Moody’s report says India’s rising oil demand to support investments in refineries, upstream production
India’s rising oil consumption will support its investments in refining capacity additions and upstream production, but imports will keep growing amid stagnant production, Moody’s Investors Service said Monday. The country’s dependence on imported crude oil to meet its needs has risen to 83.7 per cent in 2018-19 fiscal year from 82.9 per cent in 2017-18. Import dependence was 80.6 per cent in 2015-16. In a report on regulatory and security policies in emerging markets, Moody’s said all petroleum products in India are now sold at prices linked to international or regional market rates, which has opened up the fuel retail market. But national oil companies – Indian Oil Corp (IOC), Hindustan Petroleum Corp Ltd (HPCL) and Bharat Petroleum Corp Ltd (BPCL) continue to enjoy over 90 per cent market share in petroleum product distribution, it said. The three oil refining and marketing national oil companies (NOCs) control 57,944 petrol pumps out of a total of 64,624 petrol pumps in the country. India consumed 211.6 million tonnes of petroleum products in 2018-19, up from 206.2 million tonnes in the previous year. Fuel consumption was 184.7 million tonnes in 2015-16. Though the country is short in producing crude oil, which is turned into fuel at refineries, it manufactures surplus petroleum products. In 2018-19, production of petroleum products was 262.4 million tonnes. Also, two upstream national oil companies, Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) produce about 70 per cent of India’s oil and 80 per cent of its natural gas. The government continues to set the selling price of natural gas in the country. This is, however, linked to international benchmarks, it said adding that oil and gas companies in India are largely exposed to the same level of price volatility risks as most international oil companies. “India’s oil and gas consumption will support its investments in refining capacity and upstream production, but crude imports will keep growing amid stagnant production, and government pressure for shareholder returns will temper NOC credit quality,” Moody’s said. The government demands high shareholder returns from the government-owned companies in the form of dividends and share buybacks. In addition, because of the high rate of growth in consumption, the oil companies also need to continue to invest in expanding capacity. “Refining margins in the region in 2019 and 2020 are likely to be lower than 2017 and 2018, which will result in lower earnings, particularly for refiners and integrated oil companies,” the report said. IOC’s nine refineries had a weighted average refining margin of USD 5.83 per barrel in 2018-19. BPCL and HPCL had a gross refining margin of USD 5.25 and USD 5.17 per barrel, respectively, in the same period. Moody’s said the carbon transition risk for Indian oil companies remains manageable. “Even though the government is encouraging faster adoption and manufacturing of electric vehicles, the response has not been great because of a lack of high-quality, affordable vehicles and the evolving charging infrastructure,” it said.
China’s ramping up of tariffs on US LNG means nothing, everything
China’s decision to hike import duties on U.S. liquefied natural gas (LNG) is a move that means very little for the market in the short term, but it has the potential to deliver outsized consequences the longer the levies remain in place. As part of its latest round of retaliatory tariffs on U.S. imports, Beijing increased the duty on LNG shipments from 10 percent to 25 percent. This will make it even more uneconomic for Chinese buyers to purchase LNG cargoes from the United States. The 10 percent tariff put in place last year has already devastated the trade, with China’s imports of the fuel dropping sharply. China imported 25 U.S. LNG cargoes in the first half of 2018, and this slipped to just eight in the second half, according to vessel-tracking data compiled by Refintiv. This year, a mere three cargoes have been delivered, one each in January, February and March, and no more are currently scheduled to arrive in the coming months. This means in practical terms that raising China’s import duty will have little impact on global LNG flows. But there are certain to be longer-term consequences from the fastest-growing LNG market effectively locking out the world’s fastest-growing supplier. Much of the new LNG coming on stream this year and next is based in the United States, as companies rush to take advantage of the plentiful and cheap supplies of natural gas delivered by the nation’s shale boom. It’s also worth noting that the United States is the dominant player in the next wave of LNG projects being planned around the world. The United States currently has 64.2 million tonnes of annual LNG capacity under construction, the bulk of which will hit the market this year and next. Together with Canada, it also has a further 164.2 million tonnes in capacity for which the final investment decisions are due by the end of next year. The market expectation is that China will overtake Japan as the world’s largest LNG importer sometime in the next decade, even though its annual rate of growth will moderate from the breakneck pace of more than 40 percent for the past two years. This means China will become the most important single player in the LNG buyers’ market, just as it already is for several other commodities, such as iron ore, copper, crude oil and coal. Both existing and emerging U.S. LNG producers won’t want to be shut out of that market, but if the trade war continues for several years it’s likely that some projects will struggle to secure the necessary financing to progress. The longer the tariff war continues, the more the United States will hand advantages to new rival producers in countries such as Russia and Mozambique, and help make the business case for existing major producers such as Qatar and Australia. TIME FOR OPTIMISM OVER? The problem for many analysts across commodity, equity and other markets is that they are still working on the somewhat optimistic assumption that eventually a trade deal between the United States and China will be done. This view is now being seriously challenged by reality, with the positive tones of the previous weeks giving way to the actual act of escalation. In the end, it will not matter much who sabotaged what parts of whatever deal the two sides were working on. What will matter is that the world’s two largest economies seem quite prepared to play a game of brinkmanship with seemingly no end in sight. The market consensus on the trade war may be shifting from the current position that it’s a somewhat damaging but ultimately resolvable dispute, to a view that it is a long-term structural shift in trade dynamics that will have enduring negative consequences for the global economy. Two of President Donald Trump’s favorite types of businesses are oil and gas producers and coal miners, and it’s worth noting that along with U.S. farmers they are bearing the brunt of the tariffs imposed by China. China’s imports of U.S. coal, which were subjected to a 25 percent tariff last year, have slumped but not completely stopped, with three cargoes due to arrive in May, up from two in April and matching three for March. These are most likely cargoes of coking coal for making steel, and given that the export market for this high-energy coal is dominated by Australia, the United States and Canada, it limits the available alternatives. China’s imports of U.S. crude oil, which remain tariff-free, have also fallen off a cliff, with just five cargoes being discharged so far this year, down from 53 cargoes in the first half of 2018. The trade dispute has thus all but destroyed the one area where U.S. exports were actually growing rapidly and working to reduce the deficit that the United States has with China.
Amritsar gets first Piped Natural Gas connection for domestic cooking
In a major revolution in cooking fuel, Amritsar’s first Piped Natural Gas (PNG) connection was commissioned in village Fateghpur Rajputan on Monday which will be followed by another one hundred PNG connections in the village in near future. The PNG connection has been installed in the house of Balbir Singh by Gujarat Gas Limited after commissioning of three online CNG stations which will ensure availability of round the clock natural gas to the consumers thus giving them freedom from hassle of booking and waiting for refilling Liquid Petroleum Gas (LPG) cylinders. Sources informed that the development of similar kind of pipeline network was already in progress at Circular road, Majitha road, Ranjit Avenue and Cantonment Board of Amritsar where PNG connections would be provided in near future. However, sources informed that the PNG connections in the Beas city, Mehta village, Nava Pind and Baba Bakala would reach in one year. “Necessary applications for the permission to lay pipeline are made with various authorities and work will be started once permission is granted,” said sources. Thrilled to have first PNG connection in Amritsar, Balbir Singh said that he was told that PNG would come out to be at least thirty percent cheaper than LPG. “I will see when the first bill comes” he said adding that he was satisfied with the safety measures. PNG is Methane gas which is a natural one having least ratio of carbon hence it burns almost completely thus making it environment-friendly. It is supplied to the consumer through mild steel and polyethylene pipelines. PNG is 200 times lesser than gas supplied through cylinders and in case of any leakage; it will instantaneously mix with air and evaporate whereas the traditional fuel LPG is heavier than air and in case of any leakage it settle down in the surroundings posing higher chances of a fire from the cylinder.
Moody’s signals tough times ahead for Indian oil companies
India’s oil and gas consumption will support its investments in refining capacity and upstream production but crude imports will keep growing amid stagnant production, and government pressure for shareholder returns will temper the credit quality of national oil companies, Moody’s Investors Service said today. The Indian government demands high shareholder returns from the state-owned companies in the form of dividends and share buybacks. In addition, because of the high rate of growth in consumption, the oil companies also need to continue to invest in expanding capacity, the credit rating agency said. “Refining margins in the region in 2019 and 2020 are likely to be lower than 2017 and 2018, which will result in lower earnings, particularly for refiners and integrated oil companies,” Moody’s said, adding the oil and gas companies in India are largely exposed to the same level of price volatility risks as most international oil companies. All petroleum products in India are now sold at prices linked to international or regional market prices, which has opened up the petroleum product retail market, but the refining and marketing NOCs — Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp — continue to enjoy over 90 per cent market share in petroleum product distribution. Also, the two upstream NOCs Oil and Natural Gas Corporation and Oil India produce about 70 per cent of India’s oil and 80 per cent of its natural gas. The government continues to set the selling price of natural gas in the country. This is however linked to international benchmarks. Moody’s also said that the carbon transition risk for Indian oil companies is manageable. While the government is encouraging faster adoption and manufacturing of electric vehicles, the response has not been great so far because of a lack of high-quality, affordable vehicles and the evolving charging infrastructure.
US liquefied natural gas shipments to China face mounting tariffs
China said on Monday it would raise tariffs on liquefied natural gas (LNG) imports from the United States amid a series of additional levies, a move that could further reduce U.S. LNG shipments to the world’s fastest growing importer of the fuel. So far this year, only two LNG vessels have gone from the United States to China, versus 14 during the first four months of 2018 before the start of the 10-month trade war. On Monday, China said it would boost the tariff on U.S. LNG to 25% starting June 1 versus the current rate of 10%. That move came in retaliation for a U.S. increase on Friday in tariffs on $200 billion in Chinese goods to 25% from 10%. Between February 2016, when the United States started exporting LNG from the Lower 48 states, and July 2018, when the trade war started, China was the third biggest purchaser of U.S. shipments of the supercooled fuel. So far this year, China is not even in the top 15. “I expect they will have a hard time landing a tanker carrying U.S. LNG in China if they impose a 25 percent tariff on it,” said Jack Weixel, senior director at IHS Markit’s PointLogic analytics arm. Stephen Comstock, a director at the American Petroleum Institute, which represents the oil and gas industry, said the retaliatory tariffs “dampen the prospects for the growing U.S. LNG investment, hurt U.S. workers, and benefit America’s foreign competitors.” Natural gas is seen as a bridge fuel between current worldwide use of much dirtier coal for power generation and industrial consumption, and renewable fuels, because it burns cleaner. It has seen massive growth in sales in recent years, particularly to Asian nations seeking to reduce their dependence on coal. The United States, meanwhile, is the fastest-growing LNG exporter in the world, and is expected to rank third in exports in 2019 behind Qatar and Australia. China is the second biggest LNG importer in the world behind Japan. So far, the biggest U.S. LNG producer, Cheniere Energy Inc , has not expressed major concerns about the trade war. Last week, Cheniere, which owns two of the three big operating U.S. LNG export terminals, said the trade war is “unproductive and creates some added costs for our Chinese consumers,” but it has not yet materially affected sales. Shares of Cheniere were down 3.9% to $65.24 on Monday. The United States and China started imposing tariffs on each other’s goods in July 2018. As the dispute heated up, China added LNG to its list of proposed tariffs in August and imposed a 10% tariff on LNG in September. U.S. LNG sales had already been affected by a 60 percent collapse in Japan Korea Marker (JKM) LNG prices seen since September. “Weaker JKM spot prices in Asia already killed most of the commercial reasoning for U.S. LNG sales to China. The tariff is the knockout blow,” said Ira Joseph, head of global gas and power analytics at S&P Global Platts.
Only 1 Indian client of Iran takes up extra Saudi oil for June: Sources
Only one Indian buyer of Iranian oil has taken up Saudi Arabia’s offer of additional oil to make up for the loss of supplies from Tehran due to U.S. sanctions, taking an extra 2 million barrels from the Kingdom for June shipment, industry sources said. Last month, Saudi Arabia approached Indian buyers offering them additional supplies to compensate for loss of Iranian oil after the United States threatened to sanction entities buying oil from Tehran, the sources said. The United States had imposed new sanctions on Iran in November last year, but gave a six-month waiver to eight countries, including India, which allowed them to import some Iranian oil. India was able to buy about 300,000 barrels per day (bpd) of Iranian oil under the waiver. But last month, Washington ended the waivers and said buyers should stop Iranian oil purchases or face sanctions. Only state refiners – Indian Oil Corp, Bharat Petroleum Corp, Mangalore Refinery and Petrochemicals and Hindustan Petroleum Corp – accounting for about 60 percent of India’s 5 million bpd refining capacity had purchased oil from Iran since November. In January-April 2019 India received about 304,500 bpd Iranian oil. In June, Saudi Arabia will supply an additional 250,000 tonnes (2 million barrels) of oil to Mangalore Refinery (MRPL) on top of its normal requirement of about 320,000 barrels (about 2.5 million barrels), one of the sources familiar with the matter said. Another source said MRPL might not lift the additional Saudi oil as the refiner had declared force majeure and shut half of its plant due to water shortages. Mangalore Refinery declined to comment. There was no immediate comment from IOC, HPCL, BPCL and Saudi Aramco. “In our system, UAE and Iraq oil turned out to be better than Saudi oil,” a source at one of the Indian refineries said. IOC, BPCL and HPCL have not placed a request for extra Saudi oil for June after the Kingdom raised official selling price for Asia, the sources said. “Saudi OSPs for June has been very strong so Indians may have taken extra from others at competitive rates,” said Sri Paravaikkarasu, director for Asia oil at Singapore-based consultancy FGE. When Iran was under sanctions in 2012, Saudi Arabia and Iraq had raised market share in Asia. But since that time trade routes have shifted with new supplies, including from the United States, coming on to the markets. “Saudi will have to fill some of the void left by Iran but it will not be a one to one replacement,” Paravaikkarasu said. “Indian refiners’ oil import policy is very flexible now and they are no longer relying on one or two particular producers.” Indian refiners have raised optional volumes under annual contracts with key producers as well as testing new grades and origins to make up for loss of Iranian oil. Also, U.S. crude’s widening discount to Brent has strengthened demand for U.S. crude exports. “India wants to diversify away from the Middle East because of lots of geopolitical issues relating to the region,” Paravaikkarasu said. “The Middle East will continue to be the mainstay for Indian refiners but they would like to tap new stable areas when it comes to the requirement of incremental barrels.”