European gas hub prices exceed spot Asian LNG price
European gas hub prices have exceeded the price of liquefied natural gas (LNG) on the Asian spot market in a rare occurrence that rules out arbitrage of LNG cargoes between the Atlantic and Pacific basins. Dutch and British month-ahead gas prices exceeded Asian spot LNG in April for the first time in four years. Asian LNG prices tend to be higher due to the huge demand there with few alternative supplies. Month-ahead Dutch gas was at $4.576 per million British thermal units (mmBtu), British month-ahead was $4.735 per mmBtu while Asian spot LNG for August delivery was heard at $4.4 per mmBtu .
Government’s stake cuts unlikely to affect energy PSU ratings: Fitch
A reduction of direct controlling stakes by the centre in large state-owned energy companies is unlikely to negatively impact the ratings on these entities, as long as the government maintains majority effective ownership and broad control of their activities, said Fitch Ratings in a statement. The update comes on the backdrop of a statement made by a government official steering the centre’s asset sale department on stake sale of energy PSUs. The official indicated that that the centre may reduce its direct controlling stakes in large energy companies including Oil and Natural Gas Corp (ONGC), Indian Oil Corp, NPTC Ltd and GAIL (India), while maintaining effective controlling stakes of at least 51 percent through arms such as Life Insurance Corporation of India. This comes as the government has set an enhanced target of Rs 1.05 lakh crore of divestment receipts for the financial year ending 31 March 2020. Fitch will continue to apply its government-related entities rating criteria if the Indian government continues to have sufficient control over these rated government-related entities (GREs) through involvement in and influence over these entities’ strategic, operational and financial activities, while other government-controlled institutions are only used to hold investments on behalf of the government. “However, if the latter take over control of the rated entities, which is not likely to be the case based on our understanding, Fitch may re-assess the credit profiles of the rated entities based on its parent and subsidiary rating linkage criteria, similar to when the state’s direct majority ownership in Hindustan Petroleum Corporation was transferred to ONGC in FY18,” Fitch said in the statement. A reduction in the government’s direct stakes in these GREs will not change Fitch’s assessment of the four GRE factors, if the government retains majority effective ownership and a similar level of control over the GREs’ activities. However, if the reduction of the government’s effective ownership is significant and there is also evidence of a weakening of the government’s involvement in the GREs’ activities, Fitch may re-assess the ‘status, ownership and control’ and ‘financial implications of default’ factors. The ‘support track record and expectations’ factor could also be lowered if tangible support is expected to be reduced. However, the ‘socio-political implications of default’ factor will likely remain unchanged. The impact on rated Indian GREs’ credit profiles is likely limited, even if there were to be re-assessments of their GRE scores, which is the sum of scores assigned to each GRE factor. Both Power Grid Corporation of India and GAIL have standalone credit profiles above the Indian sovereign rating at ‘bbb’ while NTPC’s and Oil India Ltd’s profiles are the same as the sovereign rating at ‘bbb-‘. As a result, their ratings will remain unchanged, even if their GRE scores are lowered. IOC’s and Bharat Petroleum Corporation Ltd’s current GRE scores equal 40 points under Fitch criteria; a significant reduction in this score to 25 is required for their ratings to be lowered to one notch below the sovereign rating. HPCL’s rating is aligned with the credit profile of its parent ONGC under the parent and subsidiary rating linkage criteria, while Fitch expects the latter’s credit profile to remain stable even if there is a re-assessment of its GRE factors. In addition, the government may also monetise its direct stakes in state-owned companies through share buybacks. Share buybacks are limited to once a year and limited to 25 percent of a company’s aggregate paid-up equity capital, such that after the buyback, the company’s aggregate debt is not more than twice its paid-up capital and free reserves. Large share buybacks can weaken the GREs’ financial profiles. Oil India bought back 4.45 percent of shares in FY19, reducing the government’s effective ownership from 66 percent to 61.6 percent, while its headroom under the ‘bbb-‘ SCP negative rating guideline of 2x has been reduced.
IOC hires foreign flagged VLCC at day rate of $31,950 for seven years
Indian Oil Corporation Ltd (IOC) has hired a foreign flagged very large crude carrier (VLCC) at a day rate of $31,950 for seven years. This has upsetting the calculations of the Government to use such long-term contracts to help India expand its shipping capacity to haul more oil cargoes for strategic reasons. Earlier this year, IOC had called for bids to hire a ten-year old oil super tanker for a firm period of five years with two extensions of one year each. This was the first of such experiments brokered by the shipping and oil ministries. The move followed intense lobbying by the local shipping groups which said that long-term contracts would facilitate funding at better rates to buy ships. Local fleet owners participating in the tender were given a so-called ‘right of first refusal’ to match the rate and take the contract if the lowest quotation was offered by a foreign owner. The VLCC had to be fit with scrubbers when it begins the seven-year contract from January 2020, to comply with a global rule framed by the International Maritime Organization (IMO). The country imported 84 per cent of its crude requirements in the last fiscal year and more than 90 per cent of that were hauled on foreign flagged vessels. This entailed a foreign exchange outflow of freight worth billions of dollars. Panama-flagged ‘Bright Pioneer’, a VLCC owned by Japanese shipowner Nissen Kaiun Co Ltd, had quoted the lowest day rate of $31,950 on the tender. Indian ship owners including the state-run Shipping Corporation of India Ltd (SCI) that had participated in the tender, however, declined to avail the right of first refusal and match the rate offered by ‘Bright Pioneer’, which they said were “too low”. But, this argument lacked merit going by the weekly market rates published by Clarksons – the world’s biggest shipbroker- on Saturday. A five-year time charter for a modern VLCC currently fetches $26,250 a day for its owner, while a three-year deal earns $30,000 a day. The day rate for a one-year time charter is $34,000, according to Clarksons. The Shipping Corporation of India had let its VLCC named ‘Desh Ujaala’ to IOC for six months beginning May/June. They had done so with two optional extensions of three months each (technically one year) at a day rate of about $22,100 when the market rate is $34,000 a day. The only Indian link to the seven-year deal is that ‘Bright Pioneer’ is commercially operated by Singapore-based Global United Shipping Company founded by Captain Rajesh Unni. Global United Shipping is backed by Japanese trading group Mitsui & Co. “IOC signed off on the deal to hire ‘Bright Pioneer’ a few days ago,” a person briefed on the contract said. Global United Shipping confirmed the development. Of the seven VLCCs run by Indian ship owners, only one – Desh Vibhor – run by SCI is less than 10 years old but is deployed on another contract. As a result, local owners had to first buy a ten-year old VLCC from the second-hand market and fit it with scrubbers to qualify. “Globally, most yards are booked fully for installing scrubbers that were ordered more than a year ago. Thus, ordering a scrubber and getting a yard slot to fit them by January next year has become impossible”, an industry official said. From January 1, 2020, ships must use fuel oil on board with a sulphur content of not more than 0.5 per cent mass/mass (m/m), a steep cut from the current global sulphur cap of 3.5 per cent m/m. Ships can meet the requirement by using low-sulphur compliant fuel oil or continue to use high sulphur fuel oil by fitting exhaust gas cleaning systems or scrubbers.
U.S. shale firms put up $16.5 million to build West Texas charter schools
Twenty top U.S. energy companies agreed to contribute $16.5 million to open new schools in West Texas, where an influx of oil and gas workers have strained schools, roads, and other civic services. This is the first initiative by the Permian Strategic Partnership, a consortium of shale producers which has pledged to raise $100 million to address civic strains, a spokesman for the group said. The companies all operate in the Permian Basin, the top U.S. shale field. Another $22 million will be donated by local foundations and philanthropists. The funds are earmarked to bring IDEA Public Schools, a national tuition-free charter school, to the region, the group said. The Permian Strategic Partnership aims to address labor and housing shortages, school overcrowding, healthcare and traffic congestion in the Permian Basin. Its founding members are oil and gas producers and suppliers which aim to pump millions of barrels of oil and gas in coming decades. The shale boom has lifted Permian oil production to 4.2 million barrels per day, and made the United States the world’s biggest oil producer and fifth largest exporter, according to the International Energy Agency, a group of major oil consuming nations. The first charter school would open in August 2020. Funding for the $38.5 million projects eventually will create 14 schools with seats for 10,000 students at seven sites in Midland and Odessa, Texas. Permian Strategic Partnership backers include Anadarko Petroleum Corp , Apache Corp , BP PLC , Chevron Corp, Cimarex Energy Co , Concho Resources Inc , ConocoPhillips , Devon Energy Co , Diamondback Energy Inc , Encana Corp , Endeavor Energy Resources, EOG Resources, Exxon Mobil Corp , Halliburton Co , Occidental Petroleum Corp , Parsley Energy Inc , Pioneer Natural Resources , Plains All American Pipeline LP , Schlumberger NV, and Royal Dutch Shell .
Govt wants ONGC to sell golf course in Ahmedabad that has oil wells
The government wants Oil and Natural Gas Corp (ONGC) to sell its golf courses in Ahmedabad and Vadodara in Gujarat, sending the company into a tizzy as one of them has two producing oil wells, sources said. The Department of Investment and Public Asset Management (DIPAM) has deemed golf courses and sports clubs owned by central public sector enterprises as ‘non-core’ assets and wants to monetize them. A recent exercise by DIPAM to assess land banks and other non-core assets of government departments as well as central PSUs identified two of ONGC’s golf courses in Ahmedabad and Vadodara, as also a sports club owned by Bharat Petroleum Corp Ltd (BPCL) in Chembur, Mumbai. Sources said the exercise identified only properties with real estate potential in prime cities while leaving out golf courses ONGC has in Ankleshwar in Gujarat and Rajahmundry in Andhra Pradesh. It also did not prioritize the grand golf course Oil India Ltd (OIL) has in Assam and one ONGC has in the North-East. While the golf courses are used by executives of the PSUs for playing the leisurely game and hosting their business partners, ONGC had built the one in Ahmedabad after it struck oil in the city more than two decades back. After the Motera field was discovered in Ahmedabad, ONGC was wary of encroachment around the oil wells in a city that was developing into a megapolis. So it built a golf course around the wells to ward off encroachers, they said. The golf course identified by DIPAM has two producing oil wells, sources said, adding the field exists in a nomination block that according to rules ONGC cannot sell off or farm-out to outsiders. The DIPAM diktat has sent the company into a tizzy as selling the golf course would mean the buyer also gets ownership of the two oil wells — something which is not allowed as per rules, they said. A recent meeting of officials from DIPAM, NITI Aayog, Oil Ministry and other departments gave its nod to monetizing non-core assets of ONGC and BPCL. The proceeds will go to the PSUs and not to the exchequer, they said, adding the aim of the exercise is to rationalize resource utilization in the public sector. The field may be one of the 64 that ONGC has identified for involving private and foreign firms for raising output. But even in that exercise, ONGC is retaining the ownership of the field and its license and only getting the private partner for raising output beyond a pre-agreed threshold. The incremental output beyond the agreed baseline will be shared with the private or foreign partner, sources said, adding ONGC as the licensee would be responsible for statutory payments such as cess on the entire oil produced.
India’s diesel demand set for detour as drivers switch to gasoline
India’s strong diesel demand growth is decoupling from the car market as motorists increasingly turn to gasoline vehicles, leaving it more reliant on patchy demand from construction and heavy industry. A slowdown in demand growth in India — one of Asia’s biggest diesel guzzlers — could add to a persistent glut of diesel in the region, fuelled in part by strong exports from China, and put pressure on regional refining profit margins . Transportation has historically accounted for two-thirds of India’s diesel use, but a steady decline in diesel’s discount to gasoline has seen sales of diesel-powered cars fall to a record low share of total sales, according to industry body Society of Indian Automobile Manufacturers (SIAM). This diminishing draw from autos means diesel demand growth in Asia’s third-largest economy could now depend mainly on government and company infrastructure spending, rather than daily use by an increasingly mobile population. India’s economy grew at its slowest pace in more than four years in the March quarter and the risk of a wider fiscal deficit threatens government spending as private investment falls, leaving the outlook for construction activity appears uncertain over the near to medium term. The largest drivers of diesel demand growth in India are commercial vehicles including trucks and public transport, where consumption is linked to the overall economy, followed by passenger vehicles, said K Ravichandran, senior vice president at ICRA, a unit of Moody’s Investors Service. “India’s diesel demand growth will largely depend on the performance of the economy, now that diesel passenger vehicles have become less glamorous as the price differential with petrol is coming down,” Ravichandran said. GEAR SHIFT Diesel-powered cars accounted for 19% of total car sales in India in the 2018/19 financial year, compared with nearly 50% of sales in 2012/13, according to SIAM. That drop in diesel-fuelled auto sales in turn contributed to slower diesel consumption growth, from roughly 7% annually from 2010 through 2013, to 3% for 2018-19, according to data from the Ministry of Petroleum & Natural gas. Industry executives expect diesel sales to continue to struggle as diesel’s historical price advantage to gasoline diminishes. In 2010, diesel traded at a roughly 23 rupees ($0.33) per litre discount to gasoline, but is now less than 7 rupees cheaper, according Petroleum Planning and Analysis Cell, a think-tank attached to the federal oil ministry. “The motivation for owning a diesel vehicle is basically the pricing. With that price differential reducing, there is going to be a preference for petrol vehicles,” said M K Surana, the chairman of India’s third largest state refiner Hindustan Petroleum Corp Ltd Surana expects diesel demand to grow 2.5%-3% in 2019/20, below the India’s petroleum ministry’s initial projections of 3.5%. The auto sector also expects diesel to struggle. Maruti Suzuki India Ltd, India’s biggest automaker, will stop making diesel cars next fiscal year, blaming uncertain fuel prices and stricter emission standards. Mahindra and Mahindra Ltd, India’s third largest automaker, plans to stop production of some diesel vehicles. Beyond diesel, India’s overall auto sales have been sluggish, recording the slowest pace of growth in four years in 2018-19, according to SIAM. FARM SECTOR SLOWDOWN At the same time, a renewables push across the farm sector could cut diesel use in irrigation pumps if the government follows through on plans to boost solar generation capacity. In February, India approved subsidised sales of solar pumps to millions of farmers, which it expects will cut diesel demand by about 1.1 million tonnes a year. The country consumed 83.5 million tonnes of diesel in 2018/19. The government’s ambitious target for electric vehicles to make up 30 percent of auto sales by 2030 may also dent diesel demand. Still, over the longer term India’s overall growth trajectory is expected to underpin fuel demand. “Strong economic momentum should support industrial/freight activities, providing further impetus to long-term gasoil demand growth,” said Sri Paravaikkarasu, director at Singapore-based consultancy FGE.