Elucidation of Petroleum Trading System in Current Scenario

[Volume 2; Issue 10]

Author- Darshna Garg, Amity University Rajasthan.

Petroleum trading system in itself is a very vast and unique concept which relates itself to a great significance of geology. According to [ref] Greeks petroleum means “petra= rock + oleum= oil”. [/ref] Greek terms petroleum means “petra= rock + oleum= oil”. Petroleum is yellow-brown-black liquid which is found beneath the earth’s surface. From the geographical and chemical point of view, petroleum is a liquid which is formulated through oil and gas accumulations. Petroleum contains high concentration of Carbons, Thermal hydrocarbons, crude oil and natural bitumen. Hydrocarbons are so powerful that if they burnt, they release great energy which can be used for multiple purposes and therefore when people of earlier times were not aware of the scientific and technological use of the petroleum they use petroleum for frequent purposes like lightening, firing ,cooking and painting the walls. Petroleum is formed when the decays of ancient marine organisms like algae and zooplanktons etc , fossils as well as organic remains transformed into carbon and hydrocarbon rich substances due to intense heat and pressure, trap formation process, generation-migration process and accumulation of hydrocarbons.

Petroleum consists of unprocessed crude oil and various petroleum and petrochemical products. When petroleum is refined, products like kerosene, gasoline, asphalt as well as petrochemical products like Aromatics, Olefins and synthesis gas is recovered. Inspite of it some chemical reagents are also recovered through petroleum refining. Petroleum is found in oil reservoirs which is extracted through drilling and directional drilling techniques and is measured in barrels (bbl). Petroleum can be classify for the reference of ranking and pricing purposes for other suppliers in three ways that are as follow:-

First is west texas intermediate where petroleum is drilled in texas such as padre island, Dubai and oman.
Second is Brent crude which is found beneath the north sea.
Third is by American petroleum institute (API) gravity which measures oil density to petroleum sulphur content and water and classify it through the nature of petroleum weather sour or sweet. If the sulphur content is found low then the petroleum nature will be sweet and if found excessive then the petroleum nature will be considered as sweet.

Evolution of petroleum Trading system

Petroleum trading system is from ancient years and according to Herodotus and Diodorus siculus first of all, asphalt was used for painting the walls of Babylon. According to them there were oil pits near Ardericca as well as on the banks of the river Issus then, it was found that around 347 AD in china oil was produced through bamboo-drilled wells and after that several petroleum sites like pechelbronn, yenanguang based site ,erdpechquelle etc. Later on, young Scottish chemist james young noticed and experimented the use of oil for lubricating the machines and lamps. In 1850 Edward William binney and young and meldrum join hands and enter into partnership with [ref] the title of E.W. Binney & Co. at Bathgate in West Lothian and E. Meldrum & Co. at Glasgow; their works at Bathgate [/ref] the title of E.W. Binney & Co. at Bathgate in West Lothian and E. Meldrum & Co. at Glasgow; their works at Bathgate and became the first commercial oil worker with the first oil refinery in the world. The first commercial oil well which is found in Canada was became operational in year 1858.After that exploration of petroleum trading increased day by day and has became the biggest trade segment across the countries. Initally U.S was the first country who has used the petroleum products for the first time in technological purposes and as well as was the biggest supplier of oil but eventually because of the more use of petroleum products for vehicles and other multiple purposes the condition came that U.S became the importer of the oil and petroleum products. In current scenario Russia, Saudi Arabia, U.S, India and Middle East countries are the major supplier of petroleum.

Petroleum trading industry

Petroleum trading industries are basically divided into three sectors that is- Upstream, Midstream and downstream. Midstream and downstream operations are almost similar to downstream operation and hence therefore considered as the part of the downstream only.[ref] Upstream sector includes searching for potential underground or underwater crude oil and natural gas fields, drilling exploratory wells, and subsequently drilling and operating the wells that recover and bring the crude oil and/or raw natural gas to the surface. [/ref] Upstream sector includes searching for potential underground or underwater crude oil and natural gas fields, drilling exploratory wells, and subsequently drilling and operating the wells that recover and bring the crude oil and/or raw natural gas to the surface and hence also known as Exploration and production center. Integrated oil and gas companies like BP, Royal touch, chevron Texaco & ExxonMobil and independent gas and oil companies like Anadarko, Sunoco etc comes under upstream sector. Inspite of it oil service company and oil equipment manufacturer also comes under upstream sector.

Downstream or midstream sector commonly do the work of refining petroleum and crude oil so that other petroleum products can be recovered and as well as accomplishes the task of processing and purifying the natural gas. After the work of refining the major work which downstream sector has to do is the marketing and distribution of the products[ref] The downstream sector reaches consumers through products such as gasoline or petrol, kerosene, jet fuel, diesel oil, heating oil, fuel oils, lubricants, waxes, asphalt, natural gas, and liquefied petroleum gas (LPG) as well as hundreds of petrochemicals. [/ref]. The downstream sector reaches consumers through products such as gasoline or petrol, kerosene, jet fuel, diesel oil, heating oil, fuel oils, lubricants, waxes, asphalt, natural gas, and liquefied petroleum gas (LPG) as well as hundreds of petrochemicals. Refining, transportation and marketing come under downstream sector.

Organizations under petroleum sector

Everything which is wider in concept needs to be managed so as to oil and gas industry (petroleum trading). Oil and gas supply is basically influenced by global economy. The countries which are the part of oil and gas trading comes across the various challenges and issues regarding Business, climate, energy, price and environment that requires a close attention of government. For this issue many organisations were formed in which some major organizations plays a vital role across the countries for the trade of oil and gas and that are as follow:-

OPEC

Organization of the petroleum exporting countries (OPEC) was founded in the year 1960. At the time of contract there were only five member countries that are Kuwait, Iran, Iraq, Saudi Arabia, and Venezuela but at the current scenario there are total 14 countries including Ecuador, Angola, Libya, Nigeria, Algeria, Qatar, Equatorial Guinea, Gabon and United Emirates. OPEC main objective was to maintain and

Secure the balance between oil companies and producing companies regarding distribution of oil revenues. Later on due to OPEC there was significant influence on the pricing system of petroleum, not only this OPEC has imposed the quota system on their members to produce oil in a limit. OPEC has transformed the major trade of petroleum and as well as also boost the petroleum trading at a great extent.

Recently OPEC has came across the situation where they have to come across the heavy loss due to the decrease in the prices of the diesel but this problem will not much affect the working of the OPEC and also OPEC is taking major steps towards it. Due to OPEC worldwide production of oil has increased to great extent[ref] decided to maintain high production levels, and consequently low prices, in an attempt to push higher-cost producers out of the market and regain market share. [/ref]. OPEC decided to maintain high production levels, and consequently low prices, in an attempt to push higher-cost producers out of the market and regain market share.

THE INTERNATIONAL ENERGY AGENCY (IEA)

IEA was founded in the year 1974. IEA is an association of oil consuming countries. The IEA total member countries are 29 and is linked with the organization of economic cooperation and development (OECD). IEA was initiated due to the initiatives of the United states. This organization plays a key role in energy strategy and all the members of this organization are the major consumers of the petroleum products. IEA has the two major objectives which are as follow:-

IEA main motive was to fulfill the requirements for the oil and gas consumption and production needs for its member countries as well as IEA wants to ensure a secure energy supply for its member countries.
IEA has also focused on the negative effects of the oil and gas use on the environment. So IEA next objective was to work in a way that because of oil and gas trading and its use, environmental development and protection does not get disturb.

OTHER ORGANIZATIONS:-

Apart from OPEC and IEA there are several more countries which deals with the context of petroleum trading such as World trade organization (WTO) and United Nations which works for the policies related to energy supply as well as supply of oil and natural gases. Not only this, Organizations like UNFCCC, UNCTAD, IPCC AND IMO also deals with the context of petroleum trading with WTO and United nations.

PETROLEUM SYSTEM IN INDIA

India is the sixth largest contributor of non-OECD worldwide. Also India is the fourth largest importer of the liquefied natural gas (LNG). According to ibef.org reports[ref] The country’s gas production is expected to touch 90 Billion Cubic Metres (BCM) in 2040 from 23.09 BCM in FY2016-17 (till December 2016). Gas pipeline infrastructure in the country stood at 15,808 km in December 2015. [/ref] The country’s gas production is expected to touch 90 Billion Cubic Metres (BCM) in 2040 from 23.09 BCM in FY2016-17 (till December 2016). Gas pipeline infrastructure in the country stood at 15,808 km in December 2015. In India there are several Organizations of oil and gas Trading like HPCL (Hindustan petroleum corp. Limited) and IOC (Indian oil corporation) which works very efficiently. Government has allowed hundred percent foreign direct investment for various segments. The government of india has aimed to decline the import of petroleum products till feb 2017 by 10 per cent which they have accomplished successfully. In current scenario the government of India is planning to stop imports of petroleum products till 2022 and become self dependent on which government is working in very concentrated way. For this purpose according to economic times news[ref] The oil ministry will soon conduct a second round of Discovered small fields (DSF) auctions and bring a new policy to incentivize Enhanced Oil Recovery to boost domestic output and meet the target. [/ref] The oil ministry will soon conduct a second round of Discovered small fields (DSF) auctions and bring a new policy to incentivize Enhanced Oil Recovery to boost domestic output and meet the target. In India the tax rates on petroleum products are discovered through cascading process. In India tax rates are put by both central and state government but the taxes which are put by the state government are different for the different states on the petroleum products. Basically state government put taxes to control its state revenue. After the imposition of taxes by state finally consumer buys the product but now in India new policy is introduced named as Goods and sales tax (GST). Under this scheme there will be no cascading process of taxes, there would be direct and fix tax by state and central government all over India. However, the petroleum products are excluded by the list of GST currently because of the objection by state government regarding their loss of revenues through GST. Government has made a solution for it and made the another constitutional bill regarding petroleum products and to ensure state government and petroleum traders that they will not face loss because of GST. Currently the bill is passed by Lok sabha and is pending in Rajya sabha. More decisions on petroleum products will be made after the implementing of new bil, till that the process of taxing petroleum products will be remain same as now.

CONCLUSION

Many of us thinks that petroleum trading system is very complicated concept to be understand but it actually not, for understanding this concept there should be a deep knowledge of petroleum. Petroleum is a non renewable resource and also is the most used fossil all over the world. To enjoy the profits of petroleum there should be proper use of petroleum and should be used in the way that it does not affect the environmental development and protection. Also the countries which are involved in the trading of petroleum should be cooperative and also the laws which are framed for petroleum trading so that trade can be done peacefully should be managed and regulated properly.

Bibliography:-

http://www.stcmu.com/pps/summary.html-
http://www.hellenicshippingnews.com/how-will-the-current-crude-oil-scenario-affect-india/
https://en.wikipedia.org/wiki/Fuel_tax
http://www.livemint.com/Money/ZBV1v5fDFpLM6RlXil8giO/Will-GST-make-things-costlier-or-cheaper.html
http://economictimes.indiatimes.com/news/economy/policy/petroleum-products-to-enter-under-gst-regime-to-fuel-big-gains/articleshow/54318893.cms
http://energy.economictimes.indiatimes.com/news/oil-and-gas/petroleum-products-will-be-brought-under-gst-no-impact-on-states-earnings-pradhan/57854242
http://www.aapg.org/about/petroleum-geology/petroleum-through-time/petroleum-exploration-history#3430312-links
http://www.pafko.com/history/h_petro.html
http://www.pmindia.gov.in/en/news_updates/major-policy-initiatives-to-give-a-boost-to-petroleum-and-hydrocarbon-sector/
https://www.ibef.org/industry/oil-gas-india.aspx
https://www.nationalgeographic.org/encyclopedia/petroleum/
https://www.eia.gov/beta/international/index.cfm
https://en.wikipedia.org/wiki/Petroleum
http://connect.spe.org/blogs/donatien-ishimwe/2014/09/05/petroleum-systems-and-elements-of-petroleum-geology