Moderation in R-LNG prices will improve profitability for urea players: ICRA
With moderation in the R-LNG (Regasified-liquefied natural gas) prices, profitability for urea players will improve along with lowering of the working capital requirements, ratings agency ICRA has said. Natural gas is the key raw material for manufacturing urea and constitutes about 70 per cent of the total cost of production of the fertiliser. The fertiliser sector receives natural gas under the pool price mechanism wherein all the players receive gas at same cost which is the weighted average of the cost of gas consumed by the urea manufacturers. The pooled price for the fertiliser sector has risen substantially over the last 1 ½ years. Imported R-LNG prices has been on an uptrend driven by strong Chinese demand as the country partly replaced coal with natural gas as a key source of energy to combat pollution. “Spot LNG prices have already moderated by about 13 per cent towards the beginning of December 2018 from the recent peak of $11.5/mmbtu achieved in the beginning of November 2018,” said K Ravichandran, senior vice-president and group head, corporate ratings, ICRA. “The LNG prices are expected to moderate further to around $8.5-9/mmbtu by January 2019 with similar levels expected for entire Q4 FY2019. Given the outlook for the R-LNG prices, we expect pooled price to reduce to $10.5/mmbtu for Q4 FY2019 from current level of $ 11.8/mmbtu,” he said. The fall in natural gas prices would result in lower subsidy receivables thus reducing working capital borrowings. This would lower the interest outgo for urea manufacturers. “While energy savings would also decline with the fall in gas prices, the impact of the same is relatively smaller given the energy norms for several urea units have already been tightened in accordance with the New Urea Policy (NUP)-2015,” ICRA said.
CNOOC inks agreements with 9 firms for oil, gas exploration in South China
* CNOOC Ltd said on Tuesday it has signed strategic agreements with nine foreign companies to conduct exploration at two oil and gas blocks in southern China * The nine companies are: Chevron Corp, ConocoPhillips , Equinor, Husky Energy Inc, Kuwait Foreign Petroleum Exploration Co, Australia’s Roc Oil, Royal Dutch Shell, SK Innovation and Total * Exploration will take place in Block A and B in the Pearl River Mouth Basin offshore Guangdong province * Block A covers an area of 15,300 square metres (165,000 square feet) and is in water depths of 80 to 120 metres (262 to 394 feet) * Block B has an area of 48,700 square metres with water depth ranging from 500 metres to 3,000 metres
ONGC’s $1.7 billion deep sea award perks up oilfield services market
ONGC’s $1.7-billion work package, one of the biggest deep sea contracts offered in recent years, for its largest offshore block has perked up a listless global oilfield services industry and is likely to see fabrication of crucial underwater kits in the country for the first time. The state-run explorer has awarded the contract, its single-largest ever, to a consortium of BGHE (Baker Hughes, a GE company), McDermott International and LTHE (L&T Hydrocarbon Engineering for block KG-DWN-98/2 off the Andhra coast. The block has the potential to reduce India’s import dependence for oil and gas by 10 per cent. India currently imports 82 per cent of oil need and 45 per cent of gas requirement. Sources said under the local content clause of the contract awarded in October, BHGE and LTHE are expected to jointly fabricate ‘manifolds’ — structures laid on the seabed for channelising oil and gas from different wells into a single stream — locally, which will be a first for the country. McDermott will also use its engineering and other resources in Chennai besides Kuala Lumpur in Malaysia. “Built on a unique successful partnership model with McDermott and LTHE, the project will deliver leading technologies to ONGC across a full subsea scope,” Neil Saunders, head of of BHGE’s oilfield equipment unit, had said in a statement when the contract was awarded. Given the project’s size, complexity and importance of starting production on time, ONGC took the innovative step to combine the different work packages into a single integrated tender to eliminate interface issues and ensure closer monitoring of work flow. Interface issues among contractors have dogged several projects for which packages were tendered separately in the past, resulting in time or cost over-runs. ONGC expects to start producing gas by December 2019 and oil by March 2021. Total peak gas production rate is projected at 16 million cubic meters per day and peak oil output is pegged at 80,000 barrels a day. According to McDermott, the equipment and structures will be laid out at water depths ranging from 984 feet (300 metres) to 10,500 feet (3,200 metres) for connecting 34 wells in the block. This makes it technologically challenging projects in India’s east coast.
Oil prices fall for third straight session amid supply glut worries
Brent crude prices dropped more than $1 on Tuesday, falling for a third straight session, as reports of inventory builds and forecasts of record shale output in the United States, now the world’s biggest producer, stoked worries about oversupply. Concerns over future oil demand amid weakening global economic growth and doubts over the effectiveness of planned production cuts led by the Organization of the Petroleum Exporting Countries (OPEC) also pressured prices, traders said. International benchmark Brent crude oil futures were at $58.62 per barrel at 0615 GMT, down 99 cents, or 1.66 percent, from their last close. Brent, which has slipped more than 4 percent in the past three sessions, fell to as low as $58.10 a barrel on Tuesday, down more than $1.50 from the previous day’s close. U.S. West Texas Intermediate (WTI) crude futures were down 91 cents or 1.82 percent at $48.97 per barrel. Both U.S. crude and Brent have shed more than 30 percent since early October due to swelling global inventories, with WTI now trading at levels not seen since October 2017. “Rising U.S. shale production levels along with a deceleration in global economic growth has threatened to offset OPEC+ efforts as markets weigh the potential of looser fundamentals,” said Benjamin Lu Jiaxuan, an analyst at Singapore-based brokerage firm Phillip Futures. “Market confidence remains extremely delicate amidst looming economic uncertainties as investors contemplate on weaker fuel demand beyond 2018,” he said. Oil production from seven major U.S. shale basins is expected to climb to more than 8 million barrels per day (bpd) by the end of the year for the first time, the U.S. Energy Information Administration said on Monday. Meanwhile, inventories at the U.S. storage hub of Cushing, Oklahoma, delivery point for the WTI futures contract, rose by more than 1 million barrels from Dec. 11 to 14, traders said, citing data from market intelligence firm Genscape on Monday. With oil prices falling, unprofitable shale producers will eventually stop operating and cut supply, although that will take some time, analysts said. The United States has surpassed Russia and Saudi Arabia as the world’s biggest oil producer, with overall crude production climbing to a record of 11.7 million bpd. Supply curbs agreed by OPEC and its Russia-led allies might not bring about the desired results, though, as U.S. output goes on increasing and Iran keeps pumping out more oil, analysts said. Some have also expressed doubts over Russia’s commitment to the cuts agreed with OPEC. Oil output from Russia has been at a record high of 11.42 million bpd so far in December. “If Russia can be a bystander, it benefits them greatly,” said Hue Frame, portfolio manager at Frame Funds in Sydney. “Although they will see a reduction in profitability, they will gain market share, which is generally more important in the oil market.”
Cabinet to take call on methanol policy in next 2 months, may allow import
In a major push to the clean energy mission, the Union Cabinet is likely to take up a comprehensive methanol policy within the next two months. The policy is likely to include proposals to import methanol and addresses subsidy-related issues such as the one involving the use of methanol as a cooking gas. This comes close to the heels of Assam Petrochemicals initiative to start supplying methanol cylinders to 500-odd families on November 5, using methanol cooking stoves. The fuel costs consumers Rs 600 a cylinder, compared to Rs 809.5 for non-subsidised cylinders in the market. NitiAayog has also come out with a master plan to introduce methanol as the preferred cooking fuel, reaching out to 50,000 households in Assam and 20,000 below-poverty-line families in eastern Uttar Pradesh. The Cabinet will also clear the setting up of four dimethyl ether (DME) plants in various parts of the country. DME can be a substitute for diesel and liquefied petroleum gas (LPG). “By 2022, we expect methanol demand in the country to be 10 million tons, once we start using it in sectors like transportation, cooking and waterways. To meet this initial demand, we are planning to import one million tons of methanol during the financial year 2019-20,” said V K Saraswat, member, NitiAayog. Though India has a capacity of 1.2 million tons, current capacity utilisation is only about 700,000 tons. Major methanol producers in India are Gujarat Narmada Valley Fertilizer and Chemicals (GNFC), Rashtriya Chemicals and Fertilizers (RCF), Assam Petrochemicals and National Fertilizers. India will be looking at countries like Iran, Saudi Arabia, Qatar and China for import of the fuel. The country also plans to tap is huge coal reserves to extract methanol, and is eyeing also stranded natural gas blocks as well. At present, India doesn’t have a commercial coal-to-methanol plant. However, state-run Coal India Ltd is working on such a project at Dankuni in West Bengal and a coal-to-gas project in Talcher, Odisha. The ministry of road transport and highways has now cleared methanol (M15 grade) as a fuel for transportation as well. China and Israel are among the major countries that have accepted methanol as a transportation fuel. According to NitiAayog, Indian Oil Corporation’s research wing is working on the right blend for using of methanol on vehicles in India. Based on current estimates, a 1,600-tonnes-per-day of methanol plant will require a capital expenditure of Rs 12 billion and would be able to produce methanol at Rs 17-19 per litre.
Can prices hit multi-year highs again?
Oil prices have crashed more than 30 percent since hitting a four-year high of almost $87 a barrel in early October. Worries over glut gripped the market and concerns over global economic growth made sentiment turn negative. The threat of supply shortage from Iran on account of renewed US sanctions after Trump’s rescinded the nuclear deal lifted the Asian benchmark Brent oil to multi-year highs. However, the recent decision from Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC allies lead by Russia has creased widespread anomalies in pricing. Despite pressure from the US to continue the present supply status quo, Saudi Arabia, the de facto leader of OPEC and other top oil producers have decided to cut the global oil output. The OPEC members will curb 0.8 million bpd output versus its October levels while the non-OPEC allies will reduce 0.4 million bpd. Anyhow, a combined cut of 1.2 million barrels per day against an earlier expectation of 1 million bpd will be reflected in the global markets by January. Though top producers like Iran, Libya, Venezuela, and Qatar are exempted from the supply cut deal, the decision is perhaps to support global prices. Saudi Arabia, the leading producer in the OPEC, is expected to cut output more than other peers in the grouping. Reportedly, the country would reduce its output to 10.2 million bpd in January, going far beyond a 2.5 percent reduction from its October levels. The Russia-led non-OPEC allies have also agreed to slash output. Russia is the world’s second largest oil producer, contributing about 10 percent of global production. Meanwhile, the threat of supply glut is still in the market. Iran, the third top producer of OPEC is now set to push exports by offering larger discounts to its buyers. The U.S imposed sanctions on Iran from November but unexpectedly allowed a broad exemption to major Asian oil consumers which permits them to continue import from Iran. Earlier, oil exports from Iran fell drastically, about 60-80 percent due to limited imports from key Asian buyers like China, India, Japan, and South Korea. Presently, export from the country is set to rebound using the waiver from US sanctions. China, the chief importer of Iranian oil started imports in December and Japanese and South Korean buyers are preparing to resume purchase from January. Indian refineries are also planning to buy larger quantities by January after a gap of six months. Simultaneously, concerns over demand from top Asian markets may weigh prices later. Asia’s largest economy, China has recently reported a slow growth rate. A decline in manufacturing numbers and a drop in car sales indicates that the trade conflict with the US is starting to add to the strain on the world’s largest economy. The Japanese economy fared poorly in the third quarter due to natural disasters and a decline in exports. A feeble Indian currency would result in higher cost for imports, which may hit demand for oil. Car sales in the country are also expected to register a decline this year. Looking ahead, a sudden recovery in prices is still on the cards but, the continuing deceleration of economic activity may curtail energy demand later. Shrinking demand growth and elevating U.S shale production pointed towards an emerging surplus which may also have an adverse impact on market sentiment. On the prices front, the global benchmark US WTI is likely to turn higher as long as the strong support of $48 a barrel is undisturbed. An unexpected drop below the same would open room for long liquidation pressure. Disclaimer: The author is Head of Commodity Research at Geojit Financial Services. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management.
Domestic gas pricing to be freed as global rates decline
In one of the last reform initiatives in the oil and gas sector, aimed at scaling up local production from fields of ONGC, OIL, Reliance and Vedanta, the government is set to open pricing of domestic gas. According to sources in the oil ministry, freeing up gas pricing is being looked in the present context where global oil and gas prices have fallen. A panel, led by the NitiAayog vice-chairman, has also suggested free-market pricing for natural gas produced from domestic fields to boost output. “We are looking at proposals on bringing out domestic gas production from pricing regulations. A cabinet note proposing changes would soon be finalised to put in place the new system at the earliest,” said an official privy to the development. But the removal of price regulation in the gas sector will be done gradually as suggested by the Kelkar panel. It means the system of regulated gas pricing for domestic production would continue for at least 3 more years, but during the period producers would be given freedom to sell a portion of the total output under negotiated pricing deals (market determined) with their customers. The NDA government’s reform initiatives have already allowed free gas pricing for production from small and marginal blocks, difficult high pressure/deep water blocks and output from the newly bid blocks under the hydrocarbon exploration licensing policy (HELP). The pricing and marketing from pre-NELP exploration blocks and those under the new exploration licensing policy (NELP) are still regulated. This will be lifted gradually, once the new policy is approved. The current gas pricing method for pre-NELP and NELP blocks is based on a 2014 formula that takes average rates from global trading hubs to determine domestic prices twice a year – in April and in October. Under the formula, the current gas price is at $ 3.36 per million metric British thermal unit (mmBtu). Gas producers have been critical of this low pricing that impacts upstream investments. “It’s about time when the government frees up gas pricing, if it’s serious about developing a gas-based economy. Apart from lifting pricing restrictions on domestic gas, the government should also do away with price caps for market-determined price. It would enable market forces and competition to offer best available prices to consumers,” said a senior official of a private sector oil and gas explorer. At present, producers can charge market rates for gas from deep sea and other difficult fields but rates must stay below a government-prescribed ceiling that’s linked to prices of alternative fuels. The price ceiling is currently at $7.67 per mmBtu. The new policy will look into this ceiling price as well, sources said. India is looking at investor-friendly policies in the oil & gas sector to attract investments that has remained miniscule for the last several years. Due to this, domestic oil output has stagnated and gas production has failed to pick up. In fact, domestic gas output shrank by 1 per cent in April-October of FY19 raising the demand of expensive imported liquefied natural gas (LNG). The government is aiming to increase gas production by two-and-a-half times by 2030, which would help raise the fuel’s share in the energy mix to 15 per cent from 6 per cent. At present, of the 310 exploration blocks awarded under various bidding rounds (discovered field, pre-NELP and NELP), 189 blocks/fields are operational. 17 blocks under nomination are being operated by Oil and Natural Gas Corporation and Oil India Limited. The petroleum exploration licences (PEL) for domestic exploration and production of crude oil and natural gas were granted under four different regimes over a period time: nomination basis – PEL, pre-NELP discovered field, pre-NELP exploration blocks and NELP. As many as 117 entities — 11 public sector undertakings, 58 private firms and 48 foreign companies — are operating in these blocks after the ninth NELP round.
500 compress biogas plants to come up by 2023: Dharmendra Pradhan
Union Minister of Petroleum and Natural Gas Dharmendra Pradhan on Sunday said plans are afoot to set up 5,000 compressed biogas (CBG) plants across the country by 2023. The Centre intends to move towards gas-based economy by increasing the share of natural gas in India’s energy basket from present 6-7 per cent to 15 per cent by 2022. With the rising demand for natural gas in transport and industrial sector, CBG has been identified as a potential route, Pradhan said. Speaking at a road show organised by three oil marketing companies here to sensitise the stakeholders to participate in the SATAT (Sustainable Alternative Towards Affordable Transportation) initiative, the Petroleum Minister said the proposed CGB plants meant for extracting biogas from agricultural residue, cattle dung, sugarcane press mud, municipal solid waste, sewage treatment plant waste and municipal solid waste will have an estimated annual gas production of 15 million ton. He said the OMCs have already conducted road shows in Chandigarh, Lucknow and Pune to sensitise the stakeholders and they have received an overwhelming response. Noting that Odisha has great potential to generate CBG, Pradhan said with an investment of about Rs.1700 billion, this initiative is expected to generate direct employment for 75,000 people and produce 50 million tons of bio-manure for crops. He said CBG is a replacement for natural gas and can be used in the transportation sector in place of compressed natural gas (CNG). Presently, consumption of natural gas in India is around 140 million metric standard cubic meter per day (MMSCMD) out of which domestic production is only 70 MMSCMD and remaining 70 MMSCMD is imported which is around 50 per cent of total consumption. As city gas infrastructure is laid in 19 district of Odisha, the Union Minister said the State will have 1,730 km gas pipeline with investment of Rs 45 billion. Out of this, 900 km will be for city gas pipeline worth Rs 5 billion. “It is estimated that around 500 CBG plants in Odisha may come upon immediate basis. They can supply gas to our PSUs or to local industries. It is added value to the Bargarh 2G Ethanol Plant, being set up by BPCL,” he said. Chairman of Indian Oil Corporation Limited (IOCL) Sanjiv Singh said ‘SATAT’, a transformational initiative in the green energy space, aims to revolutionise transport sector by introducing CBG in this segment. It will help India achieve self-reliance in the energy sector by enabling the country in drastic reduction of crude imports which currently constitute over 80 per cent of its total energy consumption.
Kuwaiti oil minister’s resignation accepted: Media reports
Kuwaiti oil minister Bakhit al-Rashidi’s resignation has been accepted by the prime minister, local newspaper Al-Anbaa said, citing sources. Rashidi’s departure would not imply any change in the oil policy of Kuwait, which is decided by the country’s Supreme Petroleum Council. Rashidi was not immediately available to comment and there was no official confirmation of his resignation. Al-Anbaa didn’t say when Rashidi presented his resignation to prime minister Jaber Mubarak Al-Sabah.
Fuel tax disparity could lead to Rs 700-cr revenue loss to Punjab: Dealers
Petroleum dealers of Punjab on Monday urged Finance Minister Manpreet Singh Badal to bring uniformity in taxation on fuel, saying that high tax rates in the state was leading to rampant smuggling of petrol and diesel which would cause a revenue loss of Rs 700 crore to the state exchequer. A delegation of the Punjab Petroleum Dealers Association met Badal here and apprised him of problems being faced by fuel pump owners because of prevailing high tax rates in Punjab in comparison to neighboring states. Association member Ashwinder Singh Mongia said Punjab levies 17.28 on diesel and 36.85 on petrol which was more than what neighboring states Himachal Pradesh, Haryana, Jammu and Kashmir and UT Chandigarh levy on petroleum items. Citing an example, he said that the difference between retail petrol price in Punjab and Chandigarh was Rs 9.53 per litre and similarly diesel is costlier by Rs 3.85 per litre in Punjab than Chandigarh. “Because of a big difference between the retail price of fuel, rampant smuggling of fuel is taking from Chandigarh to several parts of Punjab. Besides, it has led to a decline in the sale of petroleum products in the state as well. If it goes unabated, then the state will face a revenue loss of about Rs 700 crore in a current fiscal year,” said Mongia. “Punjab has lost 175 crores of revenue collections in 2017-18 whereas other states have grown by 9 to 20 percent during the same period. This is attributed to the shifting of business, loss of sale and rampant smuggling. Other states are growing at the expanse of Punjab,” he said. He further said other states are gaining revenue at the cost of Punjab and the petrol pumps in the state are bleeding. “About 1,600 petrol pumps situated in border areas and the highways shall soon shut down if immediate steps are not taken,” Mongia said.