Russia to consider giving Transneft control over oil input points
Russian Prime Minister Dmitry Medvedev will ask the government to consider transferring operational management over oil input points to pipeline monopoly Transneft, according to the government website. Nikolai Tokarev, chief executive at Transneft, the world’s largest pipeline network, said at a meeting with Medvedev that Transneft was continuing talks on compensation for contaminated oil and that major volumes of it are located in Russia. Transneft is working to normalise the quality of the contaminated crude, he added. Flows through the Druzhba pipeline were suspended in late April after contaminated crude was discovered, sending shockwaves through global oil markets.
Aramco reliance deal realpolitick
Saudi Aramco is investing $15bn in India for a 20 per cent stake in Reliance Industries. As per the deal, dubbed as the second-largest Foreign Direct Investment (FDI) in India, Saudi Aramco is to acquire a 20pc stake in Reliance’s oil-to-chemicals (OTC) business at an enterprise value of $75 billion. The oil-to-chemicals division, formed by combining refining and petrochemicals businesses, converts petroleum into chemicals. The deal was made despite, reports late July, that talks between Aramco and Reliance had hit a roadblock as Reliance was keen on a higher valuation. Aramco apparently overpaid for the deal, for obvious reasons, reports now say. $15bn for a 20pc stake is a generous price, Bloomberg opined. When it was first reported in April that a deal might be in the works, the valuation named wasn’t much more than half of that sum. Reliance as a whole has an enterprise value of about $134bn, including phone and retail businesses that brokerages value anywhere between $60bn and $80bn. At the median multiple for oil and gas deals of 6.5 to 7.0 times enterprise value to Ebitda, Reliance’s refining and chemical businesses would collectively be worth about 30pc less than it’s receiving, Bloomberg said. Yet Aramco went ahead. As part of the deal, Saudi Aramco will also supply 500,000 barrels per day (bpd) of crude oil on a long-term basis to the Reliance Industries Jamnagar Refinery, the world’s largest refining facility as per the deal. To Saudi Aramco, this was the most lucrative part of the deal. This is roughly double the volume of crude oil, Reliance currently buys from Saudi Arabia. The refining complex currently has the capacity to process 1.36 million bpd. As per reports, it plans to further expand its refining capacity to 2mbpd by 2030. The just-announced stake in Reliance is beside the 50pc interest Aramco, along with UAE’s ADNOC, is picking up in a planned $ 60bn refinery on the west coast of India. Indeed, besides other reasons, the most important issue behind the deal seemed to be the co-dependent relationship that the world’s biggest oil exporter would develop, courtesy the deal, with India. The country is likely to overtake the US as the world’s biggest net importer of crude. Indian consumption growth is pacing ahead and with virtually little local production and India remains significantly dependent on crude oil imports to meet its needs. These investments are part of Aramco’s plan to double its global oil processing capability to somewhere around 10mbpd by 2030, locking buyers for the Kingdom’s crude on a long term basis. In an era of stiff competition for market share, the strategy seems working for Riyadh. The announcement came at a point in time, when Kashmir is under siege. Many in the country now feel; the Arab world is not putting its weight fully behind Kashmir and Pakistan. A report by AP rightly pointed out that Gulf Arab countries have preferred staying silent on the issue. Regional heavyweight Saudi Arabia urged restraint and expressed concern over the brewing crisis. Other Gulf countries such as Kuwait, Qatar, Bahrain, and Oman do not appear to have issued any statements. The United Arab Emirates has gone a step further by apparently siding with India, calling the decision to downgrade Kashmir’s status an internal matter. Iran has also preferred a balanced position on the issue of Kashmir. This muted response, as per AP, is underwritten by more than $100bn in annual trade with India. The volume of trade makes India one of the Arab world’s most prized economic partners. And the Arab world does not want to ditch it for the sake of Kashmiris. Let’s be fair. We are living in an era of realpolitik. Self-interests are driving policies. We opted not to send our forces to take an active part in Yemen-Saudi politics because our long term national interests did not permit it. Arabs are no different. They have their national interests close to their hearts. The concept of one ummah-standing together-in all respects is dead. We need to learn and live with it.
Shortage of CNG keeps 40 per cent taxis, autos off roads in Mumbai
The CNG shortage crisis continued to affect pumps in Mumbai on Saturday, with nearly 40% autos, kaali-peeli taxis, and some app-based cabs staying off roads in the morning. Public transport too took a hit although BEST buses had been refilled with CNG late night to avoid inconvenience. The problem was brought under control by afternoon, with just a couple of pumps continuing to remain shut. Oil company sources said the “technical” problem at the ONGC gas processing facility in Uran was resolved in the morning. “But it will take some time for operations to be fully restored. The Mahanagar Gas Ltd will also have to clean and restart the systems which were affected due to the technical fault and this could possibly take 12 to 15 hours,” said a source, adding that the situation could normalise by early Sunday morning. But if this did not happen, the source stated that public transport may continue to be affected on Sunday as well. Nearly 0.7 million vehicles in the region depend on CNG for fuel and this mainly comprises 0.3 million private cars and over 0.3 million autos, besides buses, private cabs and taxis. Some state-run buses also depended on CNG for daily run. The situation in the western suburbs was bad early Saturday morning. “At a few pumps in Kandivli-Borivli area, the queue was so long that it took two to four hours to refill CNG,” said Mumbai Rickshawmen’s Union leader Thamby Kurien. A private car owner who had gone to refill CNG at a Sion pump on Friday night said that he was able to do so. “But it was mixed gas and it cost more than CNG,” he said. However, MGL sources said that there was no other gas being distributed at any pump except for CNG.
OPINION: Weak spot LNG prices don’t help Asia much, but boost Europe
The price of spot cargoes of liquefied natural gas (LNG) has ticked up recently in Asia amid tentative signs of some peak summer demand, but the problem remains that for many buyers the cost is still too high. While the market focuses on the spot price as a way of assessing the extent of oversupply, or the strength of demand, it’s worth noting that the market for short-term cargoes is dwarfed by the far greater volumes procured under long-term, mainly crude oil-linked contracts. This means that for many consumers of LNG, especially in the top- and third-ranked buyers Japan and South Korea, the decline in spot prices is largely irrelevant. For weak spot prices to become relevant, demand in those countries has to be so strong that additional cargoes over and above contracted volumes are needed. The spot price for cargoes delivered to North Asia rose to $5 per million British thermal units (mmBtu) in the week ending Aug. 16, the highest since late June and 25% above the $4 trough reached in early August. It’s also worth noting that the spot price reached a northern summer peak last year of $12 in June, and was at $11 in the week to Aug. 17, 2018, more than double the current price. But while spot prices have slumped as producers in Australia and the United States commissioned new plants, the long-term contract price, which accounts for about two-thirds of the global market, has fallen by a considerably smaller margin. South Korea paid $9.40 per mmBtu for its LNG imports in July, which is only 6% less than the $10.01 it paid for them in July 2018, according to customs data. This price would mainly reflect volumes under long-term contract, but would also include cargoes under spot contracts. For the first seven months of the year, South Korea paid an average $10.22 per mmBtu for LNG, which was 6.9% higher than for the same period last year. Japan’s LNG cost an average $9.14 per mmBtu in June this year, down only marginally from $9.79 for the same month a year ago, according to official data. The fact that both Japan and South Korea haven’t seen much benefit from lower spot prices for LNG is largely a reflection of the higher cost of Brent crude oil for much of the first half of 2019, with the price rising from a closing low of $50.47 a barrel in November last year to a peak of $74.57 in late April. While Brent and other crudes have been dropping since the April high, the price is still above the November low, which is reflected in the still relatively high price of contract LNG compared to spot supplies. ASIAN LNG DEMAND STRUGGLES It’s therefore not surprising that LNG imports in both Japan and South Korea have been falling. For the first seven months of the year South Korea’s imports were 22.9 million tonnes, down from 25.4 million in the same period last year. In Japan, imports for the first half were 38.6 million tonnes, a drop of 8.2% compared to the same period last year. China, the world’s second-biggest LNG importer, is still growing imports, but at a far slower pace than before. China’s January to July imports of the super-chilled fuel were 32.8 million tonnes, up 18.8% on 27.6 million in the same period a year ago, according to vessel-tracking and port data compiled by Refinitiv. However, for the whole of 2018, China’s imports were 38.6% higher than for 2017. China also buys a greater percentage of its LNG on the spot market, meaning it has managed to secure some of the benefits of a lower spot price. It also has a fixed, low-priced long-term contract with Australia’s Northwest Shelf venture, which also lowers the cost of LNG supplied to China. The reliance on long-term contracts for much of Asia’s supplies is probably largely responsible for the mediocre growth in demand so far this year, with Refinitiv data showing the continent imported 139.3 million tonnes in the first seven months of the year, up a mere 2.9% from the same period in 2018. In contrast, Europe’s imports of 51.5 million tonnes in the January to July period are up 87% from the 27.5 million in the same period last year, showing the continent’s ability to take greater spot volumes is paying dividends for its natural gas utilities. The problem for LNG producers is that they need to boost demand for their product in order to sell their existing output, not to mention all the future production now in the pipeline. But in order to do so they will have to accept lower prices and more flexible pricing systems, and by doing so they will undermine the economics of existing and new ventures.
IGL to maintain spreads at Rs 6 per SCM if rupee does not depreciate much, says MD
12% growth in CNG was mainly due to conversion of goods vehicles and also taxis because we added more than 59 stations in last one year, says ES Ranganathan, MD, IGL. Excerpts from an interview with ETNOW. Another quarter of a double digit volume growth for you. What were the key drivers beside the push from higher taxi and car conversions and the government thrust of public transport and clean fuel? Actually the 12% growth in CNG was mainly due to conversion of goods vehicles and also taxis because we added more than 59 stations in last one year. That has improved the availability and people have started converting. In the industrial sector, again the ban on petcoke and FO has resulted in lot of customers switching from the polluting fuel to gas. In the PNG segment, industrial as well as commercial volumes were up a good 17% on year on year basis. The recent ban on petcoke and furnace oil turned out to be the highlight for the earnings in the first quarter as well. What is the revenue mix between CNG and PNG now? What kind of growth is expected in both through the year after a strong start to the fiscal? The revenue mix is about the same. We have 75% revenue coming in from CNG and 7% in domestic PNG ; the rest is industrial commercial. Your Q1 spreads stood at about Rs 6 per SCM. Given the kind of benign gas prices, we are seeing a depreciating rupee. Where do you see spreads ranging over the next couple of quarters? If the rupee does not depreciate too much, we will be near about this for the next two quarters. Haryana City Gas hearings are still going on. Valuations have not been finalized. How are you preparing and when is the outcome expected? The valuation is with the Supreme Court. The hearing is expected on the 26th of August. We hope that it will be concluded this way or that way in another one or two months maximum and that will leave one with great growth potential for IGL. It will be positive for investors. Based on the recent geographical area that you have added to your network, what kind of material contribution are you pencilling in over the next couple of ? Any key additions that you are expecting in the coming quarters? Yes, we are putting up more than 59-60 stations this year also. It is in an existing area as well as in the new area and the CNG growth will mainly be driven from our existing area but Rewari and Muzaffarnagar hold some hope for more increase than compared to Karnal and Kaithal. Help us understand what the capex plans would be for FY20-21 and how would it be spread between the widening pipeline infrastructure and expanding the retail distribution network. We have a capex plan of more than Rs 1,000 crore for this year. Out of which, we will be putting up around Rs 600 crore in the existing area and Rs 50-100 crore in new areas of Ajmer, Kanpur, Kaithal and Gurgaon. A total of more than 60 CNG stations and around 100 kilometres of steel pipeline and 1200 kilometres of MDPE pipeline will be added. Recently a concept paper was released by the PNGRB to allow new players in existing geographies given high entry barriers and concerns of course on allocations of subsidised APM gas. Any areas that you feel are lacking clarity and are a potential threat to IGL’s earnings growth if this is implemented despite your strong moat. Yes, we have conveyed our comments to PNGRB. Our considered opinion is that the market is not yet mature enough to bring in such type of competition because most of the ground rules are not yet finalised. There is no clarity on whether they will also get APM price for CNG or they will be only marketing the freely traded. So, the time is not right for opening up such market and that is what we have told them. We expect that it will not be implemented immediately.
Odisha to clear IOCL’s Rs 1 lakh crore investment
Indian Oil Corporation Limited (IOCL) will invest Rs 1,00,300 crore in expanding its Paradip refinery capacity from 15 million tonnes per annum (mtpa) to 25 mtpa and setting up a naphtha cracker unit. A high-level committee, under Chief Minister Naveen Patnaik, will be clearing IOCL’s expansion proposal on Monday. IOCL will add 10mt capacity to its Paradip refinery, and build a dual feed cracker unit of 3-4 mtpa capacity, which will be fed largely (80-90 percent by Naphtha and 10-20 percent Ethane), it will also be setting up a 1.3 mtpa petcoke gasification plant. The investment proposal submitted to the government, through its single window clearance system in July, also consists of a 1.4 mtpa ethylene unit, a 0.65MTPA propylene unit, 650 KTPA Poly Propylene and other related units. Patnaik’s government has been hoping to draw investments into downstream petrochemical sector and IOCL’s petrochemical complex will help sustain them. The expansion will require 4200 acres of government and private and land. The state-owned oil company has already invested Rs 35,000 crore in its crude oil refinery in coastal Paradip.