Govt Deregulates Crude Oil Market

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What has happened?

The Cabinet has approved the deregulation of the sale of domestically-produced crude oil, Union Minister Anurag Thakur announced on Wednesday.
He said from October 1, the companies will have the freedom to sell crude oil in the domestic market.
However, the ban on the export of crude oil will continue.

With this, the companies can sell their crude oil to any private company in the domestic market along with government companies.
The government allowed firms like ONGC and Vedanta to sell locally produced crude oil to any Indian refinery for turning it into fuel, such as petrol and diesel.

While contracts for oilfields awarded since 1999 gave producers the freedom to sell oil, the government fixed buyers for crude produced from older fields, such as Mumbai High of ONGC
and Ravva of Vedanta.
In the present system, the government fixes the quantity each buyer will pick.
This limits the scope for price negotiations and often sellers sold oil at discount.
Now, the sellers can e-auction the crude to anyone paying he highest price.

ONGC at present has to sell the Mumbai High crude oil to state-owned BPCL and HPCL.
It could not sell the oil to its own Mangalore refinery.
This decision would mean ONGC can auction its 13-14 million tonnes a year of crude oil produced from Mumbai High field to any refiner, including private sector Reliance Industries Ltd and Rosneft-backed Nayara Energy.

It will help to boost tax revenues and help domestic crude oil manufacturing companies to get better prices for crude.
The government revenues like royalty and cess will continue to be calculated on a uniform basis across all contracts.
This better realisation for oil companies may boost the Centre’s royalty and cess income as they are charged as a percent of the price.
Cess is pegged at 20%, while the royalty is pegged at 20% for onshore and 10% for offshore production.
Higher royalty and cess income will offset some of the government’s Rs 1 lakh crore revenue loss due o excise duty cut on petrol and diesel.

This comes against a backdrop of India producing historically low amounts of crude oil in decades.
India’s domestic crude production has been on a consistent decline.
In FY22, the production slipped to 28.4 MMT, the lowest in over two decades.
The production in 2021-22 represented a decline of 11.8% from 32.2 MMT in FY95, increasing the economy’s vulnerability due to skyrocketing global oil prices.

Despite being the third-largest consumer of oil, the nation depends on imports to meet 85% of its needs.
In FY22, the country’s crude oil import bill ballooned to $120.4 billion as the crude prices surged.
High reliance on imports has inflated India’’ crude import bill and widened the trade deficit.
State-owned ONGC, which accounts for a bulk of domestic crude production, has seen its output decreasing steadily.

Q) In a fractional distillation process, Crude is heated to about what temperature?