BMCG market potential, cost economics and effectiveness at end user premises

A Summer Internship Proposal for

Post-Graduate Programme Management (Times New Roman 13 points)

By(Times New Roman 11 points)

Malla Santosh kumar(Times New Roman 13 points)

Under the guidance of

Mr.Sivasankaran RajagopalanTerritory Manager, Kurnool LPG.

BHARAT PETROLEUM CORP. LTD

Indian Institute of Management (Arial 14 points)

Raipur(Times New Roman 12 points)

JULY 2012

EXECUTIVE SUMMARY:

The key findings of the project are that majority are using the BMCG because of the cost economics .Although a large segment of customers are unaware of the the product ,the customers who were using were quite content with the product ,usage ,supply ,safety and other aspects.There are some areas of market potential which have been listed in the report ,this could double the sales of BMCG in that area.

The recommendations for the company would be to improve the brand awareness and create an instinct demand for the product .This could give a better lift-up to the sales in the long term perspective.

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CONTENTS:

1. INTRODUCTION1.1 History of petroleum1.2 Indian Market Overview1.3 Supply has failed to keep pace with demand1.4 Oil Refining Capacity - from shortage to surplus1.5 Infrastructure of Oil companies in India 1.6 Oil Refining Capacity - from shortage to surplus1.7 Infrastructure of Oil companies in India

2. Introduction to the company2.1 Introduction to Bharat Petroleum Corporation Limited.2.2 Introduction to Kurnool LPG Plant.

3. Introduction to Bharat Metal Cutting gas.

4. Project4.1 Title of the problem4.2 Methodology4.3 Market Potential4.4 Cost economics4.5 End user premises

5. Conclusions.6. References.

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1.1 History of petroleum :

Petroleum (derived from Latin Petra - rock and oleum - oil) first came up in wells drilled for salt. People found it useful as illuminating oil and the demand for it steadily increased Samuel Kier, a Pittsburgh druggist, bottled and marketed Petroleum as medicinal cure. To market a deodorized variant, he designed the first primitive refinery in 1852, which was a huge improvised kettle, connected to a metal tank. 'Colonel’ Edwin Drake and 'Uncle' Billy Smith drilled a well with the specific objective of finding oil, and on 27th August 1859, they "struck oil" at Titus vale, in North Western Pennsylvania, USA, at a depth of 69.5 ft.

Oil and Gas Products which are refined from the petroleum deposits were formed by the decomposition of tiny plants and animals that lived about 400 million years ago. Due to climatic and geographical changes occurring at that time in the Earth's history, the breakdown of these organisms varied from region to region. Because of the different rates at which organic material decomposed in various places, the nature and percentage of the resulting hydrocarbons vary widely. Consequently, so do the physical and chemical characteristics of the crude oils extracted from different sites. Overall, the specific gravity of crudes ranges between 0.80 and 0.97 grams/milliliter.

1.2 Indian Market Overview:

India's Oil and Gas Industry Size is estimated at USD 110 bn (about 15% of Indian GDP), contributes to about 64% of gross revenues of Government (both Central and State together) through Taxes and Duties. It is the largest contributor to Government exchequer in 2004-05 which is around USD 27 bn. It constitutes 30.87% of India's imports in 2005-06 and Accounts for 11.21% of India's exports in 2005-06. Our Country is the Sixth largest crude consumer in the world and Ninth largest crude importer in the world. India's has the sixth largest refining capacity - 2.56 million barrels per day in wells representing 2.99% of world capacity. The Indian Ministry of Commerce has predicted that India's GDP will fall by 1.5% for every USD 10 increase in the price of the oil per barrel.

Among the six Indian Companies in the Fortune 500 List, five are from the Oil and gas industry.

1.3 Supply has failed to keep pace with demand: Supply has failed to keep pace with demand: The latest India Oil & Gas Report from BMI (targeted for 2010. Production last year of 314bcm should reach 490bcm by the end of the decade. India's share of consumption in 2006 was 9.6%, as was its share of production. By 2010, its share of demand is forecasted to be 9.3%, with the country accounting for 8.6% of supply. There is a relatively poor outlook for domestic upstream oil output growth, but significant under-exploited gas reserves. Domestic oil demand is rising fast and there is considerable IOC interest in the downstream fuels

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segment, although Indian privatization policy has thrown some doubt over future oil industry FDI. Indian Government should take proper preventive Business Monitor International) forecasts that the country will account for 11.2% of Asia/Pacific regional oil demand by 2012, while providing 10.2% of supply. Asia/Pacific regional oil demand rose to 24.27mn b/d last year and should average 24.77mn b/d in 2007, before reaching 27.79mn b/d by 2010. Asia/Pacific gas consumption in 2006 was 385bcm, with demand of 602bcm measure to limit the demand supply gap, they are• Intensify exploration efforts to convert the remaining prognosticated hydrocarbon reserves to established reserves.• Increase recovery factor of producing fields.• Scout for equity oil and gas from abroad.• Explore new technologies like coal gasification, coal to oil conversion, gas hydrates exploration, coal bed methane extraction etc.

1.4 Oil Refining Capacity - from shortage to surplus: The Refining Capacity of the Indian Oil Companies is increasing every year and there were major discoveries of mines every year. The Government deregulation policy have also helped the oil companies in India to sustain and improve over decades, this is evident from their tremendous increase in refining capacity which got doubled between 1998 and 2009.

1.5 Infrastructure of Oil companies in India: The right product, at the right place, at the right time; quite often, discussions of the oil and natural gas industry focus on the extremes of the supply chain - exploration and production at one end and retail prices at the other end. Yet, without an extensive network and infrastructure in the center of the process, energy supplies would never reach consumers as efficiently as is evidenced by the oil and natural gas industry's 100-year record of reliable performance. The mode of transportation plays a great role in developing the infrastructure of the oil companies in India. These industries have a gradual shift in the inland petroleum transportation from railways to pipelines.• Share of pipeline transportation in India much lower as compared to USA, in spite of its advantages.• Total POL pipeline length currently under operation in India - 12,204 km.• POL pipelines under implementation - 5,561 km (Investment of USD 1.5 bn).

1.6 Marketing Infrastructure of Oil Companies: The marketing infrastructure is considered to be the most invaluable asset for the company and it helps to position itself in the target market. The Oil and Gas Companies Industry in India have a vast coverage of Retail Outlets, LPG Distributors and SKO Dealers. These days the Oils companies have started setting up departmental stores, food courts etc, to attract the customers and increase their market potential.

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1.7 Deregulation of Oil and Gas Industry in India: On the policy and regulatory front, the issues of privatization and deregulation continue to provide challenges due to lack of political consensus. While the Administered Price Mechanism (APM) stands dismantled in theory, marketing companies have little autonomy in pricing decisions. Cross subsidies in LPG and Kerosene continue while the effective duty protection available to domestic refiners has been progressively reduced. These opportunities and challenges are proving to be an exciting time for the Indian oil and gas sector. With new product specifications, setting up of grass root refineries, overseas acquisitions and construction of new LNG terminals, India will play a significant role in the global energy market. Also these government regulations have evolved over time in tune with domestic compulsions and international hydrocarbon scenario. 314bcm should reach 490bcm by the end of the decade. India's share of consumption in 2006 was 9.6%, as was its share of production. By 2010, its share of demand is forecasted to be 9.3%, with the country accounting for 8.6% of supply. There is a relatively poor outlook for domestic upstream oil output growth, but significant under-exploited gas reserves. Domestic oil demand is rising fast and there is considerable IOC interest in the downstream fuels segment, although Indian privatization policy has thrown some doubt over future oil industry FDI. Indian Government should take proper preventive Business Monitor International) forecasts that the country will account for 11.2% of Asia/Pacific regional oil demand by 2012, while providing 10.2% of supply. Asia/Pacific regional oil demand rose to 24.27mn b/d last year and should average 24.77mn b/d in 2007, before reaching 27.79mn b/d by 2010. Asia/Pacific gas consumption in 2006 was 385bcm, with demand of 602bcm measure to limit the demand supply gap, they are

Intensify exploration efforts to convert the remaining prognosticated hydrocarbon reserves to established reserves.

Increase recovery factor of producing fields.

Scout for equity oil and gas from abroad.

Explore new technologies like coal gasification, coal to oil conversion, gas hydrates exploration, coal bed methane extraction etc.

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2.1 BHARAT PETROLEUM CORPORATION LIMITED

Bharat Petroleum Corporation Limited (BPCL) (BSE: 500547, NSE: BPCL) is an Indian state-controlled oil and gas company headquartered in Mumbai, India. BPCL ranked 272 in Fortune Global 500 list in 2011.

In 1860s during vast industrial development, an important player in the South Asian market was the Burma oil company ltd Though incorporated in Scotland in 1886, the company grew out of the enterprises of the Rangoon Oil Company, which had been formed in 1871 to refine crude oil produced from primitive hand dug wells in Upper Burma.In 1928, Asiatic Petroleum Company (India) started cooperation with Burma oil company. This alliance led to the formation of Burmah-Shell Oil Storage and Distributing Company of India Limited. Burmah Shell began its operations with import and marketing of Kerosene.

FROM BURMA SHELL TO BHARAT PETROLEUM Burmah Shell Refineries was incorporated as a company in 1952, and established a refinery in Mahul .On 24 January 1976, the Burmah Shell Group of Companies was taken over by the Government of India to form Bharat Refineries Limited. On 1 August 1977, it was renamed Bharat Petroleum Corporation Limited. It was also the first refinery to process newly found indigenous crude Bombay High, in the country.

Bharat Petroleum Corporation Limited (BPCL) specializes in refining, processing, and distributing petroleum products. It offers petrol, diesel, aviation fuel, liquefied petroleum gas (L.P.G.) and lubricants. The company primarily operates in India, where it is headquartered in Mumbai and employs about 13, 968 people

BPCL recorded a sales turnover of 163,218.21 crores in the year 2010-11. This represents an increase of 24.12 %over the previous year’s turnover of 131,499.72 crores. In terms of volume, sales increased from 27.89 MMT in 2009-10 to 29.27 MMT in 2010-11, showing an increase of 4.95%. The profit before tax for the year went up by 1.97% over the preceding year to reach a level of 2,412.65 crores, as against 2,366.05 crores in 2009-10. After providing for tax, (including deferred tax) of 865.97 crores in 2010-11, as against 828.43 crores in 2009-10, the profit after tax for the year stood at 1,546.68 crores, as compared to 1,537.62 crores in the financial year ended 31st March, 2010.

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About BPCL Kurnool plant

Kurnool LPG Territory comprises of the LPG Bottling Plant at Kurnool commissioned in September 1995. Kurnool LPG Plant is located at Lakshmipuram Village on the national Highway no. 7 at a distance of about 10KMs from Kurnool Town. It started with 19 Distributorships in five revenue districts in Rayalaseema / Coastal regions of A.P and at present it has 38 distributors. In addition, Rescue Supplies are being made to distributors at Hyderabad and Chennai markets as and when required. Recently it started Hospitality to HPC

MARKET DETAILS

Area Covered are 5 Districts of Andhra pradesh: Kurnool, Mahabubnagar, Anantapur, Kadapa, Prakasam

MANAGEMENT STAFF:

1. Mr. R.Sivasankaran : Territory Manager

2. Mr. V. Harikrishnan : Territory Co-ordinator

3. Mr. M. Siva Reddy & Mr.M. Siva Prasad Reddy: Sales Officers

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BHARAT METAL CUTTING GAS - Introduction

Introduction

In the Indian petroleum industry, Bharat Petroleum has been a pioneer in breaking new grounds and setting new standards. Often referred with admiration as an ‘MNC in PSU garb’, Bharat Petroleum is a Fortune 500 company that has also featured in the prestigious Forbes magazine. With a turnover greater than 16 billion US dollars, we market our products through six strategic business units - Retail, Lubricants, LPG, Industrial & Commercial fuel and Aviation.

Bharat Petroleum markets LPG (Liquid Petroleum Gas) under the brand name Bharatgas. Millions of Indians wake up each morning with "the cup that cheers" prepared on Bharatgas (LPG - cooking gas). Similarly, hundreds of commercial and industrial establishments start their day, confident and secure, having entrusted their LPG needs to Bharatgas. As a result, Bharatgas has over 20 million domestic customers and thousands of Industrial & Commercial Customers.

A revolution in the world of cutting, welding and brazing

Traditionally in our country, cutting of metal/sheets has always been done using the Oxy-Acetylene mixture. Acetylene is expensive and not easily available. Bharat petroleum painstakingly studied the needs of industries which need to cut metal and came up with Bharat Metal Cutting Gas(BMCG) as the ideal substitute for Acetylene. Bharat Metal Cutting Gas offers superior cutting at a low cost. Launched by Bharat Petroleum Corp. for the first time in India, Bharat metal cutting Gas can cut metal easily which makes it ideal for metal cutting and brazing applications.

Bharat Cutting Gas is already the preferred choice of giants like The Indian Railways, Bhilai Steel plant, BHEL, L&T, Godrej Boyce, Hindustan Ship yard limited, Bharat Earth & Movers limited and SAIL .

BMCG has also been accredited by leading agencies like Welding Research Institute 9 WRI) Trichy, Research Designs and Standards Organization (RDSO) Lucknow and Naval materials Research laboratory, Ambernath.

Economy like never before

BMCG offers unmatched economy. BMCG is 30 to 40% cheaper on overall cutting cost.

The safest metal cutting gas

In industries where safety of employees is placed above all else, Bharat Metal Cutting Gas is the ideal choice. BMCG is completely safe and operator-friendly.

BMCG is non-toxic and has no backfire. In case of a leak, BMCG can be detected easily because of its unique pungent smell.

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BMCG Characteristics vs Other Gases.

4.1 Title of the problem : BMCG market potential ,Cost economics & effectiveness at end user premises.

This Project deals with the study of the market potential of BMCG in a specified region. This includes visiting different companies across various industries and getting feedback from them regarding their oxy-fuels.

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Table : Fuel Gas Characteristics

Fuel Gas Maximum Flame Temperature °C

Oxygen to fuel gas Ratio (vol)

Heat distribution kJ/m3

      Primary

Secondary

Acetylene 3,160 1.2:1 18,890 35,882

Bharat Metal Cutting Gas

2,810 3.3:1 10,433 85,325

MAPP 2,927 3.3:1 15,445 56,431

Propylene 2,872 3.7:1 16,000 72,000

Hydrogen 2,834 0.42:1 - -

Natural Gas

2,770 1.8:1 1,490 35,770

4.2 Methodology :

The methodology involves a systematic procedure ,which basically involves four basic steps ,which were listed and demonstrated below.

4.2.1 Obtaining list of Industries in the region :

I had Obtained the list of companies from the chamber of commerce and industry as per the suggestion of our guide ( Mr.R.Sivasankaran ) .Then after obtaining the list of companies which are of a total number of 177 ,they are belonging to different sectors of the industry in the region .The list is attached in the annexures.

4.2.2 Filtering the list of companies to sector wise and obtaining the potential customers list :

From the list of companies which are available ,we need to filter the companies ,and then list them according wise for the identification of our companies which are

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1.Obtaining list of Industries in the region .

2.Filtering the list of Industries and obtaining the potential customers

3.Getting feedback from the companies about various issues regarding their usage.

4.Analyzing the accumulated data and presenting facts and figures.

33%

32%

18%

10%8%

Sector splitTransport Sector

Agriculture

Oxy-fuel applicable industry

brick & cermacis

Others

This gives us a total aggregate list of companies in the area ,which includes many sectors like Transport sector, agriculture ,oxy-fuel applicable industries ( cutting and rolling mills ) ,bricks and ceramics and other companies .

Company Consumption per week Oxy-fuel

Dinesh Rolling Mills 10 LPG

Modern Engineering Works 1 DA

Mahavir Ferro Alloys 2 LPG

Bharath Engineering Workshop 1 DA

Tanisp 30 DA

Srirangam 30 LPG

Tanmayi 20 LPG

Agarwal Steel Structures (India) Private 30 DA

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Limited

Laksh Steels 30 DA

Nav Durga Billets (P) Ltd. 6 DA

HBL batteries Pvt ltd. 20 LPG

Aster Teleservices Private Limited 35 BMCG

Bheemudu Centring Works 1 DA

Sri Venkateshwara General Engineering Works

1 DA

Sri Lakshmi Engineering works 1 DA

Mukheed Engineering works 1 DA

Star Radiator Engineering Works 1 DA

Baba Engineering works 1 DA

VR Engineering PVT LTD. 50 BMCG

AMBLY Engineering PVT ltd. 10 BMCG

Comteach 10 BMCG

AKC Engineering 5 BMCG

AJ Apbhava 8 BMCG

AJ Apbhava (kollur site) 50 BMCG

Espetech 15 BMCG

Dena Engineering works 5 LPG

Balaji Engineering Company 5 LPG

4.2.3 Getting the feed back from the companies :

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There is a questionnaire which has to be asked to the companies ,which includes questions like the awareness of BMCG ,the consumption of oxy-fuel , application ,etc. The com

4.2.4 Analysing the data and drawing conclusions :

The conclusions which are drawn after the project are given as follows :

The application of the market in the oxy-fuel market is

This shows that a large portion of the market of oxy-fuel is dominated by cutting ,although there are other applications.

89%

7%4%

SalesCutting Welding & RefabricationMaintanance

25 – Cutting2 - Welding- Maintnance

Awareness :This shows that the awareness level is low for the product BMCG.And if higher it would be contributing to more sales .And only 12 out of 29 companies are aware of it.

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Aware of BMCG39%

Unaware of BMCG61%

Awareness

Reason for BMCG preference :

The primary reason for the sales of BMCG is its less cost of operation and slightly good and timely supply by the distributors.

89%11%

Primary Reason

Low CostGood supply

Alternate fuel : When customers were asked about their alternate fuel ,78% of the sample said that they would LPG and only 22% responded that they would use DA. This proves that there is a monopoly of LPG and BMCG in the market

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22%

78%

DA

Customer profile : Majority of the customers included ,the customers from inception.From start of their company they were using BMCG ,and 25% of the customers were shifted from LPG to BMCG.

25%

75%

Total BMCG consumers

LPG to BMCG BMCG from Inception

Safety: Majority of the market feel that BMCG is safer than DA and 30% of the companies feel that any Oxy-fuel is safe. But 60% of the market feels that BMCG is safer than DA,because they are aware of the technical specifications of other gases.

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60%10%

30%

Safety

BMCGDAAny Oxy-fuel is unsafe

Conclusions :

Majority of sales are through the initiation of distributor.

A large segment of potential market is unaware of the brand BMCG and it’s cost savings

No major perceptual difference in the minds of customer for BMCG and LPG.

BMCG has replaced LPG to a large extent ,more than DA

Although a significant portion of market is unaware of brand BMCG , the existing customers perceive BMCG as a

• cost-effective solution,

• a much safer product

• a timely supplied fuel and are happy with the product.

Recommendations:

• Bringing Awareness about the brand “BMCG” through advertising.

• Strengthening our presence in the local market.

References :

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1.en.wikipedia.org/wiki/Lubricant

2. http://bpcl.co.in

3. www.wikipedia.com/oxy-fuels.html

4. http://www.mapsofindia.com/mahabubnagar/economy/industries.html

5. http://www.fapcci.in/apresouces.html

6. Justdial.com

7. www.crisil.com/Ratings/Commentary/CommentaryDocs

8. http://wikipedia.com/Mahbubnagar

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