Lenders make a beeline for IOC loan blockbuster
State-owned Indian Oil Corporation bumped up its latest five-year borrowing to $1.7 billion, its largest offshore loan on record, following an overwhelming response from lenders despite seemingly tight pricing. A total of 17 lenders joined mandated lead arrangers and bookrunners State Bank of India and Westpac on the deal, in a rare example of a widely syndicated loan for an Indian state-owned entity. The timing of IOC’s latest loan and the richer pricing it offered than that of its previous borrowing proved to be the big draws. “We didn’t have many other choices due to the lack of the deal flow at the end of last year and we would like to book some assets in the first half of this year to meet our target returns,” said a senior loan banker at a Taiwanese bank. For a loan that offered a top-level all-in pricing of 114bp based on an interest margin of 100bp over Libor and an average life of 4.75 years, the successful outcome is a feather in the cap for the borrower and the leads. “While the pricing is still tight, it’s more generous compared to IOC’s previous visit to the loan market in 2017,” said a loans banker at a top-tier Taiwanese bank. “Overall, we consider those state oil-and-gas companies from India as strong credits, and we’ve been lending to those assets in the past few years.” In December 2017, IOC had paid a top-level all-in of 91bp based on a margin of 70bp over Libor for a $300 million five-year borrowing (with the same average life of 4.75 years). That deal reset the benchmark for offshore loans from India’s energy sector at the lowest all-in pricing on record for that tenor since the 2008 global financial crisis. However, that loan attracted only four lenders other than original MLAB Bank of Nova Scotia, with Export Development of Canada taking up $165 million of the facility. Indian state-owned oil and gas companies have scaled back their offshore borrowings, including bilateral facilities, in recent years, from $7.28 billion in 2017 to $4.12 billion in 2017 and just $2.15 billion last year. However, in 2019, the tally could go higher again following the Reserve Bank of India’s relaxation of rules on external commercial borrowings (ECBs) for companies from that sector last October. Indian state-owned oil marketing companies can now raise up to $ 10 billion combined through ECBs for working capital purposes with minimum average maturities of three to five years without the need for regulatory approval. The RBI has also waived the individual limit of $ 750 million-equivalent per financial year and the mandatory hedging requirements. CONTRASTING FORTUNES IOC’s syndication success also stands in stark contrast to State Bank of India’s $500 million five-year loan, which closed in early February to a tepid response despite paying higher pricing. Only four banks joined SBI’s loan, which offered much richer top-level all-in pricing of 128bp based on a margin of 115bp over Libor and an average life of 4.625 years. Market participants attributed the lacklustre response on SBI’s loan to deal fatigue given how frequently India’s largest bank has borrowed in the offshore markets in the last few years. “There’s too much SBI paper in the market,” said a Singapore-based syndicated loans banker close to the deal. “But we are happy to close the deal with some banks as opposed to none.” Like IOC, SBI also had to pay up for its most recent borrowing. Last July, the Indian bank closed a US$750m three-year loan with the nine MLABs failing to bring in any lenders in general syndication. That deal had offered a top-level all-in pricing of 90bp based on a margin of 70bp over Libor and a 2.6-year remaining life.
India’s diesel demand to hit record highs in 2019 as country goes to polls
India’s diesel consumption may rise to a record this year on increasing infrastructure spending by the current government as it tries to hold off challengers in general elections that will be held over April and May. Surging diesel consumption in India, the world’s third-largest oil user, underscores the country’s importance as a driver of global oil demand. Amid increasing concerns that crude demand growth may slip in 2019 because of slowing economic growth, India’s burgeoning fuel consumption may help underpin oil and fuel prices. Analysts at Fitch Solutions and consultants Wood Mackenzie forecast India’s diesel demand to rise in 2019 by 5.7 per cent and 6.4 per cent, respectively, from 2018. The country consumed a record 6.9 million tonnes of diesel a month in 2018, or about 1.7 million barrels per day (bpd), data from the Ministry of Petroleum showed. “There is strong energy demand which is bound to happen because of different sectors… We are a diesel driven economy,” said Sanjiv Singh, chairman of Indian Oil Corp, the country’s top refiner.India’s diesel consumption may rise to a record this year on increasing infrastructure spending by the current government as it tries to hold off challengers in general elections that will be held over April and May. Surging diesel consumption in India, the world’s third-largest oil user, underscores the country’s importance as a driver of global oil demand. Amid increasing concerns that crude demand growth may slip in 2019 because of slowing economic growth, India’s burgeoning fuel consumption may help underpin oil and fuel prices. Analysts at Fitch Solutions and consultants Wood Mackenzie forecast India’s diesel demand to rise in 2019 by 5.7 per cent and 6.4 per cent, respectively, from 2018. The country consumed a record 6.9 million tonnes of diesel a month in 2018, or about 1.7 million barrels per day (bpd), data from the Ministry of Petroleum showed. “There is strong energy demand which is bound to happen because of different sectors… We are a diesel driven economy,” said Sanjiv Singh, chairman of Indian Oil Corp, the country’s top refiner. “The bottom-line remains that energy demand is bound to grow. We’re seeing GDP at more than 7 per cent, (and) … a lot of urbanization,” Singh added. India’s economy is expected to grow by 7.2 per cent in the 2018/2019 financial year, which runs from April to March, versus 6.7 per cent the previous year, according to government data. “Tied to a constructive GDP outlook – and alongside the country’s positive demographics, low vehicle penetration and loose monetary policy – is our forecast for rapid growth in vehicle sales, which again will be positive for diesel,” said Peter Lee, an analyst at Fitch Solutions, adding that diesel cars account for nearly a quarter of new vehicles in India. According to 2015 data, the latest available, from the International Organization of Motor Vehicle Manufacturers, India held 22 cars per 1,000 people versus 821 cars per 1,000 people in the United States. ELECTION BOOM Election rallies, the deployment of polling officers and security officers will add to the diesel demand boost from infrastructure projects that the ruling Bharatiya Janata Party have planned ahead of the polls. The country’s interim budget unveiled earlier this month allocated 190 billion rupees ($2.67 billion) for building roads in the countryside, where two-thirds of Indians live. “Increased travel activity for campaigning and implementation of infrastructure projects ahead of the elections will bolster diesel demand in the first half of 2019,” said Aman Verma, a research analyst at Wood Mackenzie. During the last general elections in 2014, monthly diesel sales averaged 6.2 million tonnes during the polling months, 7 per cent higher than the monthly average sales that year. The implementation of a nationwide goods and services tax (GST) has also been beneficial for diesel demand. “The GST has led to the removal of interstate taxes. This is a structural shift, resulting in increased demand for heavy and medium-duty trucks to achieve economies of scale and operational efficiency,” Wood Mackenzie’s Verma said. Indian sales of commercial vehicles, which largely run on diesel, rose to a record last year, and Jan. 2019 sales climbed to 87,600, a record high for this time of the year, according to data on Refinitiv Eikon. India’s diesel expansion will likely continue despite rising air pollution concerns, especially in the capital of New Delhi. The country’s fuel standards have improved, removing much of the sulphur from the diesel pool. By April, the New Delhi capital region will adopt the so-called Bharat VI standard that is equal to the most stringent European standard, which the rest of the country will adopt next year. Diesel consumption also faces increasing competition from electric vehicles (EV). The Indian government has set a target of EVs making up 30 per cent of new car and motorcycle sales by 2030 from less than 1 per cent today. At the moment though EVs are not making much of an impact in India. Electric car sales actually declined by 40 per cent to a mere 1,200 units in financial year 2018 over financial year 2017, although electric two-wheeler sales rose 138 per cent to 54,800 units during the same period, according to Wood Mackenzie.
IGL selects Genesis Gas Solutions for prepaid metering system
Indraprastha Gas Limited (IGL) has selected Genesis Gas Solutions for the roll-out of its prepaid smart gas metering system. This is the first time that this technology is being deployed by any city gas distribution company in the country. The new smart metres supplied by Genesis Gas Solutions in partnership with Tata Communications’ LoRaWAN Internet of Things (IoT) network will enable customers to monitor their gas use more accurately in real-time against available credit and pave the way for greater operational efficiency for IGL. Tata Communications already has an established the IoT network in Delhi NCR, which has now been extended to Rewari. With low energy consumption of LoRaWAN, smart metres for gas usage can be installed independent from the main power source – with a battery life of up to 10 years. This has helped IGL overcome some of the key limitations of using existing post-paid technology solutions such as locked premises, estimated/wrong billing, reversal of bills and tampering of metres. As the first stage of deployment, 5,000 prepaid smart gas metres have been installed in Rewari. IGL’s Managing Director E.S. Ranganathan said: “By implementing this smart metering solution, we have been able to eliminate human errors caused by manual metre reading, optimise capacity planning and improve cash flows.” V S Shridhar, Senior Vice President and Head for IoT at Tata Communications, said technology advancements such as IoT are laying the foundation of Digital India and the future is smart. “Smart metering is gathering pace in the energy market, boosting efficiencies and enhancing customer experience.” Tata Communications is building the foundation for IoT in India with the world’s largest IoT network, spanning nearly 2,000 communities and touching over 400 million people. The company has rolled out the LoRaWAN network in 45 cities, with more cities planned for implementation over the next two years.
IGL adding record number of PNG users this fiscal
Indrapastha Gas Ltd is on track to add over 0.2 million new piped natural gas (PNG) connections this fiscal. This will be the highest number of piped gas connections disbursed by the gas retailer in a year. Rapid rise “We will be closing the current financial year with the highest ever number of new connections added in a year. This year there will be 0.210 million new connections. Till now nearly 0.178 million new connections have been disbursed and we are adding 900-1,000 connections every day,” Indraprastha Gas MD ES Ranganathan told BusinessLine. As of December 2018, IGL had 1.029 million residential consumers and 4,095 industrial or commercial customers, and the company reported a consumption of 403 million standard cubic meters of natural gas by its PNG consumers. Under IGL’s current sales volume mix, Compressed Natural Gas (for vehicles) accounts for 75 per cent of the total while commercial and industrial units command 11 per cent. Sales to other city gas distribution companies account for 8 per cent and residential consumers, just 6 per cent. But IGL has been assured allocation of domestic natural gas from the Centre to meet the entire needs of the CNG and PNG domestic segments. Attractive proposal The lower price of domestic gas makes the economics of switching to gas more attractive, driving growth in the domestic segments of CNG and PNG. On an average, domestically produced gas is sold at half the price of imported gas, or even lesser. IGL has also formed a long-term contract for regasified LNG to meet the piped natural gas (industrial and commercial) demand. It is also buying short-term gas from the open market. “On an average, every household consumes 0.34 kg of gas per day. The total incremental gas demand this year will be 60,000 cubic meters per day,” Ranganathan said.
China to produce 30 bcm of biogas, replace coal in rural regions
* China set a target to produce 30 billion cubic meters (bcm) of biogas from agricultural waste and manure by 2030 and reduce coal consumption in rural regions by 50 million tonnes, the state planner said on its website on Friday * Efforts to produce biogas will help China meet its growing requirement for natural gas and cut the country’s demand for liquified natural gas imports, the state planner said
Even China may not be able to soak up all 2019’s new LNG: Russell
Not even China’s voracious appetite for liquefied natural gas may be enough to absorb the additional supplies hitting the market this year, with the price of the super-chilled fuel potentially a casualty. While China’s LNG imports got off to a rollicking start in 2019, it’s unlikely that will match the 41-percent growth experienced in 2018. Imports were 6.58 million tonnes in January, a record-high and up 27.8 percent from the same month in 2018, according to customs data released on Feb. 23. But the sharp rise in January imports is likely to unwind in coming months as much of the LNG is being used in coal-to-natural gas switching projects that run out of steam as the northern winter ends. Some 3 million Chinese homes were switching from coal heating to natural gas this winter, boosting demand for LNG. However, this demand drops sharply after the winter heating period ends on March 15. China will likely increase its LNG demand by about 8 million tonnes in 2019, Nicholas Browne, director of Asia gas and LNG at consultants Wood Mackenzie, told the LNGgc Asia conference in Singapore this week. While other analysts at the event were somewhat more optimistic about the prospect for increased demand from China, none were forecasting that the 15.7 million tonne jump seen in 2018 from 2017 would be repeated. The problem for the LNG market is that it’s likely that more than 30 million tonnes of additional LNG supply will be available in 2019. Poten & Partners head of business intelligence Jason Feer told the LNGgc Asia event that his company expected 33 million tonnes of new supply in 2019, but only 16 million tonnes of extra demand. Wood Mackenzie’s Browne said a total of about 70 million tonnes of new LNG would reach the market this year and next, driven by the full ramp-up of the last of the eight new Australian plants and by the start of new U.S. projects, including Kinder Morgan’s Elba Island and Sempra’s Cameron venture. LONG-TERM GOOD, SHORT-TERM BAD While the demand outlook over the next few years suggests that the new LNG supply will eventually be absorbed, the problem for the industry is 2019, and possibly part of 2020. While there is some potential for India and other emerging buyers in Asia to take more of the fuel, the outlook for traditional big buyers Japan and South Korea is more muted. Increasing nuclear generation in Japan is likely to result in lower LNG imports, although it will keep its status as the top buyer for several years yet. Energy policy in South Korea is now heavily tilted toward renewables, and the country has already lost second spot among LNG importers to a surging China. Overall, it seems unlikely that Asia will be able to absorb all the new LNG capacity coming to the market this year. It’s possible that demand could be boosted if prices weaken further, but there are also limitations to how much extra the major importers would want to buy, especially in the weak demand periods between the winter and summer peaks. The spot price of LNG in Asia has dropped to $6.20 per million British thermal units (mmBtu), the lowest in 17 months and down 47 percent from the 2018 peak of $11.60 in June. If low prices fail to spark a significant uptick in Asian demand, it makes it likely that cargoes will have to be diverted to Europe, especially those from major exporters Qatar and the United States. In Europe, LNG can displace Russian pipeline gas, if the price is right, and it may just be getting low enough. Russia’s Gazprom expects to receive the equivalent of about $6.40 per mmBtu for piped natural gas to Europe in 2019. This means that U.S. and Qatari producers are just as likely to ship to Europe as to Asia, especially if Gazprom chooses not to compete on price and rather gives up market share, most likely taking the view that the LNG oversupply is a temporary phenomenon.