Oil demand concerns overdone, Brent to rally above $70 per bbl: Goldman
Higher oil demand coupled with declining production and supply cuts could help Brent prices rally above $70 per barrel in the near term, Goldman Sachs said. Demand is off to a strong start in 2019, with recent oil data suggesting current demand concerns should ease further, Goldman said in a note on Thursday. Based on available demand data that shows an increase in consumption in January of 1.55 million barrels per day (bpd) from a year earlier, the US bank estimates that overall global demand increased by nearly 2 million bpd during the month. This growth was visible in both emerging and developed markets. Meanwhile, supply losses in 2019 are large with producers in the Organization of the Petroleum Exporting Countries (OPEC) exceeding their cut commitment and on accelerating declines in Venezuelan output, Goldman said. “The political stalemate in Venezuela increasingly creates risks that the decline in output due to the U.S. oil sanctions more than offsets the rebound in Libya, which would bring global output below our expectations and further tighten heavy crude supplies,” it added. Oil prices were stable on Friday, propped up by production cuts led by OPEC and as U.S. sanctions against Venezuela and Iran likely created a slight deficit in global supply in the first quarter of 2019. Crude oil prices are on course for the best quarter since mid-2016, with a 25 percent gain so far. “Physical markets have driven the rally in prices this year while net speculative length has remained at depressed levels given high fundamental uncertainty and last year’s volatile fourth quarter,” Goldman said. The investment bank expects the current fundamentals to tighten physical markets further, in turn driving the Brent forward curve into further backwardation. Backwardation is a market structure where prompt prices are higher than later prices and suggests that demand for a commodity is high or that prompt supply has declined.
IEA sees oil market flipping into deficit in second quarter
The oil market will flip into a modest deficit from the second quarter of this year, with OPEC possessing a hefty supply cushion to prevent any price rally in case of possible supply disruptions, the International Energy Agency said on Friday. The IEA, which coordinates the energy policies of industrialised nations, kept its forecast of growth in global oil demand this year unchanged at 1.4 percent, or 1.4 million barrels per day (bpd). Solid growth in non-OPEC oil output led by the United States should ensure demand is met, the IEA said. The Paris-based IEA said the market could show a modest surplus in the first quarter of 2019 before flipping into a deficit in the second quarter by about 0.5 million bpd. “At the same time, (OPEC) production cuts have increased the spare capacity cushion. This is especially important now as economic sentiment is becoming more pessimistic and the global economy could be entering a vulnerable period,” the IEA added. The agency said it was particularly concerned about a possible further decline in production in Venezuela, where output has stabilised at 1.2 million bpd in recent months. It said the degradation of the Venezuelan power system, vital for oil output, was such that it could not be sure whether fixes were durable. However, in the event of a major loss of Venezuelan supply, the Organization of the Petroleum Exporting Countries had about 2.8 million bpd of effective spare capacity, the IEA said. The agency also said rising U.S. output was providing comfort to world markets. In 2018, the United States contributed 79 percent of the 2.8 million bpd of non-OPEC output growth. “The relentless pace continues into 2019, when U.S. supply is expected to expand by 1.5 million bpd and account for 83 percent of non-OPEC growth of 1.8 million bpd,” it said. “What is game changing is that the U.S. in 2021 will become a net oil exporter on an annual average basis.” With production in Canada also increasing, and most of its exports moving to U.S. refineries, more U.S. crude should be available for export. In 2019, U.S. seaborne oil trade will move into surplus with net exports rising to nearly 4 million bpd by 2024.
Existing and proposed LNG terminals in India
India had four terminals receiving liquefied natural gas last year, with total capacity of 30 million tonnes a year, although taking in 21 million to 23 million tonnes, up 10 to 13 percent from 2017, according to data from the Petroleum Planning and Analysis Cell and shipping data. Over the next seven years the government plans to build another 11 terminals. One of those received its commissioning cargo this month, and at least two more are to start up or expand later this year. Apart from Indian Oil Corp’s Ennore terminal in Tamil Nadu in southern India, state power utility Gujarat State Petroleum Corp (GSPC) and Adani Group are adding a joint venture terminal at Mundra in western India expected this year or next, and H-Energy is starting up its Jaigarh terminal, also in the west, this year. Philippines-based Atlantic, Gulf & Pacific Company (AG&P) is also adding new capacity next year, and expansions are expected at Petronet LNG’s Dahej terminal and Royal Dutch Shell’s Hazira terminal. The additions and expansions will bring India’s LNG import capacity to 41.5 million tonnes this year, with import demand expected at 25 million to 26 million tonnes.
Petronet expects to boost LNG imports up to 15 per cent in FY19
India’s leading gas importer Petronet LNG expects its liquefied natural gas (LNG) imports to rise by up to 15 percent this fiscal year from a year ago once an expansion at its largest terminal is completed, the company’s top official said on Thursday. Natural gas is projected to double as a share of India’s energy mix by 2030 as oil-fired power plants convert to natgas, while pipelines are being built to expand the fuel’s use in the residential and transportation sectors. The pace of growth largely depends on how quickly gas infrastructure is completed, Indian energy officials have said. Petronet’s LNG imports are expected to rise to around 22 million to 23 million tonnes per year (tpy) in the fiscal year ending March 2020, up from just under 20 million tpy last year, the company’s Chief Executive Officer Prabhat Singh told Reuters on the sidelines of the CERAWeek conference in Houston. In February, Petronet LNG inked an initial deal with Tellurian Inc to invest in its proposed Driftwood project in Louisiana in the United States. “There is so much gas available in the U.S. and it is available at very cheap prices, we’re trying to see if we can acquire that,” Singh said. Gas demand in “India is going to see a fillip now. What we were lacking was an increase in customer base and infrastructure needs to come up,” Singh said, adding that national gas grid pipelines and city gas infrastructure are being built while intercity trucks and buses could switch to natural gas in the future. The capacity of Petronet’s Dahej terminal in western Gujarat state is being expanded to 17.5 million tpy from 15 million tpy. The company also operates a 5 million tpy terminal at Kochi in southern Kerala state.
City gas firms to witness profit boost of 250-300 bps on falling LNG prices
A 22-25 per cent decline in the prices of liquefied natural gas (LNG) since January this year, and an expected 5 per cent to 7 per cent rise in consumption of piped natural gas (PNG) and compressed natural gas (CNG) is set to drive up the profit margins of city gas distribution (CGD) firms by 250-300 basis points (bps) in the first half of 2019-20. That would reverse the trend of contraction seen in the first three quarters of financial year 2018-19. Spot LNG prices are likely to be in the $6.5 per mmBtu to $7 per mmBtu range in the first half of next the financial year, according to CRISIL Research. If the LNG price holds at $7 per mmBtu, it would mean a positive impact on LNG demand, especially from price-sensitive sectors. ALSO READ: Punj Lloyd wins arbitration award against ONGC Also, the National Green Tribunal’s recent decision to shut down coal gasifiers in Gujarat would drive LNG demand in the region. The ban on polluting fuels in northern states, too, would increase the appetite for LNG. “The margin improvement would be more pronounced for CGD entities with higher share of industrial consumers of PNG. In the past 3-4 months, these entities were forced to slash industrial PNG prices to match alternate fuel prices, which have headed south following a sharp fall in crude oil prices since November, 2018. However, with the decline in LNG prices, industrial PNG has become cost-competitive with fuel oil,” said Prasad Koparkar, senior director at CRISIL. At an average crude price of $64 per barrel, landed cost of fuel oil and liquefied petroleum gas (LPG) would be $12.1 per mmBtu and $16.9 per mmBtu, respectively. In comparison, industrial PNG would cost $11.7 per mmBtu and $12.3 at an LNG price of $7 per mmBtu and $7.5 per mmBtu, respectively. From the perspective of CNG and household PNG, strong demand is expected to continue because of clear cost advantage of these fuels over alternates such as petrol and LPG. In India, domestic-gas price is revised every six months and is linked to prices on four international hubs – Henry Bub in the US, Alberta in Canada, National Balancing Point in Europe, and Russian gas price. The next revision, for April-September, is expected to push up domestic-gas price by 7-9 per cent to $3.62-3.67 per mmBtu compared with $3.36 per mmBtu applicable till March 2019. This increase is expected to be fully passed on to end consumers, making CNG and household PNG dearer. CNG prices are expected to increase by Rs 1.5-2 per kg in Mumbai and Rs 1.7-2.2 per kg in Gujarat – amounting to a 3-4 per cent increase over current prices. In the household PNG segment, increase of 2-2.5 per cent is expected. However, despite this price increase, CNG would be around 35 per cent cheaper than petrol. And though household PNG could become expensive by Rs 1.5 per mmBtu to Rs 2 per mmBtu compared with subsidised LPG, it would remain competitive with non-subsidised LPG. Hence, demand volumes in the two segments are expected to sustain despite the price hike.
LNG demand journey to be shaky in India, slow due to infrastructure limits
India’s demand for liquefied natural gas (LNG) is set to rise by about 10 percent this year even as the country adds import capacity at a faster clip because infrastructure constraints keep gas from getting to consumers and hinder growth rates. New Delhi made a commitment in the Paris Agreement of 2015 to reduce the carbon emissions intensity of India’s economy by one-third and aims to more than double the shared gas has in its energy mix to 15 percent by 2030, from 6.2 percent now. India had four terminals receiving LNG last year, taking in 21 million to 23 million tonnes of the super-chilled fuel, up nearly 10 to 13 percent from 2017, according to data from the Petroleum Planning and Analysis Cell and shipping data. Over the next seven years, the government plans to build another 11 terminals. One of those was commissioned this month, and two more are expected to start up later this year. “The strongest growth rate is expected in city gas demand, primarily due to an increase in consumption by commercial users on the back of growth in city-gas infrastructure,” said Poorna Rajendran, senior analyst for consultancy FGE. But with existing terminal capacity now at 35 million tonnes a year and additions and expansions expected to bring that to 41.5 million tonnes by end-2019, India’s LNG import terminals are likely to remain underutilized for years to come. Driven by demand from city gas distribution and transportation, India’s LNG demand is expected to grow by 9 to 11 percent to about 25 million to 26 million tonnes this year, said analysts from Wood Mackenzie and FGE. That would still put terminal utilization at just over 60 percent at year-end. While India’s ruling party plans to invest billions of dollars to extend the gas pipeline network across the country, progress is slow and half of the existing terminals operate at well below their capacity, several industry sources said. The government aims to run all LNG terminals at full capacity by 2022 as it works to complete the entire pipeline grid, India’s Oil Secretary M M Kutty told Reuters. Analysts, though, say India will struggle to do this. “The pace at which (planned projects) come on-stream will be dictated by the financial and technical capabilities of the promoters as well as wider infrastructure and land-related challenges in India,” said Wood Mackenzie’s senior analyst, Kaushik Chatterjee. For a graphic on India LNG imports, see – tmsnrt.rs/2F8dpSx CONSTRAINTS The Dabhol LNG terminal in Maharashtra state is underutilized, especially during monsoon season, although operator Konkan LNG, a subsidiary of utility GAIL (India), plans to invest in a breakwater to protect the harbor from big waves. Petronet LNG’s Kochi terminal in South India is not even connected to the main gas network because of resistance from landowners to pipelines, the sources also said. Kutty said a 400-km pipeline connecting Kochi to industries in Mangalore in the north “will be sorted out by March-April … worst case scenario it may be another month.” After that, capacity utilization at the terminal will rise to 40 percent, according to earlier estimates. Indian Oil Corp’s Ennore terminal – the nation’s newest – is also expected to remain underutilized as significant pipeline progress is needed before the gas can be delivered to regions outside of Ennore or Manali, said FGE’s Rajendran. An IOC official said the Ennore terminal is connected to only three customers, including IOC subsidiary Chennai Petroleum Corp, Madras Fertilizers Ltd, and Tamil Nadu Petroproducts. It would take at least two years to build a pipeline to serve other Ennore customers, the official said. India has 16,000 km of gas trunk pipelines in operation, and 13,000 km more approved and in various stages of construction, said Satpal Garg, a member of India’s downstream regulator, the Petroleum and Natural Gas Regulatory Board (PNGRB). In comparison, China’s most complete regional gas grid in the southwestern province of Sichuan and Chongqing municipality has a total length of 42,000 km. The PNGRB has awarded licenses to build city gas distribution networks across the country, targeting districts that cover about 70 percent of India’s population, Woodmac’s Chatterjee said. The government is also aiming to connect more than 10 million households with piped gas by 2020 from the current 4.8 million, with the city gas portion of India’s natural gas use expected to more than double to 15 percent of the overall gas market, Chatterjee said. “In the past, there were some problems in getting the state government approvals for example in Tamil Nadu and Kerala but ultimately it is in the interest of both the centre and the state government to have a pipeline as there will be (industrial) development in the state,” Garg said. “We are trying to convince the states to expedite clearance and granting the right of way for the pipeline,” he said. India’s National Clean Air Programme launched earlier this year, in theory, should boost natural gas usage in households, transportation, and power. In reality, the plan is not legally binding and provides few guidelines to reduce pollutants in the country, FGE and Woodmac analysts said. “India’s (LNG) demand will grow and has the potential to match China, but the path to get there will be slow,” an LNG trader familiar with the market said.