Indonesia’s 2020 energy subsidy policy “flexible,” price freeze may stay
Indonesia’s 2020 policy on energy subsidies will be “flexible” and loosely based on global oil price moves, government officials told reporters on Tuesday, but an extension of the current policy to freeze fuel and power prices wasn’t ruled out. President Joko Widodo ordered energy prices to be kept flat in 2018 and 2019 by hiking subsidies, which the government said was aimed at boosting domestic consumption though others criticised it as a populist move before a tough re-election campaign. Widodo won the April election by a comfortable margin and is set to begin his second term in October. Some economists now expect the president to unfreeze prices to redirect subsidy spending to more productive use. In Widodo’s 2020 budget proposals, submitted to parliament on Friday, the government requested a cut in diesel subsidies to 1,000 rupiah ($0.0701) a litre, from 2,000 rupiah a litre this year. The proposals, which need parliamentary approval, allotted 137.5 trillion rupiah of subsidies for diesel, liquified petroleum gas, and electricity in 2020, down slightly from this year’s 142.6 trillion rupiah. However, Finance Minister Sri Mulyani Indrawati said the budget plan didn’t mean the government will allow energy prices to freely float in line with market moves in 2020. Next year’s proposal on subsidies was calculated assuming a certain volume of fuel consumption and factors affecting prices, like the rupiah exchange rate to the dollar and global oil prices, she told reporters after attending a parliamentary hearing. “In reality, other than volume, from the price side there could be dynamics that do not follow our assumptions,” Indrawati said. “What we did in 2018, we focused on stabilisation, that’s why our subsidy policy followed that direction. In 2020, we will see the dynamics and we will decide how we want to face them,” she added. Askolani, director-general of budgeting at the finance ministry, said the government’s position for 2020 subsidies was “flexible”. “If there is a fluctuation in crude prices, subsidies could be increased or the other way around,” he said. The government proposal assumes the rupiah exchange rate will average at 14,400 a dollar in 2020 and Indonesian crude price will average at $65 a dollar. In 2018, Southeast Asia’s largest economy spent 153.5 trillion rupiah for energy subsidies, up more than 60% from the original budget, to fund the populist measure.
Shell exits city gas business in India
Shell India, the local arm of the Netherlands-based Royal Dutch Shell Plc, on Tuesday exited the city gas business in the country after it sold its 10 percent stake in Mahanagar Gas Ltd for Rs 770 crore. According to stock exchange data, BG Asia Pacific Holdings (BGAPH), a wholly-owned subsidiary of Shell, sold 9.98 million shares in the company through block deals at Rs 780 apiece. Mahanagar Gas Ltd (MGL), where the majority stake is owned by state-owned GAIL India Ltd, sells compressed natural gas (CNG) to automobiles and piped-cooking gas to households in and around Mumbai. When MGL was listed in July 2016, Shell and GAIL held 32.5 percent stake each in the company. Last year, Shell sold 24 percent of its shareholding in two tranches — 8.5 percent in April and 14 percent in August — in the open market through bulk deals. The government of Maharashtra has 10 percent shareholding in MGL, while the remaining is with the public. Shell sold its stake in the open market after GAIL waived off its first right of refusal. According to the shareholding agreement, partners had the first right to buy in case either one of them wanted to exit. “We already have a controlling stake. What purpose would it have served to buy the additional stake at market price,” a senior GAIL official said. He said the sale price was “too high”. “It doesn’t make any sense for us to buy the stake at the market price,” he added. When Shell first started diluting its take in MGL in April last year, the company had stated that this was “part of Shell’s ongoing portfolio optimization to transform Shell into a simpler company, delivering stronger returns”. “Our investment in the Hazira LNG receiving terminal in Gujarat and the recent creation of Shell Energy India, our gas marketing and trading business, shows our commitment to grow in India and to increase gas penetration in the country,” it had said. Shell operates a 5 million tonnes a year liquefied natural gas (LNG) import terminal at Hazira in Gujarat. Founded in 1995, it sells CNG to over 6 lakh vehicles and piped natural gas to over 10 lakh households. It operates 203 CNG stations and has a pipeline network of 4,838 kilometers. MGL originally was an equal joint venture of GAIL and UK’s BG Group. Shell became a partner after it in February 2016 acquired BG worldwide. Shell exercised its option to exit the city gas distribution business as the lock-in period for minimum promoter holding after listing of a company expired last month. MGL was listed in June 2016 and the three-year lock-in period, according to the market regulator’s listing norms expired on July 1, 2019.
Indian Oil Corporation to invest Rs 25,000 cr in green energy
Indian Oil Corporation (IOC), the nation’s largest refiner and fossil fuel retailer, plans to invest Rs 25,000 crore in green energy projects, including solar and wind power plants, bio-fuels plants, and solar panels at filling stations. “Indian Oil has developed a road map and action plan to usher in clean and green energy alternatives to mitigate the risk of global warming,” the company said in its annual report. Rising environmental concerns are increasingly swaying government energy policies across the globe, prompting energy companies to invest in greener options. Over the next 5-7 years, Indian Oil aims to invest Rs 2 lakh crore to “evolve into a future-ready corporate that provides comprehensive energy solutions to diverse user groups”, company chairman Sanjiv Singh said in the annual report. “Indian Oil is aggressively leveraging its R&D expertise to move into horizon technologies like 2G & 3G (second and third generation) ethanol, biofuels, coal gasification, hydrogen-CNG, hydrogen fuel cells, battery technologies, etc.,” he said. Indian Oil plans to scale up its solar and wind power portfolio to 260 MW by 2020 from 216 MW now, which includes 167 MW of wind and 49 MW of solar. An interesting transition is visible at more than half the company’s filling stations where solar panels are helping cut dependence on grid power. Pumps have experienced increased sales after solar installation in areas that suffered from unreliable grid supply. Of the total 27,800 fuel stations, 14,173 are solar-operated with a combined installed capacity of 77 MW. In 2018-19, 5,000 stations were converted to operate on solar. The biggest push is set to come in the biofuel space. “Biofuels is a space the corporation is gearing up with great zest, emboldened by the renewed policy thrust on modern bioenergy,” the company said. It plans to invest in setting up 2G ethanol plants and a pilot facility for 3G ethanol plant, and integration of refinery processes with biofuel production. It has issued letters of intent to entrepreneurs to set up 75 plants to supply 792 tonnes per day of compressed biogas (CBG) under the government’s sustainable alternative towards affordable transportation (SATAT) scheme that targets setting up 5,000 CBG plants over the next few years.
India’s LNG imports rise 4.6% year-on-year in June
India’s liquefied natural gas (LNG) imports rose 4.6% year-on-year and 15.6% month-on-month to 91 million metric standard cubic meter per day (mmscmd) in June, according to data from the Petroleum Planning & Analysis Cell and Ministry of Petroleum and Natural Gas. Lower domestic natural gas production in June coupled with higher demand and lower prices at Henry Hub—major distribution centre–led to the rise in LNG imports. During the first quarter of the current fiscal, imports increased 6.8% year-on-year to 86 mmscmd following a five-month period–from November 2018 till March 2019– of lower imports, with average LNG imports 10.4% lower at 69.5mmscmd than the corresponding five-month period last year. “The recovery can be largely attributed to a gradual decline in Henry Hub prices to $2.4/metric million British thermal unit (mmBtu) in June 2019 from $4.1/mmBtu in November 2018,” said India Ratings and Research (Ind-Ra) in a report published today. During April-June, the average Henry Hub prices were 11.8% lower year-on-year at $2.5 per mmBtu due to global supply-demand equations. Domestic natural gas (NG) production declined 1.6% YoY to 88mmscmd during June and declined 0.5% YoY to 88 mmscmd during 1QFY20. During the month, Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) registered a 2.8% YoY and 1.8% YoY rise, respectively, in NG production volume, while private/joint venture fields recorded a fall of 20.0% YoY. Natural gas consumption increased 1.3% YoY in June and rose 2.8% YoY during 1QFY20. Henry Hub prices were stable at $2.4/mmBtu in July, which would likely keep LNG imports largely stable during the month. NG prices have moderated over the last few months, in line with historical trend. In June, India’s crude oil production fell 6.8% YoY. Production volumes at ONGC and OIL declined 5% YoY and 4% YoY, respectively, and that of fields under production-sharing contracts fell 11.7% YoY.
Spot LNG prices have no impact on PNG-LNG contract arbitration: Australia’s Oil Search
Australia’s Oil Search Ltd said on Tuesday that current weak spot liquefied natural gas (LNG) prices would have no impact on any arbitration over a long-term contract between Japan’s Osaka Gas and the Papua New Guinea PNG LNG project, operated by Exxon Mobil Corp. “The current market has no impact on the discussions,” said Ian Munro, Oil Search’s executive vice president for gas marketing told analysts at am earnings briefing on Tuesday. He was asked to comment on what terms Osaka Gas was seeking to change in its long-term sale and purchase agreement (SPA) with PNG LNG, in which Oil Search is a partner. Munro said each SPA with a customer is tailor-made, so it was hard to generalize how arbitration might play out. “An arbitration may or may not be able to rule on price. Any subsequent negotiations may or may not be retroactive,” Munro said. “It’s very much bespoke and it will certainly play out over the next few years.” Exxon Mobil Corp and Osaka gas earlier this month declined to comment on arbitration earlier this month.
Petrol, diesel to get costly in Uttar Pradesh from today
Petrol and diesel will cost more in Uttar Pradesh from Tuesday after the state government hiked Value Added Tax (VAT)on both. A litre of petrol will now cost 98 paisa more across the state while a litre of diesel has become dearer by Rs 2.35. The rise in prices of the fuel comes after the state government decided to increase VAT on petrol to 26.80 per cent while that on diesel to 17.48 per cent. The new and hiked prices came into effect at midnight on Monday. The hike in prices is bound to have a cascading effect on the household budgets and the transport sector.