Friday, June 1, 2012

Rising Petrol Prices: What Should be Done ?

Petrol is a highly inflammable liquid fuel produced by petroleum refineries by fractional distillation of crude petroleum oil extracted from deep underground oil wells. Petrol is also known by the name gasoline. Petrol, diesel, cooking gas, kerosene, jet fuel, road tar, wax, lubricants all are produced from crude oil by processing it in petroleum refineries.

Crude oil is a mixture of various organic substances essentially comprising of hydrocarbons which are nothing but molecules of carbon and hydrogen. The number of carbon atoms in the molecules determine the physical properties. For example if carbon atoms in the molecules are 1-3 the molecules normally appear as gases. This fraction of the crude oil is marketed as petroleum gases, the common form is cooking gas or Liquified Petroleum Gas (LPG). The gas becomes liquified under higher pressure.
The next fraction contains hydrocarbon molecules having carbon atoms ranging from 4-12 atoms per molecule. This mixture of hydrocarbons distilled out from the crude oil is our gasoline. It is a liquid under normal conditions and is highly volatile. That means it evaporates too quickly if kept open. Hence it catches fire very easily. It is used in petrol engines as fuel. Since it burns too readily the petrol engines are lighter and smooth. But petrol has an energy value less than kerosene and diesel and hence high power engines do not use this as the fuel. Petrol is specially made with the addition of various catalysts and chemicals for improving performance of petrol engines. A variety of this fraction which is used by chemical industries for manufacture of various other chemicals and fertilizers is called Naptha. 

LPG and petrol are the fractions of the crude oil with lower energy content. If energy content is any yardstick to determine the prices, these two fractions should be priced the lowest. More over, these are the fuels which could be easily used by the common man for lighter vehicles and for other common uses like cooking. Technically petrol can be easily and safely used for cooking by employing simple evaporator-burner units. It is technically safer than LPG which is marketed in pressurized cylinders.

The next fraction which we get from the crude oil is the kerosene fraction. The major chunk of this is processed to make Aviation Tubo Fuel (ATF) which is the fuel for the air craft jet engines. Kerosene is also used as a major raw material and fuel in various industries. In the olden days, this was the fuel for the kerosene lamps of the house holds. It is hydrocarbons with carbon content ranging from 12-16. The fuel is liquid but less volatile than petrol. Hence, it is safer to be handled even by illiterate persons. But one should also remember that more brides are burnt in India by their in-laws by pouring kerosene over their heads and lighting them up in house hold quarrels. Had it been petrol it would have likely caused burns for the aggressor as well !

The fourth range of product from crude oil is the heating oils. There are various products in this group, the most common being the Light Diesel Oil (LDO) which is commonly called diesel used in high power motor cars and commercial vehicles. Sometimes this is also marketed as High Speed Diesel which is nothing but LDO with some chemical additives and improvements to enhance its burning performance inside the engines. Low Sulphur Heavy Stock (LSHS) is another variety from this group marketed for use in industries for various applications.

Then we get what is known as the paraffins from the crude oil which are processed into various kinds of lubricating oils. The candles that we get now in the market is made of paraffin wax which is one of the products of this group.

The black waste product that remains after distillation of the crude oil is petroleum asphalt or road tar. Even this has a high market value and various products for various applications are also made and marketed.

So we can see that a barrel of crude oil ultimately gets converted to several useful products having various applications and market values. An important thing to be noted is that no part of the crude oil goes as a value less waste. All products are value-added.

Most of the Oil refineries have production capacities to process one million barrels of crude oil per annum or more. In India, the Reliance Oil Refinery in Gujarat is the biggest (biggest in the world perhaps) with a capacity of 10 Million bbl per annum.

One barrel of crude oil contains nearly 160 litres or 42 US gallons. The specific gravity and chemical quality differ from place to place. By processing one barrel crude oil the oil refineries get nearly 167 litres of liquid petroleum products including LPG. The 7 litres extra is called the processing gain. It is also important to note that nearly half of the production is gasoline [Source]

One litre of crude oil costs about Rs. 29/- per litre (without import duties) assuming $86 per barrel and 1US$= Rs.55.

As against this the retail prices of petrol in India keep rising and now stands above Rs.71. [Watch the Indian petrol / diesel prices here ! ]

India import about 78 % of crude oil to meet its demand. The rest is produced internally by Indian crude oil companies like ONGC, Reliance and Cairn India. The dominance of the latter two private companies are growing.

In a nutshell the oil business is a highly profitable business and the major income source for the governments. The business is very complex due to fluctuating oil prices, taxes, fluctuating currency rates and also due to several kinds of products that a barrel of crude oil finally turns up into.

The complexity of the business makes it possible for the government and the oil companies to hide facts from the public at their convenience. It is also possible to make millions diverted from one side to the other by mere changes in policies now and then.

Technically it is possible to produce cheaper and environment friendly fuels for the common man. Petrohol is an example. This is the fuel Brazil has been producing and selling for the last over three decades to reduce the dependency on crude oil and also to enhance domestic economy. Petrohol is a mixture of petrol and ethyl alcohol which can be used very well in all petrol vehicles. Ethyl alcohol is a renewable agro based product made from sugar cane or sweet potatoes. It can be very easily made in alcohol breweries or distilleries. Even now it is produced. But that is for use as liquor for human consumption. The governments make huge money from excise duty in this front too. Brewing is also a highly profitable industry as such.

In both petroleum and alcohol the tug of war is between the profit sharing between the governments and the business men. The crux of the problem lies in this. There are too many interests groups within the governments and the industry. Had it not been the case, India would have adopted the Brazilian experiment two decades ago. There is no one authority who can positively give a direction to the various groups which keep pulling at each other.

The absence of a centralized vision in the government makes the Indian governmental system to appear as pulling the legs of each other. Mutually opposing ministries and departments and visions. That is what an unbiased observer might visualise about the Indian government in issues like this.

What is the purpose of a budget if the tax income collection as projected keep rising just on the petroleum product pricing alone in the budgeted year ? Why cann't the government think of using the tax regime to offset the requirements of the price rise that take place due to non-tax effects?

But for all these to happen like what the citizens think, the people in the government have to think like the citizens. They have to feel that they too are citizens. Unfortunately that thought comes to their minds only when they are removed or retired from the power positions.

In a situation as that exists now in India, it is not of any use in criticising any one. Neither it is of any use in giving useful suggestions. Both will have effect only when there is some one to listen and act !


  1. Dear Rajettan, Thank you for giving these much details about petroleum as i was supposed to search for the same in google. The details which u explained here were very interesting to know and read as especially in this recent time where govt going to increase the price. Many of the citizens are unaware about the real issues and facts behind this subject. I hope, this article will be very useful for them who are really looking for more information regarding the above subject.

    Once again..thank u so much..

  2. Transport sector is one that can boost the overall development of any country. Good roads, assurance of highway emergency assistance and availability of public road transportation etc are the basic requirements. These are solely vested on the governments. In the southern states of Tamil Nadu and Kerala and in a few northern states like Punjab and Haryana, road transportation has developed boosting the overall developments of these states. In the other states, the state governments seem to have no vision and direction in this regard. Even the National Highways which come under the central government, appear pathetic where they cross the state borders. That clearly shows that there is no coordination or supervision from the governments either at the national or at the state levels as far as road transportation is concerned. Haphazard fuel taxation and vehicle taxation policies apparently with no concern for the development of the country creates further confusion. If the anti-social elements thrive on the interstate borders, the sole responsibility lies with the governments which do all such things to thwart people movements on the roads. The Indian roads, especially in the interstate border areas are also fiefdoms of tax and police officials who find the government policies for their advantage for various reasons. In the final analysis, Indian public concentrates in the cities with ever increasing constraints for lateral movements making the rural areas turn into undeclared battlefields. Indian government spends much on international relations. Why cann't it think of something similar for interstate relations? This would hopefully improve the interstate travel by road a viable option for many of its citizens.


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