Middle East oil benchmark Dubai rises to multi-year high on Iran sanctions
Middle East crude benchmark Dubai jumped on Monday to the highest premium in more than five years ahead of an expected announcement by Washington to end U.S. sanctions waivers for Iranian oil buyers, according to trade sources and Reuters data. Stronger Middle East crude benchmark prices pushed up costs of Middle East and Russian crude that account for more than two-thirds of Asia’s imports and squeezed refiners’ margins. Cash Dubai’s premium to Dubai swaps, was at $1.79 a barrel, the highest since at least 2014, the data showed. DME Oman’s premium to Dubai swaps also touched $1.90 a barrel on Monday, the highest since October. The United States is expected to announce on Monday that buyers of Iranian oil need to end imports soon or face sanctions, a source familiar with the situation told Reuters, triggering a 3 percent jump in crude prices to their highest for 2019 so far. Middle East crude prices have started the month strong, boosted by purchases by several companies during a price assessment process by S&P Global Platts, and as Asia’s demand is set to rebound in third quarter when refineries ramp up runs after maintenance. A total of seven Upper Zakum crude cargoes were purchased by BP, Lukoil, Koch, Gunvor and Total so far this month during Platts window, trade data showed. Earlier, several grades of Middle East and Russian crude such as al-Shaheen and ESPO Blend have traded at their highest premiums in five to seven months while light sour grades from Abu Dhabi traded at their first premiums in six months. Buyers will have no choice but to pay more for alternative supplies if the United States decides to stop waivers for Iranian oil buyers, traders said.
Thailand’s EGAT considers 12 firms for LNG imports
State-owned Electricity Generating Authority of Thailand has narrowed its list of potential liquefied natural gas sources to 12 companies, for importing up to 1.5 million metric tonnes per annum for the first time as the government liberalizes the energy sector to boost competition. Thailand’s largest power producer, EGAT, expects to finalize purchasing agreements by June and begin liquefied natural gas (LNG) shipments by September this year, EGAT Director Viboon Rerksirathai said. EGAT buys gas from a state-owned unit of PTT Pcl, which is the nation’s sole gas supplier and LNG importer. The move comes as Thailand joins other Asian countries such as China where LNG imports have risen exponentially over the past few years, driven by strong economic growth and a push for cleaner air. Of the dozen companies, which include, Qatargas, Shell and Total SA, EGAT would select the firm that offers the lowest price. The LNG imports would be via Thailand’s existing Map Ta Phut LNG Receiving Terminal in the east of the country. Other firms being considered are Chevron Corp, Malaysia’s Petronas, and Japan’s Marubeni Corp.
Gas imports to Iraq from Iran will rise in June
Gas import shipments to Iraq from Iran will increase to 35 million cubic metres in June from 28 million cubic metres, Iraq’s electricity ministry said on Monday. Iraq has no alternative to importing Iranian gas, he told reporters on the sidelines of an energy forum in Baghdad. Halting imports will cost Iraq 4,000 megawatts of power, he added.
U.S. Natural Gas Prices Are at a 3-Year Low
Natural gas futures tumbled to the lowest in almost three years as U.S. shale output swamps the market amid mild spring weather, soothing concern about a potential supply crunch next winter. A seasonal lull in heating and cooling demand, coupled with surging production, is accelerating gains in stockpiles of the fuel in underground caverns and aquifers. While inventories are more than 30 percent below normal, they’re poised to refill quickly: Analysts predict that stored supplies probably rose by more than quadruple the average last week. Though gas demand has climbed as new U.S. export terminals send super-chilled cargoes to buyers as far away as Japan, soaring production continues to dog the market. In the Permian Basin of West Texas and New Mexico, where the fuel is pumped as a byproduct of oil exploration, gas supply has overwhelmed the capacity of pipelines to carry it out of the region, pushing prices below zero on some days. ‘‘This is a very bad development here’’ for gas futures, Bob Yawger, director of the futures division at Mizuho Securities USA, said in a phone interview. ‘‘This is below the multi-year low and we are basically in no man’s land right now.’’ Gas for May delivery fell 5.5 cents to $2.517 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since June 8, 2016. Prices are down 14 percent this year. Stockpiles probably rose by 90 billion cubic feet last week, based on analysts’ estimates. That compares with a five-year average gain of 21 billion for the period, U.S. Energy Information Administration data show. Production, meanwhile, is at the highest for the time of year in Bloomberg data going back to 2014. ‘‘We have just a lot of gas production in this country,’’ Yawger said. ‘‘Storage is in fact pretty far behind last year, but you can have as much gas as you want and as soon as you want it. That’s what’s killing the market.’’
Reliance denies any cash payment deal to Venezuela’s PDVSA for oil
Reliance Industries on Saturday denied involvement in any arrangements that lead to cash payments for oil supplies to Venezuelan government oil company PDVSA via third parties. Reports suggesting that Reliance is involved in an arrangement that leads to cash payment for oil supplies to PDVSA via third parties are ‘false and reckless,’ it said in a statement, adding the oil refining major is not in violation of any sanctions imposed by the United States. Reliance has purchased Venezuelan crude oil from companies like Russian energy giant Rosneft long before the imposition of US sanctions, as they do get title to Venezuelan oil in return for a reduction in their prior debt. Since sanctions were imposed, Reliance has made such purchases with the full knowledge and approval of the US Department of State (USDOS), and it had informed USDOS of specific volumes and transactions. “Such transactions do not lead to any consequent payment to PDVSA and do not violate US sanctions or policies,” said Reliance. Reliance’s price agreement with such sellers is at market and payments by Reliance for such supplies are settled in cash or by-product supply bilaterally between Reliance and such sellers. “It is false to suggest that Reliance would be settling such shipments via Rosneft to PDVSA. In these transactions, PDVSA is only the original physical supplier as the crude oil originates in its export facilities.”Some recent reports suggested that Venezuela’s President Nicolas Maduro is funneling cashflow from PDVSA through Rosneft as he seeks to evade US sanctions designed to oust him from power. One said PDVSA and Reliance would a fee equivalent to about three percent of the sale price, split between them. Reliance Industries is India’s largest private sector company with activities spanning hydrocarbon exploration and production, petroleum refining and marketing, petrochemicals, retail and digital services.
Aramco sale would grease Mukesh Ambani’s tidy-up
Saudi Aramco can grease Mukesh Ambani’s tidy-up. The Middle Eastern oil giant is eyeing a stake in the petrochemicals and refining bit of the Indian tycoon’s $127 billion Reliance Industries. A deal would give Riyadh greater security over where it sells its oil, while allowing India’s largest publicly listed company to grow on all fronts without its leverage ballooning. Ambani’s openness to selling some of his crown jewels reflects a balancing of priorities. Petrochemicals and refining are cash cows but also growth areas. The tycoon is planning a sizeable expansion at Jamnagar in western Gujarat, where Reliance already operates the world’s biggest refinery complex, and India needs to at least double capacity to meet domestic demand by 2040. Still, Ambani will also want to keep expanding his consumer-facing businesses, where payback is less certain, without hiking borrowings: net debt is already close to two times Reliance’s EBITDA. If the Saudis pay a mooted $15 billion for a 25 percent stake in the energy operations, that would imply a valuation of $60 billion for the divisions combined. That’s one-fifth less than the implied enterprise value of the unit based on a sum-of-the-parts analysis by brokerage IIFL, but looks more reasonable if the quoted figure is an equity value. Either way, that cash, and a separate potential $15 billion sale of Reliance’s fibre and telecom towers to a buyer like Canada’s Brookfield Asset Management, would allow Ambani to continue his courtship of the everyday Indian. His newish businesses already include the country’s biggest retailer and a telecom operator offering mobile data at dirt-cheap prices, and Ambani wants these “new age” businesses to grow from about one quarter of EBITDA at present to half the total by 2028. The tycoon has sunk billions into building the telecom network and may need to increase prices and invest in e-commerce to take on Jeff Bezos’ Amazon and Flipkart-owner Walmart. Haggling is likely. Aramco’s deep pockets will encourage Ambani to hold out for a higher price for his prize assets, but the Saudis may resist knowing they will have little say in the business with a minority stake. Either way, the mutual benefit of doing a deal should be enough to get something over the line. CONTEXT NEWS • Saudi Aramco, the world’s biggest oil producer, is in talks to buy a stake of at least 20 percent in the refining and petrochemicals businesses of India’s Reliance Industries, sources familiar with the matter told Reuters on April 17. • Aramco’s discussions with Reliance were for a roughly 20 percent stake, one source said, adding that the current thinking was to create an entity covering that part of Reliance’s refining, petrochemicals and marketing businesses. • If the deal went ahead, it could boost Aramco’s crude oil supply to Reliance by more than 50 percent, the source added. Another source said talks with Reliance were for a 25 percent stake. • “Reliance has offered an integrated deal – a stake in existing refineries and the planned 600,000 barrels per day (Jamnagar) refinery, along with petrochemical business,” the second source said. • The Times of India reported earlier that Aramco was in talks to buy a stake of up to 25 percent, which could be worth around $10 billion to $15 billion, valuing the Indian company’s refining and petrochemicals businesses at some $55 billion to $60 billion. • Reliance on April 18 said that net profit rose 9.8 percent to 103.6 billion rupees ($1.49 billion) in the three months to end-March from the same period a year earlier. • Reliance’s current market capitalisation is $127 billion.
HPCL continues not to recognise ONGC as promoter; to face real test in selection of directors
Hindustan Petroleum Corp Ltd (HPCL) has for the fifth consecutive quarter listed its majority shareholder ONGC as a public shareholder and not its promoter, but it will face a real test when the vacant posts of directors on the company board are filled. Oil and Natural Gas Corp (ONGC) in January last year bought the government’s entire 51.11 per cent stake in HPCL for Rs 36,915 crore. HPCL thereafter became its subsidiary but HPCL management has continuously refused to recognise ONGC as its promoter. In a regulatory filing on shareholding pattern at the end of March quarter, HPCL on April 18 listed “President of India” as its promoter with “zero” per cent shareholding. ONGC was listed as “public shareholder”, owning “77.88 crores” shares or “51.11 per cent” shareholding of the company. Sources said HPCL may be taking shield of technicalities to not list ONGC as its promoter but it will face a real test when interviews to fill the post of Director (Finance) are conducted. The chairman of ONGC, as a result of the company being the holding company of HPCL, should by rules be on the interview panel to select the directors and that would in a way end all the wrangling over promoter issue, they said. HPCL Director (Finance) J Ramaswamy retired on February 28 but interviews for the post haven’t been done yet by the government headhunter Public Enterprise Selection Board (PESB). For selecting a director of a company where the government or its controlled company has more than 50 per cent stake, a PESB panel holders interview from among shortlisted candidates. The panel is assisted by the Secretary of the administrative ministry and the chairman of the company concerned. The Department of Personnel guidelines state “in the case of subsidiaries, the full-time Chairman of the holding Company is invited to assist the Board.” Sources said going by these guidelines, ONGC Chairman and Managing Director Shashi Shanker should sit on the interview panel to select HPCL Director (Finance). They said Coal India Ltd governance structure, which the HPCL management has so often cited, clearly provides for the holding company chairman to sit on the panel for selecting directors of subsidiary companies. Coal India Ltd is a holding company and has seven subsidiaries. The board of each of the subsidiaries is headed by a Chairman and Coal India too has a Chairman and Managing Director to head the board. But on PESB panel to select director or even chairman of subsidiary companies, Coal India Chairman and Managing Director is invited. Sources said the government had earlier this year asked HPCL to add ONGC as its co-promoter but the oil refining company sought to delay it by seeking further clarifications. While the promoter tag does not bring any specific privileges to ONGC, a lack of it keeps it out of insider trading regulations as it get full agenda of every board meeting of HPCL and can be aware of price sensitive information. 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, first raised the issue of being formally recognised as a promoter of HPCL in August last year. When the issue first arose in August 2018, Oil Minister Dharmendra 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. After ONGC bought out government stake, HPCL became its subsidiary. Since ONGC takeover in January 2018, HPCL has made five stock exchange filings about the shareholding pattern of the company — the first on April 20, 2018, then on July 12, 2018, then on October 19, 2018, then on January 21, 2019 and finally on April 18, 2019. In all four, ONGC is shown as the public shareholder and President of India listed as the promoter. 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). HPCL Chairman and Managing Director M K 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.
Oil prices hit Nov 2018 highs on report U.S. will end Iran oil sanction waivers
Oil prices rose by more than 1 percent on Monday to levels not seen since November 2018, driven up by a Washington Post opinion column that said the United States is preparing to announce all imports of Iranian oil must end or be subject to sanctions. Brent crude futures rose above $72.90 for the first time since November 2018 on Monday, hitting a high of $72.93 shortly after 0100 GMT, high of $72.70 per barrel at 0115 GMT, up 1.3 percent from their last close. U.S. West Texas Intermediate (WTI) crude futures rose above $64.80 per barrel, also to November 2018 highs, hitting $64.86 per barrel, up 1.3 percent from their previous settlement. The United States is preparing to announce on Monday that all buyers of Iranian oil will have to end their imports shortly or be subject to U.S. sanctions, Washington Post foreign policy and national security columnist Josh Rogin wrote on Sunday. Reuters was unable to independently verify the report. A State Department spokesman declined to comment. The U.S. reimposed sanctions in November on exports of Iranian oil after President Donald Trump unilaterally pulled out of a 2015 nuclear accord between Iran and six world powers. Washington, however, granted Iran’s eight main buyers of oil, mostly in Asia, waivers to the sanctions which allowed them limited purchases for half-a-year. The report comes amid an oil market that is already relatively tight. Secretary of State Mike Pompeo will announce “that, as of May 2, the State Department will no longer grant sanctions waivers to any country that is currently importing Iranian crude or condensate”, the Post’s columnist Josh Rogin said, citing two State Department officials that he did not name. “The U.S. chief Iran hawks indeed have the President’s ear as (Secretary of State) Pompeo and (National Security Advisor) Bolton are singularly focused on bringing Iran’s economy to its knees,” said Stephen Innes, head of trading at SPI Asset Management. “Predictably oil prices are rising,” he said. These potential disruptions to Iranian supplies add to an already tight market. The Organization of the Petroleum Exporting Countries (OPEC) has led supply cuts since the start of the year aimed at tightening global oil markets and to propping up crude prices. In the United States, energy firms last week reduced the number of oil rigs operating by two, to 825, General Electric Co’s Baker Hughes energy services firm said in its weekly report on Thursday. As a result, Brent prices have risen by more than a third this year, while WTI has climbed more than 40 percent over the same period.
Bangladesh’s second LNG storage, regasification ship moors off coast
Bangladesh’s second liquefied natural gas (LNG) storage and regasification vessel has moored off the country’s coast, the ship’s operator said on the weekend, gearing up to help supply the nation with the super-chilled fuel. The floating storage and regasification unit (FSRU) ‘Summit LNG’ is moored 6 km off the island of Moheshkhali in Cox’s Bazar, Singapore-based Summit Power International said in a statement on Saturday. The FSRU is 75 percent owned by Summit Corp, a unit of Summit Power International, and the remaining by Japan’s Mitsubishi Corp. Summit Power International, which owns power generation assets in Bangladesh and is owned by Bangladeshi conglomerate Summit Group, said it had chartered the vessel, which is able to regasify 500 million cubic feet of LNG a day, from U.S.-based Excelerate Energy for 15 years. It said the ship had picked up a commissioning cargo in Qatar before sailing to Bangladesh, where it is expected to remain, and will send regasified LNG into the country through a subsea pipeline. LNG from the FSRU is expected to be supplied to the national grid by end of the month. “If the weather is favourable and everything goes well, then LNG can be supplied to the national grid within a week,” Mohammad Quamruzzaman, managing director of Rupantarita Prakritik Gas Co, a unit of state-owned oil firm Petrobangla, told Reuters. An official from Petrobangla, which is in charge of LNG imports into the country, said all the connecting pipelines are not ready, and the FSRU will not yet be able to operate at maximum capacity. The FSRU start-up date had been partially hampered by construction delays on a pipeline that will carry regasified gas from the coastal city of Chattogram, near where the FSRU is anchored, to the capital Dhaka. About 3.75 million tonnes a year of LNG are expected to be imported through the facility, doubling the country’s LNG import capacity to 7.5 million tonnes per year once fully operational. Bangladesh has scrapped plans to build additional floating LNG terminals in favour of land-based stations after the start-up of the country’s first FSRU was delayed by several months due to technical problems and bad weather.