunities in the medium to long term future, particularly in the midstream and downstream oil and gas industry.
Growing demand & new regulations in several countries create unprecedented unpredictability about demand & supply thereby seeing price fluctuations during buying & selling. Due to this the industry has its own supply chain financing problems & exerts pressures on profit margins and demands efficient strategies through each phase of the supply chain. While the only solution here is Adequate & timely availability of financing these operations can definitely accomplish better efficiencies.
In any event, when the organization figures out how to lessen costs through global operations and sourcing, costs for transportation and logistics keep on rising. Expanding costs across the Oil and gas supply chain can be resolved with timely working capital financing for MSMEs.
The opportunities with OMCs are usually on the Sell-side (Petrol pumps or Del Credere agents who sell polymer/ petrochemicals). Given the market structure, the upstream market is fairly consolidated and is dominated by large players with easy access to bank financing but the fuel retailing market is where trade financing is needed due to the following reasons:
Dealers are usually SMEs with limited access to bank finance at affordable rates- NBFCs usually offer loans ranging from 15-24% whereas ROI earned on running the petrol pump is anywhere between 12-17%. (Crisil estimates)
Prices of petrol have been deregulated and are revised daily by OMCs, as against fortnightly revisions practised earlier. Fortnightly revisions allowed dealers to manage inventory according to the direction of price movement. However daily revision subjects small dealers to vagaries of price movements and limits their ability to revise their inventory holdings. Any movement of price upwards means that dealers need to bring fresh capital which may or may not be available
Most importantly, dealers need to pay for their purchases by cash or demand drafts. This means that dealers need immediate liquidity while placing orders. Moreover, dealers need to agree to an annual sales target with their respective OMCs which they have to compulsorily fulfil. Failing to fulfil these targets can lead to their dealership being revoked. Thus trade financing at affordable rates becomes necessary to meet their contractual obligations (As per HPCL dealership agreement).
Vayana’s Solutions in Supply Chain Finance of Oil and Gas Sector?
Cross Border Finance – Export & Import Finance
Receivable Finance – Dealer, Retailer
Payable Finance – Vendor
How does Supply Chain Financing work in Vayana Network?
Our SCF solutions do not involve any complex processes. Any corporate, irrespective of size know 3 things to do with a PC –
- and Save in a folder.
That’s how simple it is, as an onboarded enterprise you will only need to upload an invoice on your own PC and we will take care of the rest of the process till financing.
Why Go for Vayana’s Supply Chain Solutions
What do Oil and Gas majors say about Us?
“As one of India’s largest Retailers, we have a large network of Vendors spread across the country and need to manage our vendor payments efficiently. Our Payables get financed seamlessly on Vayana’s digital platform with automated payment to invoice reconciliation. Vayana’s team expertly handled the integration with our ERP systems with minimal intervention from us. Partnering with Vayana gives us access to multiple lenders through a single platform”
Mr. Harsha Saksena,
Head Treasury, Future Group