Reliance Industries, Aramco talks on stake sale stall: sources
The Reliance Industries talks to grant a minority stake in its refining assets to Saudi Aramco have hit a roadblock over the valuation and structure of the deal, two people familiar with the matter said. State-owned Aramco, the world’s biggest oil producer, plans to boost investment in refining and petrochemicals to secure new markets for its crude and sees growth in chemicals as central to its downstream strategy to reduce risk as oil demand slows. Reliance initially held talks on offering Aramco at least 20% in the special purpose vehicle covering refining, petrochemicals and marketing, with the focus on next phase expansion as well. “Talks have stalled as Reliance is asking for a higher valuation and wants to transfer debt of the holding company to the new SPV (special purpose vehicle),” said one of the sources. Reliance, controlled by Asia’s richest man, Mukesh Ambani, operates the world’s biggest refining complex with a capacity to process 1.4 million barrels per day (bpd) of oil at Jamnagar in western India. It plans to expand capacity to 2 million bpd by 2030, according to plans shared with the Indian government. No immediate comment was available from Reliance and Saudi Aramco.
French court throws out appeal against Total’s gas power plant
A French court has rejected an appeal by activists against Total’s planned 440 megawatts (MW) capacity Landivisiau gas-fired combined cycle power plant in the Brittany region of northwestern France. The project, which Total took over following its $1.7 billion acquisition of French alternative energy supplier Direct Energie, is over two years behind schedule due to various court appeals by activists trying to stop the project. Judges at the administrative court of appeal in Nantes said late on Monday that the project was not a risk to the environment, nor was it situated on a protected natural area. The court said the Brittany region produces only around 7% of the energy it consumes, and power consumption in the region is increasing faster than the national average due to strong demographic growth, which is increasing electricity demand. Total has made financial commitments to go ahead with the project. French electricity grid operator RTE has said Landivisiau was critical in guaranteeing France’s security of power supply for the winter 2020/2021 period given the planned shutdown France’s last four coal power plants, and the shutdown of the Fessenheim nuclear power plant.
Inventory losses, muted refining margins to weigh on OMCs financial numbers
The state-owned Oil Marketing Companies (OMCs) may post weak financial results for the first quarter ended June on the back of inventory losses, muted refining margins, and lower crack spreads, projections made by equity research firms show. Benchmark Asian petrol and diesel cracks — reflecting price differential between crude and refined products — have come under pressure due to a supply glut in the Asian market. Subdued product cracks had dented Asian refiners’ margins including government-owned OMCs impacting their earnings and net profit in the previous two quarters. Inventory gains or losses occur due to the change in global crude prices during the time of buying the crude oil and refining the petroleum product. Mukesh Ambani-led Reliance Industries’ refining and marketing segment’s performance was impacted during the June quarter due to significantly lower product cracks on a year-on-year basis, the company said in a statement. “Both Singapore gasoline and gasoil cracks over the April-June period were weaker year-on-year by $4.60/Bbl and $2.30/Bbl, respectively, pressured by additional supply from new refineries in the region, coupled with moderating demand growth, particularly from China, with India’s growth also slowing in recent months,” S&P Global Asia Analytics told ETEnergyWorld in an e-mail response. Indian Oil Corporation (IOC) Indian Oil, the country’s largest fuel retailer and one of the most profitable PSUs in the country, is expected to post a 82 per cent decline in net profit at Rs 1,207 crore for the June quarter, as compared to Rs 6,831 crore posted in the corresponding quarter a year ago, Kotak Instituional Equity said in a report. “We expect IOCL to report weak results impacted by the adventitious loss of Rs 22 bn and muted refining margins, which will be partially offset by higher-than-normal (+Rs0.5/liter) blended marketing margins on auto fuels,” Kotak said. Another equity research firm Prabhudas Lilladher estimates the fuel retailers’ net profit to slump 57.6 percent to Rs 2,898 crore during the quarter. “IOCL earnings to be impacted by lower inventory gains. Improved marketing earnings and depreciating exchange rate provide downside support,” it said in a report. Bharat Petroleum Corp (BPCL) Bharat Petroleum, the country’s second-largest fuel retailer, is expected to post a 65 percent decline in net profit at Rs 804 crore for the first quarter ended June. “We expect BPCL to report weak results impacted by the adventitious loss of Rs 7.5 bn and muted refining margins, which will be partially offset by higher-than-normal (+Rs0.5/liter) blended marketing margins on auto fuels,” Kotak said. Prabhudas Lilladher has estimated the company’s net profit to decline 37.7 percent to Rs 1,429 crore for the first quarter ended June 2019. “BPCL earnings to decline sequentially due to inventory loss and muted GRMs. Improved marketing earnings and depreciating exchange rate provide downside support,” the brokerage said. Hindustan Petroleum Corp (HPCL) Hindustan Petroleum, the country’s third-largest fuel retailer is expected to post a 59.2 percent decline in net profit at Rs 701 crore for the first quarter ended June 2019. “We expect HPCL to report weak results impacted by an adventitious loss of Rs 8.5 bn and muted refining margins, which will be partially offset by higher-than-normal (+Rs0.5/liter) blended marketing margins on auto fuels,” Kotak said. Prabhudas Lilladher has estimated the company’s net profit to drop 23.7 percent to Rs 1,311 crore for the first quarter ended June 2019, as compared to the corresponding quarter a year ago. “HPCL earnings to decline sequentially due to inventory loss and muted GRMs. Improved marketing earnings and depreciating exchange rate provide downside support,” Lilladher said in a report. According to S&P Global Asia Analytics, a build-up of demand over the summer driving season in the Northern Hemisphere will provide some support for gasoline cracks. Also, later this year, the preparation for IMO 2020 spec is expected to enhance gasoil cracks and support gasoline cracks as well.
Japan to lose top LNG importer position to China by 2022
Japan could lose its pole position as the world’s top LNG importer to China as early as 2022, according to a new report by Wood Mackenzie. By then, LNG imports in Japan are expected to decline 12 percent to 72.8 million tonnes per annum (mmtpa) compared to 2018, while China’s import volume rises 37.5 percent to 74.1 mmtpa. Despite losing this leadership position, Japanese buyers will continue to take a lead in contracting innovation with developments such as hybrid deals, coal indexation, joint procurement, and carbon-neutral cargoes. As several long-term contracts wind down from the early 2020s and with gas and power market liberalization underway, this innovation will provide buyers more leverage and opportunities in future contracting discussions. Meanwhile, ensuring the security of supply through the diversity of supply sources will remain a primary concern. Japanese buyers should continue to lead the market in sourcing LNG from new supply regions. “While LNG demand is declining, Japanese imports will remain above 70 mmtpa through much of the 2020s. It will remain the second-largest LNG consumer in the world until at least 2040, with demand still exceeding 60 mmtpa. As such Japan still provides ample opportunities for LNG sellers, particularly as existing contracts expire,” WoodMac senior analyst Lucy Cullen said. “The decline in Japanese imports will be driven by competition from coal, nuclear and renewables in the power sector and slow macroeconomic growth,” commented Cullen. Japan has remained an outlier as a developed power market that has still prioritized the construction of new coal capacity. Opinions on coal within Japan vary widely with pro-coal policy targets misaligned with public sentiment and corporate and investment activities. Despite sustained low LNG spot prices, Japan’s electricity market does not favor coal to gas switching on a wide scale. The country remains well-contracted in LNG to the early 2020s as US and Australian supplies ramp-up. As a result, the average cost of gas for Japanese utilities remains well above spot price and coal is still the cheapest form of electricity generation after nuclear and renewables on a short-run marginal cost basis. Under Japan’s 5th Strategic Energy Plan (2018), the government aims to decrease gas and coal generation (down to 27% and 26% shares, respectively) and offset with greater low-carbon nuclear and renewable generation. “The tide appears to be turning with increasing restrictions on the financing and building coal. As such, we expect this policy target and such a robust share of coal in the generation mix will be increasingly difficult to sustain. This would improve the outlook for LNG,” added Cullen. On the nuclear front, Japan restarted five plants in 2018 alone. With next restarts scheduled for the mid-2020 and 2021, this will put downward pressure on LNG import requirements in the early 2020s. Although nuclear outages remain a risk in this period if anti-terrorism measures are not met on time. “We assume 15 reactors will be back online by 2030, accounting for 12% of power generation, much lower than the official target of 20-22%. While nuclear restarts generally dampen gas generation, our lower nuclear number implies a more optimistic view of LNG demand compared to the government,” Cullen said. In line with its pursuit of a low-carbon future, Japan is also targeting 22-24 percent of its 2030 generation mix to come from renewables (including hydro). While Wood Mackenzie forecasts aggressive additions of wind and solar capacities, further investment will also be needed on power grid infrastructure to cope with this level of renewable generation.
India becomes second-fastest growing gas market; $30 billion war chest ready for supply boom
India has become the second-fastest growing natural gas market globally as a result of a sustained policy push by the government that is aided by firm investment plans to the tune of a whopping $30 billion for production, import and distribution infrastructure. “India is second-fastest growing gas markets globally. In recent years, there has been a significant policy push by the Indian government to improve infrastructure, which has included giving new licenses for city gas distribution, raising pipeline tariffs for long-haul pipes, and banning more polluting fuels like fuel oil and pet coke,” Morgan Stanley said today. The multinational investment bank added that India is investing significantly to meet its growing demand. “The county has over $30-billion Capex allocated to the creation of gas import and distribution infrastructure and the revival of domestic gas production from the financial year 2019-20 onward for pipelines, city gas infrastructure, fuelling infrastructure, and doubling its LNG import facilities,” it said in a report. The country has five new terminals under construction with 25.5 million tonne per annum of capacity that are likely to be completed by 2020. These terminals will ease import constraints in the existing western and northern market and also make gas available in the southern and eastern parts of the country. India’s LNG demand is expected to grow from 22 million tonnes (MT) in 2018 to 31 MT in 2025 at a compounded annual growth rate of 4 percent. India, as a gas market, is extremely price-sensitive, with demand fluctuating between LNG, propane, and fuel oil, depending on the economics, especially for power and industrial gas usage. With gas prices set to remain low structurally after nearly 20 years of oil parity economics, the potential for this market to use gas could be as high as $12 billion to $15 billion by 2025, according to the report. The banks also pointed out that cheap gas is a boon for Indian consumers at a time when gas will likely to form a big part of the solution to control fossil fuel pollution, with nearly 177 cities set to have gas networks by 2025. “Gas infrastructure will cover 2.2 times more people or 50 percent of the population in five years, and five times more households will have access to gas. We estimate this will drive investment of about four times the current market cap of listed city gas players. By 2024, we see India’s gas penetration rising two times to about 12 percent, the equivalent of China in 2006,” it said. The report also pointed out that despite significant growth, India is still a decade behind China – the fastest-growing gas market — on gas infrastructure and penetration, with current gas penetration levels similar to China in 2004. China is expected to maintain double-digit growth on gas consumption in 2019-21, supported by the government’s strong initiatives to improve air quality.