Netherlands-based Royal Dutch Shell plc, the world’s second-largest oil company, has been focussing on aligning with the energy markets’ transition underway globally. India being at the heart of that transformation, the company has rolled out aggressive plans for expanding operations in natural gas and alternative fuel segments apart from the traditional fuel retailing business, Shell India CEO Nitin Prasad said in an interview with ETEnergyWorld. Edited excerpts..
Shell Global CEO Ben Van Beurden recently announced an overall investment plan of around $25 billion in 2017. What part of that investment is likely to flow to India and in which priority areas?
I may not be able to share investment figures. But we are looking at an aggressive expansion in retail business and that is going to bring capital into the country. We are looking at our lubricants business which is extremely successful and we feel it will become even more successful with the BS VI transition and we are investing quite heavily in that. We are taking a look at new energies as an area. So, investing quite a bit in that space. We are also taking a look at bio-fuels and waste-to-fuel, as that technology proves itself. We are looking at next generation technologies which are being developed in our lab in Bangalore. We are looking at next generation digitisation and data management in our IT hub. We are investing heavily in that space. And, of course, we are investing tremendously in the gas space, too.
Given this long list of focus areas, can you give us a perspective on the company’s thinking on HR. What is the size of the job opportunity that Shell is offering in India in years to come and in which segments?
Shell in India employed around a few hundred people around ten years ago. Today, we are touching a strength of nearly 7,000 people and we will be 7,500 by the end of this year. We will be the third-largest employer in the entire Shell Group. And this is not going to stop. We will add more jobs to the country going ahead. And this includes only the direct employees. The numbers are much higher if we take into account the contract staff and the support staff. We are spending a lot of time in creating that big base of jobs. At the same time, this process is resulting in skilling India. In the entire base of 7,500 employees, there is a 10-15 per cent attrition rate. And that is an industry standard. Every year, we are bringing in 1,000 new people in our fold and also another 1,000 who are moving out. This ensures that we spend a lot of time building the skill and capacity across the organisation. A number of our competitors who are behind us in terms of setting up an R&D facility and IT Hub etc, are trying to take some of our people.
Which are the key areas where most of the new workforce will go?
Shell Energy India will attract people who will come and develop the gas market strategy in India. Our retail business, because of the expansion, is also going to attract additional workforce. IT will attract several hundred people. And a couple of hundred people in the Finance wing also. So, across the board, fresh induction in commercial segment will range in tens to hundreds; while IT and Finance segments will each have new people in multiple of hundred.
How does GST impact the core areas of your business?
GST implementation is a good thing for us in areas which are part of the GST ambit. So, it is good in lubricants, not with-standing the challenges of pace of implementation and logistics. But it is a big issue in gas and petroleum products. If I am producing gas and I am bringing in LNG today, that means that there is a whole amount of products, equipment and services that go into providing that molecule. All of that will attract GST. Who do I charge it to? I have input credits but I have no output credit because I cannot put GST onto the product. So, in effect we have made our entire business more expensive which is a problem. And also, some of the alternatives like coal are in, even as gas is out. So, it will dynamically shift the end-consumer preferences. So, there is a double whammy here. That is a big problem.
What is your view on the daily fuel price change? What kind of impact do you see on retail business and consumers?
I am a big fan of this move. The implications of the move going down the chain are very positive. Product prices in the global context and for Asia Pacific change daily. Similarly, gas prices change daily, rather hourly. So, when the retail prices are locked, the person at the retail end turns into a trader because he gets a forward contract at a fixed price. With daily pricing, that volatility comes all the way down to the last mile. So, the price prevailing in the market is the same price available at the pump. It is a good thing and a sophisticated concept. It opens a door of opportunity for everybody to compete on pricing. Today, it does not really make sense for all the retailers to have the same price. After all, they are competitors in a market place. They have different offers in different locations. Why should they be offering the same price?
RIL and BP have just announced a major plan to jointly invest Rs 40,000 crore in KG Basin blocks apart from partnering to expand retail presence. How do you look at this announcement given that Shell is also now a major player in the upstream segment after the BG acquisition.
The BG acquisition has created a lot of opportunity for us in India in the upstream segment. It was a $50-60 billion acquisition. We have brought fields under development and exploration opportunities across the entire world into our portfolio. Hence, a lot of work has been happening post the BG acquisition to look at these aspects. It is a significant step change in the areas of deep-water and gas. We are taking the decisions necessary to accelerate the development in BGF fields. Similarly, we are making decisions related to carving out the areas in the combined portfolio that we did not want.
In the fuel retailing business, there has been stiff competition between private retailers and the OMCs. The latest data shows the private firms have just started clawing back their market share, though only marginally. What is your strategy to ramp up market share?
We have done this analysis and we have also learned a lot from our global portfolio. Today, if you compare the average throughput of product from our stations versus a regular station or the average of the industry, we are 3-4 times higher. We have done that on the back of having a very strong customer value proposition. So, customers come back to Shell more often than anywhere else. A very good example of this is the city of Bangalore. There, we have a smaller set of stations compared to everybody else but we have 25 per cent share. So, each one of our stations has that superior capacity. Of course, we want to expand our network and we are expanding it quite aggressively. We are also taking a look at how we can bring downstream LNG. The idea is to bring LNG into transportation and have it available at retail stations. And that’s part of our expansion plan. It is also part of the idea of diversity in energy sources in transportation. The other important thing we are thinking about is how to build the retail station of the future? How do you provide all of those alternative energy sources from electricity to LNG to CNG to regular fuels including petrol, diesel and gas at a single station? We are spending a lot of time on the Research and Development of these ideas. We are also focussing on understanding how the customer behavior is going to evolve over the next 15-20 years.
Can you give us an idea of the expansion plans for the Hazira LNG terminal?
As far as Hazira is concerned, it comes down to where is the gas demand and where is it going to come from? Our focus is not on capacity. If you look at the LNG terminal capacity in the country, it is at only about 50-60 per cent utilization rate. Hazira is in a better situation than this but across the country there is a capacity excess. Similarly, there is a capacity excess in pipelines too. So, it comes down to demand generation and accessibility to the infrastructure that is already there. We are focussing on both these areas. In terms of expansion, we are lucky that we have a very high utilization rate in Hazira. It is a brownfield expansion for us and we know what and where to add. And because it is brownfield, it is relatively quicker for us to make those decisions and execute them. So, we are looking at the signposts of a significant shift in demand generation and the accessibility of that demand to make our decision.
The recent forward movement witnessed in India in the areas of BS VI transition and e-vehicles push has implications for the lubricant industry. What kind of impact do you visualize on your business?
The BS VI transition is actually a great thing for us. We have tremendous experience in this space. There are 44 competitors in lubricants in India. But there are only 4-5 of them who have the technological R&D investments to cutting edge lubricants. The transition to BS VI will require cutting edge lubricants because you are changing the basic drive chain. That requires the right lubricant otherwise you run the risk of destroying the entire system. This is where we are working with OEMs like Tata and Maruti because we are redesigning the lubricants in line with how they are redesigning their vehicles for the next generation technology. So, the BS VI transition is going to help our business. It is an opportunity for India to leapfrog in terms of lubricant technology.
As far as the forward movement on e-vehicles is concerned, it will come down to transmission oil, brake fuels and other oils, not necessarily the engine oil. And we will be taking a look at these areas. Overall, it is a healthy transition to e-vehicles. Also, remember that the use of e-vehicles will push up electricity consumption. And that is where industrial lubricants will become necessary as against automotive lubricants. We have 85 per cent market share in the wind industry (lubricants). Wind is going to be a big part of the electricity generation for the electric vehicles or retail stations. That way, the transition to e-vehicles will help our business. So, part of our transition story and what Ben (Van Beurden) has been talking about is to try and accelerate this transition and be a partner in this energy transition so that we can build a robust portfolio around this change.
So, wind as part of the lubricants business is doing well but there are other segments which are still to catch up – defence, textiles, fertilizers. How are you planning to work on these areas?
The defence segment is actually our strength. In India specifically, we do not play too much because it is still very heavily-tender oriented. But within the defence space, there are segments like offshore equipment where our lubricants are a large part for reasons related to our expertise.
What have been the key highlights of your nine months’ experience as Shell India CEO?
Before I came on board Shell had announced a new group strategy, vision and purpose. That was followed up with New Energies being carved into a directorate and a separate Gas Group. Ben (Van Beurden), as CEO, has said that he is very focussed on energy transition. He has made a clear statement that the world of energy now is very different from what it was for the last couple of decades. He has also identified nine countries that he wants to see defining that transition. And India is one of them. And all this has led to good thinking about the future of energy.
What is this energy transition you are talking about?
We have done a mapping of the energy portfolios, looking at a few scenarios working with CEEW and TERI. It resulted in the outcome that we do see a lot of diversity in the portfolio of energy basket going forward. This includes, for example, Hydrogen, cellulose-based biofuels, waste-to-fuel. This also includes the diversity of fuels that are available to the transport sector – CNG as a large part of CGD, LNG for heavy vehicle transportation, and also bio-jet in aviation, and of course the evolution of traditional fuels diesel and gasoline into BS VI variants. Also, there is solar and electric and hybrid vehicles and the charging stations.
So, realizing that the diversity of energy solutions is going to be tremendously high. This is one outcome of the entire exercise. And this led to us thinking about what are the areas that we want to start thinking about and invest in or the areas where we want to do pilots and initial development. For example, in LNG transportation, we have launched Shell Energy India. It is a new company that is taking a look at how to take LNG further downstream. Another aspect of this is to take a look at the rural to urban transition. So, we are looking at the implications of urbanisation on air quality, water, waste and power at a city level.
In this in entire scheme of things, where does India fit in?
The Indian government has been laying a lot of focus on leapfrogging in many of these areas. For example, I think it is great that the Indian government is thinking of jumping from BS IV to BS VI. We have the ability and the technology to successfully implement this transition.
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