Mr. Prashanto Banerjee Former CMD, GAIL (India) Limited at RPR 2012, 23-26 August, Goa, India

1. Volatility in Primary Fuel
Prices
Date – 24th August 2012
Presented by : Proshanto Banerjee

2. Outline
• Crude Oil /Coal /LNG/Gas
– Historical Global Price Trend and Future Outlook
– Current Domestic Prices and Future Outlook
– Reasons for Price Volatility
• Conclusion

3. Historical Brent Crude Oil Prices &
Refinery Gate Diesel Prices
120 35
30
100
25
80
20
Rs/Litre
$/bbl
60
15
40
10
20
5
0 0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Diesel (Rs/Litre) Crude Oil ($/bbl.) Diesel ($/bbl.)
Source : PPAC

4. Future Outlook – Crude Oil and Diesel Prices
140 40
120
30
100
80
Rs/Litre
$/bbl
20
60
* Actual extrapolated considering
40
today's Prices
10
20
Note : All prices are in real terms in 2011 $
0 0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
IEA Crude Oil Price Forecast ($/bbl) * Actual Crude Oil Price ($/BBL)
Diesel (Import Parity Price) (Rs/Litre) * Actual Diesel (Import Parity Price) (Rs/Litre)
Since Diesel and other refinery products are derived from Crude oil, a high
degree of Correlation exists between their Prices (> 95%)

5. Volatility in Crude Oil Prices
• Global Commodity – fully market based pricing
• Changes in demand and supply
• Weather conditions – seasonal demand
• Inventory level (particularly US)
• Supply chain disruptions
• Environmental disasters
• Speculative Trading activity
• Geopolitical situations
• Economic conditions

6. Thermal Coal Prices

7. Historical Global Thermal Coal Prices
150
120
90
$/Tonne
60
30
High Volatility in Prices
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Northwest Europe marker price US Central Appalachian coal spot price index Japan steam coal import cif price
Source : BP Statistical Review 2012
Coal Prices are turning more volatile on account of increasing Chinese and
Indian demand

8. Future Outlook - Global Thermal Coal Prices
150
Northwest Europe marker price
US Central Appalachian coal spot price index
120
Japan steam coal import cif price • Europe/North American coal demand
90
is stagnant and mostly substituted by
gas and renewable energy
$/Tonne
60 • Indian and Chinese import
dependency for thermal coal is
30 expected to increase further, as
domestic production growth is
0 constrained by logistic, quality and
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
environmental issues
• Long term supply growth is mostly
from Australia once infrastructure
Lower/Upper bound Price expansions come through
Annual Avg. Price • Short term - Indonesia will supply
most of the incremental demand
Source: Anglo American Thermal Coal
• Higher cost of inflation and US dollar-
based imports increasingly expensive
In the medium term Coal prices are expected to be highly volatile and
demand responsive

9. Current Domestic Coal Prices in India
4000 80
Coal Basic Prices
3500 70
3000 60
2500 50
Rs/Tonne
$/Tonne
2000 40
1500 30
1000 20
500 10
0 0
A B C D E F G
Coal Grades are based on Calorific value
Source: Coal India Limited

10. Future Outlook - Domestic Coal Prices
140 Coal Basic Prices 7,000 • Over last 10 years , the average
notified coal price has increased by
120 6,000 4.9% annually
• The price increase in the near-term
100 5,000 expected to be in the range of 6-7%
annually and about 9-10 % beyond
Rs/Tonne
2015
$/Tonne
80 4,000
• In order to meet the increasing
60 2012 2015 2020 3,000 demand, in the long term, domestic
coal prices are expected to move
40 2,000 closer to import parity – with some
discount (very similar to ONGC’s
crude oil pricing approach)
20 1,000
0 0
A B C D E F G
CIL notified prices are expected to increase at a faster rate than before

11. Volatility in Coal Prices in India
• Higher share of imported coal in domestic coal basket
• Coal exporting countries are changing rules/regulations which
will further lead to higher prices with significant volatility
• Land acquisition bill to impact overall cost of production
where developers will have to share profit/revenues with land
owners throughout the operational life
• Environmental cost/tax likely to go up in this decade
• Higher investment for mining activity since more land would
be required to compensate for forest land
• Increased obligation for washed coal use
• Most of the incremental production to come from new mines

12. Gas/ LNG Prices

13. Historical Global Gas Market / LNG Index Prices
15
LNG Japan CIF European Union CIF UK NBP Index
US Henry Hub Canada (Alberta)
12
~ $ 11/MMBtu
9
$/MMBtu
6
3
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source : BP Statistical Review 2012
Huge arbitrage opportunity exists between Atlantic and Pacific basin gas
markets 13

14. 20
Future Outlook – Gas Index/LNG Prices
20
Crude Oil Parity Price (JCC)
18
18
20 2020
20
PLL Qatar (12.7 % JCC)
16 20
16 Crude Oil Parity Price (JCC)
Crude Oil Parity Price (JCC)
18 1818 PLL Gorgon(14.5Price (JCC)
Crude Oil Parity % JCC )
14 18
18
14 PLL Qatar (12.7 % JCC)
20 PLL Qatar (12.7 % JCC)
16 1616 Sellers WillingnessJCC)
PLL Qatar (12.7 % (14.85% JCC)
$/ MMBtu$/ MMBtu
12 16
$/ MMBtu$/ MMBtu MMBtu
16
12 Crude Oil Parity Price (JCC)
JCC)
PLL Gorgon(14.5 % JCC )
PLL Gorgon(14.5 % JCC )
18 PLL Gorgon(14.5 % JCC )
Cheniere LNG Deal (Henry Hub Plus)
14 1414
14
10 14 PLL Qatar (12.7 % JCC)
Plus) Willingness (14.85%
10 Sellers
$/ MMBtu $/
16 Sellers Willingness (14.85% JCC)
NBP Index (UK) (14.85%
Sellers Willingness
$/ MMBtu
12 1212 JCC)
$/ MMBtu
8 12
12 JCC)
JCC)
PLL Gorgon(14.5 % JCC )
8 Cheniere LNG Deal (Henry Hub
14 Cheniere LNG Deal
Cheniere LNG Deal (Henry Hub Plus)
10 1010 Henry Hub Index (Henry Hub
Plus)
6 10
10 Plus) Willingness (14.85%
Plus)
Sellers
6 NBP Index (UK)
12 NBP
JCC) Index (UK)
NBP Index (UK)
8 88
8
4 8 Cheniere LNG Deal (Henry Hub
4 Henry Hub Index
Henry
10 Plus) Hub Index
Henry Hub Index
6 66
6
2 6 NBP Index (UK)
2
8
2012 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
4 4 4 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
4 Henry Hub Index
4
6
2 22
2
2
2012 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
2013 2014 2015 2016 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
2012 2013 2014 2015 2017 2018 2019 2020 2021 2022 2023 2024 2025
4 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
2
Source: WEO 2011 and other Public Sources 2017 2018 2019 2020 2021 2022 2023 2024 2025
2012 2013 2014 2015 2016
Long term LNG prices are expected to depend largely on Oil Indexation and
Henry Hub Prices

15. Emerging long term LNG Pricing Behavior
• Most of the recent long-term LNG contracts have
slope of about 14.5% and 15.4% JCC
• Long-term contracts in the Asia Pacific region are
converging to a slope of 14.85% JCC
• LNG from shale gas from North America tends to
be much cheaper and offers significant arbitrage
opportunity
• Oil indexed pricing set to continue for LNG from
the Middle East , the Asia Pacific region and
Africa at least for the mid term

16. Current Domestic Gas Prices in India
• Domestic gas pricing are not
6
completely market based and
price determination remains
uncertain
• Significant upward revision seen
5 in domestic gas price over last
$ / MMBtu
10 years
• Government role in domestic
gas price determination
continues
4 • Pooled price approach being
explored, would be beneficial for
more LNG use if adopted
• Going forward, arms length
3 derived pricing approach is
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 expected to prevail for any
MMSCMD domestic gas supply
Source: MoPNG

17. Future Domestic Gas Price Scenarios
20 CBM Producer Demand - 100% Crude Oil Parity (JCC)
KG D6 Gas - Post 2014 (Inflation Adjustment)
18 KG D6 Gas - Post 2014 (50% Parity to Crude Oil(JCC))
KG D6 Gas - Post 2014 (50% Parity to Crude Oil(JCC)+ 50% YoY Inflation Adjustment)
16
14
$/ MMBtu
12
10
8
6
4
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Domestic gas prices are expected to increase significantly to accommodate
deep water supply, marginal fields and challenging E & P activities

18. Volatility in LNG/Gas Prices
• Significant increase in Global LNG demand
– Higher gas demand in post Fukushima Japan
– German closure of nuclear power plants (~ 8GW)
– Entry of new countries on the supply side
• Spare LNG Liquefaction capacity (Australia)
• $ Exchange rate movement
• Economic recession
• Weather condition (severe winter – US/Europe)
• Significant LNG supply is expected to come from
Greenfield projects in East Africa, Russia, Iran, P&NG
• Higher share of LNG in the primary energy mix

19. Conclusion
• With a multitude of factors impacting oil, coal
and gas, their prices are bound to fluctuate
• All fuel prices are tending to get globally
linked
• Therefore to deal with volatility :
– Have a portfolio of contracts at different price
levels linked to different indices
– Invest in the entire value chain as far as possible
– Use financial instruments efficiently

20. Thank You
For further Information please contact
Proshanto Banerjee
at
proshanto.banerjee@gmail.com