Slowdown enters oil track: Oil consumption, imports decline
The oil sector seems to be latest addition to the list of sectors facing stress due to the ongoing economic slowdown. For the first time in many months, both oil demand and imports have witnessed a sharp fall indicating that the poor health of the economy has now begun impacting a sector where the country has to rely a lot on imports. As per the latest Oil Ministry data, crude oil imports decreased by 13.4 percent and 2.2 percent during June 2019 and April-June 2019 respectively as compared to the same period of the previous year. During the first quarter as well, the country’s oil demand was lower by 0.2 percent than that a year ago with the fall sharper in June at 1.7 percent. Though the slowdown in oil imports in a country that spends its foreign exchange to buy crude oil should be welcomed, yet it is reflective of the poor demand scenario that has slowed oil imports by refineries. The refineries are using their inventories to meet domestic supplies of petroleum products rather than buying additional quantities of crude oil from overseas even though buying at this juncture would be beneficial with international crude prices at a low of $64-65 a barrel. “It is surprising that oil imports have fallen when global prices are stable and low. This means that consumption has declined and demand is not picking up. The sector has begun to feel the pain of an economic slowdown that several of the consuming industries such as automobiles are already facing,” said an executive of Indian Oil Corporation asking not to be named. Though it is difficult to derive a conclusive relationship between oil imports/sales and economic activity, analysts are unanimous that the current contraction is the result of a slowdown. Otherwise, sales of petroleum products should not have fallen when per capita consumption has been growing. As per the Petroleum Planning and Analysis Cell (PPAC) of the Oil Ministry, except for petrol (10.8 percent) and diesel (1.4 percent), sales of industrial, aviation and kitchen fuels have fallen. Total LPG consumption recorded a de-growth of 7.1 percent during June 2019 and a cumulative de-growth of 1.5 percent during April-June 2019, even though the government’s Ujjwala scheme is fast expanding the reach of cooking gas to the remotest corners of the country. Even kerosene consumption registered de-growth of 17.2 percent in June 2019 compared to 12.1 percent de-growth in June 2018. All is not good on the oil exports front as well with exports of petroleum products decreasing by 11.4 percent during June 2019 as compared to the same period of the previous year. A decrease in petroleum product exports during June 2019 was due to decrease in all exports. Production of petroleum products too saw a de-growth of 9.3 percent and 2.4 percent during June 2019 and April-June 2019 respectively as compared to the corresponding period of the previous year.
India looking at cutting west coast refinery capacity as cost escalates to $60 bn
India is looking at cutting capacity at its biggest oil refinery to match lower fuel demand projections and contain costs which jumped to USD 60 billion due to meeting stringent environment norms and relocation of the plant, top officials said. State-owned Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) together with Saudi Aramco and Abu Dhabi National Oil Co (ADNOC) plan to set up a 60 million tonnes refinery-cum-petrochemical complex on Maharashtra coast. The refinery was projected to cost USD 44 billion (about Rs 3.08 lakh crore) but meeting stringent environment norms such as not producing petroleum coke, and relocation of the plant has jacked up the cost to an estimated USD 60 billion (about Rs 4.2 lakh crore). “Supreme Court has mandated that you cannot sell petroleum coke and so to produce fuel without any such residue requires the use of best in class technology and will cost more,” an official said. Also, the unit will now be set up in Raigad district as land acquisition at a previous site in Ratnagiri district was stalled due to farmer protests. “Land acquisition is a small cost in the project of such size. To say that the project cost has increased by USD 16 billion or Rs 1.12 lakh crore just because the site was relocated is absurd,” he said. “We would have paid some money for purchasing land at Ratnagiri. We would pay for land at Raigad too, which can be higher or lower, I don’t know. It can be slightly more than Ratnagiri but it certainly cannot be over Rs 1 lakh crore more.” Maharashtra government will decide on the price of the land, he said. The consortium has engaged Engineers India Ltd (EIL) to do a cost study which should be out by next month, another official said. Also, a detailed feasibility report (DFR) is being prepared that will detail the cost. Simultaneously, demand assessment is being done keeping in mind the government push for moving away from petrol/diesel driven vehicles and adopting electric vehicles (EVs). The two will be married to arrive at an optimal refinery configuration, he said adding that the preliminary cost estimate going up to as much as USD 60 billion from USD 44 billion previously was primarily due to producing fuel meeting the stringent environment norms including those set by the Supreme Court. “We will come up with different scenarios – should we do a 60 million tonnes unit in one go or should we do a 40 million tonnes refinery first and built another 20 million tonnes later if there is demand for fuel. Alternatively, should we build a 20 million tonnes refinery first and later scale it up depending on the demand,” he said. The refinery configuration would also depend on financing power of the companies involved. The three PSU firms can put in Rs 30,000 crore to Rs 40,000 crore as equity and equivalent money would come from Saudi Aramco and ADNOC as they own 50 per cent of the project. But the rest of the money will have to be financed from domestic sources or raised internationally, the official said. “The final call will have to be taken by the government. Can banks finance about Rs 3.5 lakh crore in just one project?” he said. The project, he said, will have to be approved by the Cabinet and it will have to take a call on how much financing can be put in one project. Another official said the DFR, which will include the type of products the refinery will produce, will not be ready before 2021 and it would take 4-5 years to build the project from thereon. Initially, the refinery was considered to include three crude units of 20 million tonnes each that could produce petrol, diesel, LPG, aviation turbine fuel (ATF) and feedstock for making petrochemicals such as plastics, chemicals, and textiles. While the project will give IOC a strong foothold in western states as catering to customers in the west and the south is difficult with its refineries located mostly in the north, for HPCL and BPCL this will increase their capacity as their Mumbai refineries cannot be expanded further. Currently, the country has a refining capacity of a little over 232 million tonnes, against the domestic demand of 194.2 million tonnes in fiscal 2017. According to the International Energy Agency, this demand is expected to reach 458 million tonnes by 2040. The country is the world’s third-biggest oil importer. But the fuel demand is slowing due to a slowdown in the economy as well as a shift towards EVs. IOC has 11 refineries with a capacity of 81.2 million tonnes, while BPCL runs four with a capacity of 33.4 million tonnes and HPCL operates three refineries with a capacity of 24.8 million tonnes. Saudi’s interest in the project can be seen as securing its future with a large customer as India has been moving away from Saudi to other markets like Africa, Latin America, and even the US.
ONGC displays gas potential of Khubal to prospective customers in Tripura
ONGC Tripura Asset, in association with department of Industry and Commerce, Govt. of Tripura, organized an awareness campaign workshop on ‘Khubal’ Gas on Tuesday at the International Trade Fair Centre of Hapania, Agartala. The meeting hosted by Asset Manager of ONGC O.P Singh, and organized by Surface Manager of ONGC Puneet Kishore. The workshop received several queries from prospective customers from small and medium scale industries. ONGC has struck gas at Khubal field (NELP Block) in Panisagar area near Dharmanagar, North Tripura district. According to the ONGC, “It is felt that it is essential to spread awareness and share plans of ONGC to start gas production and supply from Khubal field amongst state government officials, prospective consumers and transporters.” ONGC added, “ The event was aimed to spread awareness amongst the prospective customers about the ONGCs discovery of gas in Eastern/Northern ( Khubal area) part of Tripura, also ONGCs presence in South Tripura (Gojalia & Tichna) besides identifying the prospective customers for ONGCs Khubal Gas ( NELP Block) discovery, Demand Assessment around the area.
Japan LNG buyers talk tough as spot prices drop to 3-year lows
An inexorable decline in spot market prices for liquefied natural gas (LNG) is pushing utilities in Japan to be more aggressive in price reviews built into traditional long-term contracts linked to oil prices, lawyers and analysts said. The utilities are also looking to buy more LNG on the spot market, where prices are plumbing three-year lows and are around half the average contract import price for buyers in Japan, the world’s biggest importer of the fuel for power generation and industrial use. The tougher stance marks a shift for Japanese utilities, which have long favoured stability of supply over price, partly because they have been able to pass on costs to consumers. But liberalization in Japan’s energy markets means the old guard utilities are losing customers to new entrants and they are desperate to cut costs. “Given the gas and power markets liberalisation and intensifying domestic competition in Japan, it is very important for Japanese utilities to achieve competitive LNG prices so price review negotiations are becoming more intense,” said Thanasis Kofinakos, head of gas and LNG consulting, Asia Pacific, at Wood Mackenzie. According to reports, including one from Bloomberg, Japan’s second-biggest city-gas company, Osaka Gas, is in arbitration with Exxon Mobil Corp’s PNG LNG project in Papua New Guinea after failing to get a reduction in prices during a price review. “We decline to comment on any details of price negotiations,” said Osaka Gas spokesman Takahiro Yamane. Exxon Mobil, operator and marketer of PNG LNG, also declined to comment. “(Price review) negotiations did not end up in a settlement and so arbitration is the next available contractual recourse,” said Kofinakos, adding that it was possible that more contract reviews would go to arbitration. He said it was the second price arbitration in Asia, after Australia’s North West Shelf LNG – operated by Woodside Petroleum – started proceeding against South Korea’s Korea Gas Corp (KOGAS) last year. But even if Osaka Gas succeeds in getting prices reduced, they are unlikely to be more than 5% below the agreed contract price, said one gas executive who has been involved in many LNG projects and price reviews. “The last company you want to take on is Exxon,” he said. RISKY BUSINESS Japan’s average import price of LNG on a thermal heating unit basis was almost double the spot price for the fuel in June. Spot prices have since fallen to more than three-year lows. Arbitration is risky and also expensive, costing as much as $15 million, said one Singapore-based lawyer who handles LNG contracts. One recourse for the utilities is to buy more spot cargoes and many have said they are trying to do that. Tokyo Gas, Hokkaido Electric Power, Tohoku Electric Power, Kyushu Electric Power and Hokuriku Electric Power have all said they are looking at ways to take advantage of cheaper spot LNG. But the utilities are also limited in the number of spot cargoes they can take because most of their supply is met via the binding long-term contracts. That is a hangover from the 2011 Fukushima disaster that shut Japan’s nuclear reactors, which had met 30% of the nation’s power needs. Without the reactors, electric power utilities rushed to sign long-term gas contracts, many of which are just starting up. “It remains to be seen whether negotiations will succeed in resolving dissatisfaction over prices, and if they do not, whether buyers will back down or start (arbitration) proceedings,” said a Tokyo-based lawyer specializing in gas projects.
Gujarat Gas to set up 200 CNG stations in two years
In its most ambitious expansion ever, city gas distribution company Gujarat Gas Ltd is planning to set up 200 compressed natural gas (CNG) stations across India in the next two years, even as the government pushes the idea of electric vehicles. Last financial year, the company added 69 CNG stations, the highest ever to its tally of over 344 CNG stations. Gujarat Gas Ltd (GGL) is present across 23 districts in the State of Gujarat, Union Territory of Dadra & Nagar Haveli and Thane Geographical Area (GA) (excluding already authorised areas), including Maharashtra’s Palghar district. In 10th CGD bidding round announced by the PNGRB, the company has won 6 GAs comprising 17 cities in the state of Punjab, Haryana, Madhya Pradesh and Rajasthan. “The management has guided for setting up another 200 CNG stations over the next two years, which is expected to drive double-digit volume growth in the CNG segment over FY20-22E. This creates more stability in volume trends and also a stronger margin profile for the company,” Centrum Research said in its report dated 31 July. For the first quarter of this financial year, Gujarat Gas posted a 91.65% increase in net profit to ₹234.04 crore, against ₹122.12 crore a year ago. Sales rose 48.13% to ₹2614.61 crore during the quarter, from ₹1765.13 crore in the same period of the previous financial year. The company’s operational revenue was up 47% to ₹2,671 crore in the first quarter, against ₹1,814 crore in the year-ago period. Earnings before interest, tax, depreciation and amortization or EBITDA margin jumped sharply to ₹5.6 per standard cubic metres. The company has around 23,200 km of gas pipeline network. It distributes around 8.5 million metric standard cubic metres of gas per day to about 13,55,000 households, around 2 lakh CNG vehicles (serving per day) and to over 3,540 industrial customers.