ONGC to draw perspective plan to integrate business
State-owned Oil and Natural Gas Corporation (ONGC) will draw a new perspective plan to integrate recent acquisition Hindustan Petroleum Corporation Ltd (HPCL) and just commissioned petrochemical unit with its mainstay oil and gas exploration and production operations, its Chairman and MD Shashi Shanker said. The nation’s largest oil and natural gas producer is keen that its recent diversification into refining business as also petrochemicals is leveraged to full by integrating them with its core business. “Post-acquisition of HPCL and commissioning of OPaL petrochemical plant at Dahej (in Gujarat), the company is drawing up a perspective plan to achieve proper synergies from the integration to maximize value, optimize cost and enhance efficiency,” Shanker said. Synergies like the use of naphtha and other liquid hydrocarbons ONGC produces in the petrochemical unit set up by ONGC Petro-additions Ltd to produce value-added products as well as integrating refining stream of HPCL with company’s existing subsidiary, Mangalore Refinery and Petrochemicals Ltd can result in huge opportunities, he said. “ONGC today is chasing the hydrocarbon molecule to the last mile to derive the best value from it at the minimal cost,” he said, adding the company wants to put in place a well-knit strategic plan to bolster its presence in the entire hydrocarbon value chain. ONGC earlier this year bought government’s entire 51.11 per cent stake in HPCL for Rs 36,915 crore, adding 23.8 million tonnes of annual oil refining capacity to its portfolio that made it the third-largest refiner in the country after Indian Oil Corp (IOC) and Reliance Industries Ltd. ONGC already is the majority owner of Mangalore Refinery and Petrochemicals Ltd, which has a 15-million tonnes refinery. The idea is to prepare a strategy to strengthen the integration further so that business growth is well diversified and risk well distributed to tide over the volatility due to fluctuations in global crude oil prices, he said. The company has already mapped the production profile from its deepwater project in the KG Basin. Block KG-DWN-98/2 will help double ONGC’s gas production by 2022. The current gas production stands at 23 billion cubic meters, which is expected to reach nearly 42 BCM by 2022. Oil production is also set to increase from the present level of 22 million tonnes to 25.6 million tonnes by 2022. Also, the acquisition of Gujarat State Petroleum’s Deen Dayal West (DDW) block in KG basin has given ONGC ready infrastructure and facilities to produce from its high-pressure, high-temperature (HP-HT) fields. This will also help in early monetization of other fields in the vicinity, which are a part of HP-HT Corridor, Shanker said. “Rig has already been deployed in DDW field for drilling and hydro-fracturing in order to boost production from this field”. ONGC Group recorded a net profit of Rs 22,106 crore on a turnover of Rs 204,019 crore in 2017-18 fiscal year. The business strategy being finalised would also focus on opening up of new basins to replenish reserves and increase its production, he said. The company already operates in six out of seven discovered basins in the country. The oil production is also planned to be ramped up with various ongoing projects worth Rs 77,000 crore out of which Rs 10,000 crore is being invested towards redevelopment and enhanced oil recovery projects only.
China’s state-run Zhenhua buys first LNG cargo from Chevron
China’s state-run Zhenhua Oil purchased its first liquefied natural gas (LNG) cargo from Chevron Corp to supply a South China-receiving terminal that it won access to in a recent auction, according to Zhenhua officials on Thursday. The 100-million-cubic-metre cargo was purchased at about $0.30 per million British thermal unit discount to Japan Korea Marker (JKM) quotes on a delivered basis, the officials added. The cargo, discharged at CNOOC’s Yuedong terminal in Shenzhen, was sourced from the Australian Gorgon project operated by Chevron. Zhenhua and its local partner Longkou agreed in September to pay $26.5 million for the access to use the CNOOC facility, in the first such auction as the world’s second-largest LNG buyer pushes to open up its LNG import business dominated by top three state oil majors.
Shell profits soar to four-year high
Royal Dutch Shell third quarter profits soared to their highest in four years, boosted by rising crude prices as the company pushed ahead with one of the world’s largest share buyback programmes. The world’s second-largest listed oil and gas company saw its cash generation from operations rise by nearly 60 per cent to $12.1 billion, as deep cost savings in recent years filtered through. “Good operational delivery across all Shell businesses produced one of our strongest-ever quarters,” Chief Executive Ben van Beurden said in a statement. Net income attributable to shareholders in the quarter, based on a current cost of supplies (CCS) and excluding identified items rose 39 per cent to $5.624 billion from a year ago. That compared with a company-provided analysts’ consensus of $5.766 billion. It was $4.691 billion in the second quarter. The profits benefited from stronger oil and gas prices as well as bigger contributions from trading operations but was offset by weaker refining margins, tax and currency exchange effects. Shell launched a $25 billion share buyback programme in July, making good on a promise to boost shareholder returns following the 2016 acquisition of BG Group, in a show of confidence in its future cash generation and profit growth outlook. Shell said it completed the first tranche of buybacks in October for $2 billion and was launching a second tranche on Thursday of up to $2.5 billion by January 28. Shell’s shares came under pressure in recent months after three disappointing quarterly results that raised concerns over its ability to meet the $25 billion share buyback target on top of $15 annual dividend payout, the world’s biggest. Debt levels remained stubbornly high. Shell’s debt ratio versus company capitalisation, known as gearing, declined to 23.1 per cent in the quarter from 23.6 per cent at the end of June. Oil and gas production in the quarter declined 2 per cent from a year earlier to 3.596 million barrels of oil equivalent.
China’s gas demand to rise to 580-670 bcm by 2030: Official
China’s gas demand will more than double by 2030 with the industrial sector the largest user at 26-30 per cent of total consumption by that time, a Chinese official said on Wednesday. Liu Xiaoli, a professor at China’s Energy Research Institute, said total gas demand would grow by 7.7 to 8.6 per cent a year between 2015 and 2030, reaching 580 to 670 billion cubic metres (bcm) in 12 years’ time. Liu is the Deputy Director of the Centre for Energy Economics and Development Strategy at the institute which is part of China’s National Development and Reform Commission of China, the government central planning agency. China recently decided to reduce air pollution, prompting a government-mandated switch to cleaner gas from coal for heating in parts of the country — part of a so-called “Blue Sky” initiative. This has led to a spike in its gas consumption and imports of liquefied natural gas (LNG). Liu told delegates at an LNG conference in London 80 cities would be covered by the next phase of the “Blue Sky” initiative from 29 cities last year, covering a third of China’s population and 40 per cent of its gross domestic production. While the industrial sector will be the biggest consumer of gas in China by 2030, with a rise to 175 bcm from 72.7 bcm in 2017, the power sector will be the biggest growth driver, she said. “The power sector will be the biggest contributor to incremental gas demand and newly incremental gas demand will be around 110 bcm for the outlook period,” she said. Installed gas-fired power capacity will jump 44 per cent between 2017 and 2020 to 110 gigawatts (GW) from 76.3 GW and will more than triple to 250 GW by 2030. Liu said China would no longer expand coal-fired power generation after 2020, with thermal power generated by new gas-fired plants. The breakdown of Chinese statistics and forecasts such as these from Liu is eagerly watched by the industry as such data from China are rare, delegates at the conference said. China’s scale is such that relatively fringe developments in the global gas industry are magnified — Chinese LNG and compressed natural gas (CNG) fuelled vehicles, for example, consumed 17.6 bcm of gas last year — more than the entire gas consumption of Belgium or all of France’s LNG imports. Nevertheless, such huge increases in gas consumption would not automatically translate to an equal boon for the LNG market. Liu underscored China’s focus on developing its domestic gas reserves — she said 44 per cent of its proven reserves were as yet undeveloped, with some 3.9 trillion cubic metres of gas remaining economically recoverable with current technologies. Domestic gas production will increase to between 170 bcm to 200 bcm by 2020 from 148 bcm in 2017 and to 260 to 310 bcm by 2030, she said.
BP on track to take FID on West African Tortue LNG project by year-end: CFO Gilvary
BP and its partner Kosmos Energy are on track to take the final investment decision for the West African Tortue LNG project by the end of 2018, BP CFO Brian Gilvary said Tuesday. The project — based on an estimated 15 Tcf (425 Bcm) of gas in an area straddling the Mauritania/Senegal maritime border — is expected to produce its first gas in 2022. New FIDs in the global LNG supply industry have been few and far between in recent years due to relatively low LNG prices and the slew of new projects starting up, but more investment decisions are expected as the LNG market looks likely to tighten from around 2021. “The project entered the FEED [phase] in April 2018, and we are still targeting FID at the end of 2018 and first gas in 2022,” Gilvary said during a conference call with analysts after the release of the company’s third-quarter results. In February, BP and US-based Kosmos moved a step closer to FID on Tortue LNG after the governments of Mauritania and Senegal signed an intergovernmental deal on the development. Gilvary said that in the first phase, Tortue LNG would have a capacity of 2.5 million mt/year before moving to peak production of 10 million mt/year. LNG FIDS Tortue LNG would add to the existing LNG export facilities in West Africa that include the six-train Nigeria LNG, Angola LNG and Equatorial Guinea LNG. A new floating LNG plant off Equatorial Guinea — the Ophir Energy-operated Fortuna LNG project — has, however, stalled with time running out for the UK-based operator to reach FID before the company’s license expires at the end of the year. But more FIDs are expected globally after Shell and its partners earlier this month took FID on the two-train, 14 million mt/year LNG Canada project. FIDs in 2019 could include the addition of four new mega LNG trains in Qatar, the Novatek-operated Arctic LNG 2 in Russia, the Anadarko-operated Mozambique LNG project and a handful of plants in the US. Shell’s head of integrated gas Maarten Wetselaar said last month that the global LNG market would tighten from late 2021 after a possible “soft” period from next summer. In its latest LNG outlook published in February, Shell said the world risked an LNG supply crunch by the mid-2020s due to the collapse in LNG-sector investment since the 2014 oil-price slump.
Enough supply of petroleum for countries to cut oil import from Iran: Donald Trump
President Donald Trump said on Wednesday in a presidential memorandum that he had determined there was sufficient supply of petroleum and petroleum products for countries to “significantly” reduce their purchase of crude oil from Iran, which is going to face US sanctions from November 5. In May, Trump pulled the US out of the 2015 landmark nuclear deal, the Joint Comprehensive Plan of Action (JCPOA) terming it as “disastrous”. Under the Obama-era deal, involving five permanent members of the United Nations Security Council and Germany, Iran agreed to stop its nuclear programme in exchange of relief from economic sanctions. Moments after coming out the deal, Trump signed fresh set of sanctions against Iran and warned countries against any cooperation with Tehran on its controversial nuclear weapons programme. In his presidential determination, Trump said “there is a sufficient supply of petroleum and petroleum products from countries other than Iran to permit a significant reduction in the volume of petroleum and petroleum products purchased from Iran by or through foreign financial institutions.” Trump’s presidential determination, not an executive order but a kind of directive issued by the White House to the members of his adminstration on some policy matters, comes less than 100 hours before the deadline set by him for countries like India to bring its purchase of oil to zero from Iran by November 4. India has expressed its difficulties in doing so given the galloping energy needs of its 1.3 billion people. More than 80 per cent of India’s energy needs are imported. But at the same time, India has taken steps to reduce its oil purchase from Iran, which has already declined substantially. Recently, senior US officials were in India for talks in this regard. However, US officials are tightlipped on the issue. The White House also did not immediately respond to question if India’s oil purchase reductions from Iran would be considered significant. Trump said he will continue to monitor the situation. Secretary of State Mike Pompeo on Wednesday said, on the Laura Ingraham Show, that on November 5, the US will put back in place sanctions that will be very severe on the leadership of Iran. He hoped that this will convince them to change their ways. Pompeo, on the another show, said that Iran was the world’s largest state sponsor of terror. “They were squandering the people’s money, the Iranian people’s money, on these silly malign activities. And our effort is to get them to change that behaviour”. State Department Deputy Spokesperson Robert Paladino told reporters that on November 5, at 12:01, sanctions that were lifted under the Iran nuclear deal will come back into full effect. “The sanctions that are reimposed on November 5th will target critical sectors of Iran’s economy, such as energy, shipping and the ship-building sectors, as well as the provision of insurance and transactions involving the Central Bank of Iran and designated Iranian financial institutions,” Paladino said. The Iranian regime is the world’s leading state sponsor of terror, and these sanctions are meant to cut off revenues that the Iranian regime uses to conduct terrorism and fund terrorist groups around the world, and that includes Lebanese Hizbollah, Hamas, Kata’ib Hizballah and the Taliban, he added. “These groups foment global instability, they use these funds to support their nuclear and ballistic missile programs, and these funds are used to line corrupt Iranian leaders’ pockets rather than help the Iranian people, who are the longest-suffering victims,” Paladino said. Meanwhile, in its report dated October 29, the independent CRS said India reduced its imports of Iranian oil substantially after 2011, lowering purchases to six per cent of its oil imports by 2013, from over 16 per cent in 2008, in the process incurring significant costs to retrofit refineries that were handling Iranian crude. “However, since sanctions were eased, India’s oil imports from Iran increased to as much as 800,000 bpd in July 2018—well above 2011 levels. Indian firms ended or slowed work on investments in Iranian oil and gas fields during 2012-2016, but reportedly resumed work after sanctions were lifted,” it said. After international sanctions were lifted, India reportedly also paid Iran the USD6.5 billion it owed for oil purchased during 2012-2016. “The degree to which Indian firms and the government of India will cooperate with reimposed US sanctions is not certain. Indian leaders assert that Iran did not violate the JCPOA and sanctions should not be reimposed on it,” the Congressional Research Service (CRS) report said. In June 2018, India and Iran agreed to use the rupee in order to maintain economic engagement. Nonetheless, major Indian refiners Reliance Ltd. and Indian Oil Corporation Limited – citing a decision by the State Bank of India to cease transactions with Iran as complicating efforts to stay engaged with Iran – have announced they are considering cutting oil buys from Iran. “India’s purchases of Iranian oil fell sharply from July to August 2018, and press reports say that the country might try to cut Iranian oil imports dramatically in November 2018, when US energy sanctions go back into effect,” the CRS report said.
Priority allocation of gas to power plants may end
The government plans to end priority allocation of natural gas to power plants, which would be a major setback to the already-stressed sector that gets 37 per cent of the total domestic supply. It could be a blow particularly to top power producer NTPC, which has seven gas-fired plants. The move, proposed by the ministry of petroleum and natural gas, seeks dismantling the existing pricing system for domestic gas and replacing it with a market-based discovery mechanism on a gas exchange by pooling the local fuel with LNG, sources said. A senior government official said the oil ministry has floated a Cabinet note proposing the new price discovery mechanism and has removed power plants from the priority allocation list. The other two sectors — city gas distribution and fertiliser — are proposed to be kept on the list. “The power ministry has vehemently opposed the proposal, saying power is a regulated sector and needs domestic gas allocation more than any other sector,” said the official. Another official said the price increase is still manageable, as NTPC can pass on the costs to consumers, but taking away the basket of gas allocation from the power sector will be a greater setback. Priority allocation of gas to power plants may end NTPC has seven gas-based power plants with a capacity of over 4,000 MW, which require up to 7 mmscmd. The power sector gets 39 per cent of the total domestic gas distributed, and NTPC consumes a large part of it. An NTPC official said the move will be a major setback for the company. “It will be a bad move for the company and the power sector as a whole. Most of our gas comes from ONGC. The investments made in gas pipelines by GAIL to supply gas specifically to us will be affected,” the official said. Data available with the Central Electricity Authority (CEA) showed the 24,812 MW gas-based power stations in the country generated higher than the target in September and in the financial year so far. The projects operated at a capacity of 23.3 per cent between April and September. While gas stations of central PSUs operated at around 30 per cent capacity, most of the private plants of companies like GMR Energy, SUGEN, Lanco Infra were shut. The private plants operated at an average 16 per cent plant load factor. ET had on October 24 reported that the government is planning a major gas pricing reform by permitting trading of all domestic supply on a local exchange to help discover market price for gas locally and render current gas price formula redundant.
HPCL continues to not recognise ONGC as its promoter
Oil Minister Dharmendra Pradhan’s assertion notwithstanding, oil refiner Hindustan Petroleum Corp Ltd (HPCL) continues not to recognise ONGC, its majority owner, as its promoter company. In a filing to stock exchanges on the company’s shareholding pattern as of the end of September, HPCL continues to list “President of India” as its promoter with “zero” per cent shareholding. Oil and Natural Gas Corp (ONGC), which earlier this year bought the government’s entire 51.11 per cent stake in HPCL for Rs 36,915 crore, is listed a “public shareholder”, owning “77.88 crores” shares or “51.11 per cent” shareholding of the company. Calls made to HPCL Chairman and Managing Director M K Surana for comments went answered. ONGC, which had to borrow Rs 24,876 crore for the acquisition that helped the government meet its disinvestment target for the 2017-18 fiscal, had made its displeasure clear about not being recognised as a promoter of HPCL. In a strongly worded letter to HPCL, it a couple of months back had warned of regulatory consequences of not recognising the majority shareholder as the promoter, sources privy to the development said. HPCL, however, has stuck to its gun and has refused to recognise ONGC as its promoter. When the issue first arose in August, Pradhan had clearly stated that ONGC is the new promoter of HPCL. ONGC, he had said, had invested in acquiring a majority stake in the company and so it is the promoter. “ONGC is the promoter of HPCL,” he had said. Pradhan’s comments followed Surana rejecting ONGC’s demand for being recognised as the promoter of the company. “Whatever we are doing, whatever we have done and whatever we will be doing will be as per our understanding of the statute and the guidelines and Companies Act and the SEBI guidelines… Beyond that who is interpreting whatever, it is his understanding of the situation. We need not subscribe to that,” he said. After ONGC bought out government stake, HPCL became its subsidiary. Since ONGC takeover in January, HPCL has made three stock exchange filings about the shareholding pattern of the company — the first on April 20, then on July 12 and finally on October 19. In all three, ONGC is shown as the public shareholder and President of India listed as the promoter. Sources said ONGC feels the HPCL management is bound to take corrective action to reflect the true picture. According to the Securities and Exchange Board of India’s rules, the entity that owns the controlling stake should be listed as promoter even if it was not the original promoter of the company. When Indian Oil Corporation (IOC) had bought the government’s stake in fuel retailer IBP Co Ltd, it was listed as the latter’s promoter in every instance after the deal. The same was the case when IOC acquired a majority stake in Chennai Petroleum Corp Ltd (CPCL). Surana has retained the title of Chairman and Managing Director despite corporate governance structure require a group having just one chairman and subsidiaries being run by managing directors and CEOs. ONGC’s overseas subsidiary, ONGC Videsh Ltd, is headed by a Managing Director and CEO. Its refinery subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL), which is listed on BSE, too is led by a Managing Director and CEO. ONGC Chairman is the head of boards of both the companies. Since acquiring a majority stake in HPCL, ONGC has only been able to appoint one director to that firm’s board. ONGC has appointed its Director (Finance) Subhash Kumar to HPCL board. He has replaced Sushma Taishete Rath, Joint Secretary in the Ministry of Petroleum and Natural Gas. Prior to this, HPCL had two government nominee directors — Rath and Sandeep Poundrik, Joint Secretary (Refineries) of the Oil Ministry. After the appointment of Kumar, there remains only one government nominee director on HPCL board.
US agrees to grant India waiver from Iran sanctions
The US has broadly agreed to grant India a waiver from Iran sanctions after the Indian side decided to cut oil imports from Tehran by about a third in 2018-19, sources familiar with the matter said, adding that an official announcement could be made over the next few days. The US plans to re-impose oil-related sanctions on Iran on November 4 to choke the Islamic Republic’s biggest source of income and pressure it to renegotiate a new nuclear deal. Any country, or company, trading with Iran without US consent after sanctions kick off risks getting cut off from the American financial system. The US has insisted all along that it wanted every country to reduce oil imports from Iran to zero eventually, but was open to country-specific waivers that would allow limited imports by those pledging ‘significant’ cut. India and other key importing countries have been engaged for months with the US for a waiver. “India and the US have broadly agreed on waiver. India will cut import by about 35% from last year (2017-18), which is a significant cut,” a source said. India had imported about 22 million tonnes of crude oil from Iran in 2017-18 and initially planned to raise that to about 30 million tonnes in 2018-19. But, as a condition of waiver, Indian oil firms will reduce their imports to 14-15 million tonnes, the source said. This would mean 1.25 million tonnes a month up to March 2019, the same as companies ordered for October and November, the source said. State oil firms are yet to decide on how this quantum will be split between them. A waiver will come as a big relief to Indian Oil and MRPL, the two largest Iranian oil consumers. How companies will pay for Iranian oil is still being negotiated between India and Iran, sources said, adding that it’s likely that the two countries will stick to the existing mechanism under which 55% of payment is made in euro and 45% in rupee through UCO Bank. Under this, rupee is used for import of rice, drugs, and other products from India while the balance proceeds in rupee and euro sit idle in the Indian bank waiting for sanctions to go. The Indian side, while building its case for a waiver, assured the US that this payment mechanism ensures Iran can’t use oil money from India for any terror-related activity, a key American concern. During the negotiations, India also told the US that it would like to import more American oil if it came on competitive terms, sources said. India and Iran still have to figure out shipping and insurance details for a smooth trade. Currently, Iran provides its tankers as well as insurance for oil cargoes to India. The US sanctions have driven away Indian and international shippers and insurers from extending their services for Iranian oil imports. Refineries using Iranian oil have also faced insurance issues during renewals in recent months. Indian and the US officials have been negotiating for months on terms of waiver from sanctions. India prefers Iranian oil as it comes cheap and suits many refineries’ technical configuration.
Equinor seeks oil, gas, renewable investments in India -CEO
Norwegian energy firm Equinor is exploring investment opportunities in India, its chief executive told Reuters on Wednesday. “We are looking at India both from oil and gas, but also from the renewables. It’s a very early (stage), but we need to be on the ground,” Eldar Saetre said on the sidelines of a business conference. Separately, the company should also consider investing in the liquefied natural gas (LNG) projects, the CEO said. “We look for opportunities in LNG, but it’s not something we need to grow, need to develop … it’s a part of opportunities that we are exploring,” Saetre added.