European gas prices exceed Asian spot LNG, shuts arbitrage
European gas hub prices have risen above the price of liquefied natural gas (LNG) on the Asian spot market in a rare occurrence that largely rules out arbitrage of LNG cargoes from the Atlantic to the 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. The switch in the price values is another twist in a unique year for the fast-expanding commodity as soaring production from new plants, much of it in the U.S. Gulf Coast, coincides with tepid demand from Asia, normally consumer of 75% of global LNG. Month-ahead Dutch gas was $4.56 per million British thermal units (mmBtu) and the British equivalent was $4.48 per mmBtu by 1315 GMT on Monday, while Asian spot LNG for August was heard at $4.40 per mmBtu. The arbitrage, whereby Atlantic Basin LNG – including from the U.S., Russia and West Africa – headed for Europe instead travels the longer distance to Asia to fetch a higher price, has been largely closed for most of the year. That is because the spread has rarely exceeded the extra cost of shipping – broadly defined as a dollar per mmBtu. Forward price curves moreover indicate the situation is unlikely to change until at least October. When the Japan/Korea Marker (JKM) for the months of August, September and October is compared to the Dutch Title Transfer Facility (TTF) forward prices, the spread is below $1 per mmBtu. For October, it is 46 cents and was as low as 28 cents. The JKM is a benchmark published by commodity pricing agency S&P Global Platts and Asia’s main LNG pricing benchmark for the spot market. Dutch and British month-ahead gas prices soared this month in part due to a string of planned outages in Norway, although their 38% to 44% gains in the past two weeks have not fully reversed the prolonged 66% percent fall since last October. The rise has, nevertheless, given a breather to European suppliers that had contracted to buy U.S. LNG by widening the spread with the U.S. Henry Hub gas price. At one point last month the spread did not cover shipping costs. With U.S. production the largest source of increased supply in the past year, Europe’s ability to absorb excess LNG is being tested. Europe has long been seen as the industry’s “destination of last resort” due to its flexible continent-wide markets.
BPCL buys gasoline for Kandla in rare move
India’s Bharat Petroleum Corp Ltd has bought gasoline for Kandla in a rare move to meet demand and plug a supply gap after cancelling an earlier purchase tender, industry sources said on Tuesday. BPCL bought 20,000 tonnes of 91.2-octane grade gasoline at a premium of about $9 a barrel to Singapore quotes on a cost-and-freight (C&F) basis. The fuel is of Euro IV-compliant grade and scheduled for July 18-22 arrival at Kandla port located in Gujarat state of western India. BPCL had previously cancelled a tender to buy 35,000 tonnes of gasoline for June 20-24 arrival at Mumbai but the reasons were unclear. India is undergoing heavy refinery maintenance this year as the country prepares for cleaner fuels from April 2020. This is coming at a time when motorists in India are increasingly turning to gasoline-powered vehicles and away from diesel-driven automobiles.
India to launch rules to end gas distributors’ monopoly in 34 cities
The Indian government is set to introduce rules in six months that could lead to the phase-out of monopolies controlled by natural gas distribution companies in 34 cities, including New Delhi and Mumbai, allowing many consumers to choose a new supplier, a senior regulatory official said. In 2009, natural gas supply regulator – the Petroleum and Natural Gas Regulatory Board (PNGRB) – gave exclusive gas marketing rights, initially for five years, to companies who had established gas distribution networks in cities across the country. It allowed them to use their pipelines exclusively for 25 years to help them recover billions of dollars they had invested. However, now one of the three members of the PNGRB’s board said the regulator is soon moving to open up the still relatively new business to competition. “These companies have more than recovered their costs as indicated by their profitability and market cap,” said the board member, Satpal Garg, who is in control of its commercial and monitoring responsibilities. The rules will be ready in three months, and implementation would take another three months as the regulator will first seek feedback from companies and the public, he said.
Niti Aayog’s methanol plan for petrol vehicles on the back-burner
The Niti Aayog has put the brakes on its plans for the use of methanol as an alternative fuel for petrol-run vehicles, in a major shift in strategy as the government’s focus has now moved to electrification of vehicles. However, the Aayog will continue to push usage of methanol-run gensets, telecom towers and other stationary power units besides methanol-blended fuel for cooking, as India goes all out to reduce its oil import bill across sectors. Niti Aayog member VK Saraswat had drawn up an ambitious ‘methanol economy’ roadmap under which the government think tank had foreseen an annual reduction of $100 billion in crude imports by 2030, if the country moved to 15% blended fuel, both for transportation and cooking. Blended fuel would also help reduce fuel prices by at least 10%, making it cheaper to run vehicles, it had estimated. A senior government official told ET that e-mobility had taken precedence over anything else. “We are now looking at strategies for early introduction of alternate fuel that include import of methanol and putting it to use for stationary power plants and for vehicles in the transition phase,” the official said, requesting anonymity. According to the official, trials for 15% blending of methanol have got over. “We have identified Indian Oil Corp to do blending of methanol and will soon move a Cabinet note to get the government’s approval on the same,” the official said. As part of its initiative to push for e-mobility in a big way, the government has earmarked Rs 10,000 crore under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME-II) scheme, to have 1million electric buses on the Indian roads in the next three years, as well as for a complete shift to electric two-wheelers and three-wheelers. A high-level panel on transformative mobility led by Niti Aayog chief executive Amitabh Kant had recommended the complete switch to electric three-wheelers and two-wheelers in a phased manner, starting March 31, 2023. India is the third biggest oil importer globally. According to the oil ministry’s Petroleum Planning and Analysis Cell, India spent $111.9 billion on oil imports in 2018-19. Fuel consumption is estimated to be 2,900 crore litres of petrol and 9,000 crore litres of diesel a year.
Brazil plan to open gas sector seen luring Naturgy, Engie, others
Recently announced plans to foster competition in the Brazilian natural gas market may trigger a wave of privatizations among state-controlled distribution companies, luring international and domestic bidders, experts on the sector say. Brazil’s Cosan SA and Spain’s Naturgy Energy Group SA, are among the companies potentially interested in the segment, which also include Portugal’s Galp, France’s Engie and Spain’s Repsol, consultants, lawyers, and other experts said. Pension and investments funds could also be candidates to buy stakes in the companies, they said. The plan to overhaul Brazil’s domestic natural gas market, approved by Brazil’s energy policy council in late June, calls for companies with a “dominant position” to sell all of their stakes in distributors. It is likely to force state-oil firm Petroleo Brasileiro SA to seek buyers for its stakes in 19 out of 27 distributors operating in Brazil. Petrobras, as the company is known, has struck a deal with local antitrust authority to sell off its gas transportation and distribution assets by 2021. “There is no doubt…We’ll see a process of privatizations, a pretty strong trend of gas distributors being sold into private hands,” said Rivaldo Moreira Neto, managing partner of Gas Energy consultancy, adding that the process has the backing of both the Finance and the Mining and Energy ministries. Petrobras holds minority stakes in state-owned gas firms through its subsidiary Gaspetro, in which Japan’s Mitsui holds a 49% stake. “I think a lot of foreign investors will participate,” said Cid Tomanik Pompeu Filho, an expert in gas at the law firm Tomanik Pompeu, mentioning Galp, Repsol, and Engie as likely participants. Cosan, whose operations involve sugar, ethanol, fuels, and logistics, is also a potentially interested party, the lawyer added. France’s Engie, which has previously expressed interest in Petrobras’ gas distributors, declined to comment, as did Repsol, Galp, and Cosan. Naturgy said in a statement that “supports the market liberalization” but separately on Monday filed a motion to contest a proposed energy reform in Rio de Janeiro state where the Spanish company owns a gas distributor.
ADNOC hires BAML, Mizuho for natural gas pipelines deal: Sources
Abu Dhabi National Oil Company (ADNOC) has hired Bank of America Merrill Lynch and Mizuho to arrange the lease of its natural gas pipeline assets, sources familiar with the matter said, as the oil giant establishes new partnerships in an era of lower oil prices. ADNOC, which manages almost all of the proven oil reserves in the United Arab Emirates, has embarked on a major shake-up over the past two years to cut costs, boost efficiency and monetise its assets. Earlier this year it agreed a $4 billion midstream pipeline infrastructure deal with KKR and BlackRock. The company is now looking to raise funds by leveraging its natural gas pipelines in a similar deal and has mandated Bank of America Merrill Lynch and Mizuho as transaction advisers, two sources familiar with the matter said. “As we have demonstrated over the last two years, we are actively exploring a number of potential options to optimize and maximize value from across our portfolio of assets,” an ADNOC spokesman said in an emailed statement. “Some of these options are still at an early stage of review and we will update the market as is appropriate and in due course.” BAML and Mizuho declined to comment. The sources, who estimated the value of the gas pipeline assets at around $12 to $15 billion, said ADNOC is looking to use a similar structure to the one used with KKR and BlackRock. In that case, the firm set up a new entity which leased ADNOC’s interests in its crude and condensate pipelines to the investment firms. The advantage of the structure is that by leasing the assets for a certain period of time, ADNOC can raise financing without losing ownership of its assets. ADNOC produces around 3 million barrels of oil per day, and 10.5 billion cubic feet of raw gas a day.