Why oil shocks don’t bother India as much now
The last time crude oil prices rose as sharply in a single day as they did on Monday (September 16) was during the 1990-91 Gulf crisis. Apart from triggering a balance of payments crisis that led to the reforms of 1991, the crisis also left India with oil reserves for just three days at one point. Today, India can survive for more than two months without importing oil. That’s a big cushion. What changed? While India’s financial situation (with forex reserves of $430 billion) puts it in a much better position to deal with price spikes, it is the improved oil storage infrastructure that’s behind the limited insurance we have in case of a supply crunch. India imports over 80% of its oil requirement. How many days? India’s refineries usually keep a stock to last for around 60 days. To keep the flow of crude to refineries going in case of a supply disruption, India also has massive underground storage capacity for oil. They are called strategic petroleum reserves (SPRs). The oil in the three facilities already built can help meet 10 days of crude requirement and the two planned ones can hold supply of about 12 more days. So, once completed, the country will have crude oil storage capacity to last for 82 days. Countries like US, Japan, China, UK and EU have strategic oil storage capacities too. In fact, on Monday, oil prices retreated after the US President approved the use of his country’s oil stockpile to ensure stable supply. Where’s the oil? India has three underground storage facilities that can store 5.33 million tonnes of crude oil. The one in Visakhapatnam is already filled with 1.33 MT of oil, deals to fill another 1.50 MT capacity in Mangalore have been signed and the third (with 2.5 MT capacity) in Padur, Karnataka, is built but awaiting oil for storage. News agency Reuters reports that about 55% of the 5.33 MT storage capacity is already filled with oil. India also plans to build an additional 6.5 MT facilities at Chandikhol in Odisha and Padur. Whose oil? Last year, India signed two pacts with foreign oil companies to fill up these facilities – one was to lease out a part of its storage at Padur to Abu Dhabi National Oil Co (ADNOC) for storing crude oil and the other to fill half of the storage at Mangalore. The agreement allows ADNOC to sell crude oil stored in these facilities to local refiners but it also gives Indian government the first right to the oil in case of an emergency. Allowing foreign companies to store oil will help Centre save Rs 10,000 crore. However, it’s not that surging crude oil prices won’t affect the world’s third largest oil importer. Petrol and diesel prices in the national capital registered their biggest single-day hike since the budget on July 5 — with petrol rising 14 paise per litre to Rs 72.17 per litre and diesel rising 15 paise per litre to Rs 65.58 per litre, on Tuesday. Investors also see rising prices as a major threat to government finances, especially as it threatens to make the economic slowdown even worse.
India keen to up Australian LNG imports, but seeks to renegotiate contracts
India is keen to ship in higher volumes of liquefied natural gas (LNG) from Australia, but at the same time, the country has indicated that higher imports will be dependent on renegotiating existing long-term contracts to better reflect the fall in spot LNG prices. At a recent government-to-government dialogue, it was stated that with India moving to a gas-based economy, there existed significant scope to enlarge India-Australia energy cooperation. However, to achieve this, long-term contracts with Australian suppliers would need to be renegotiated as Indian consumers were “price sensitive” and long-term imports of LNG needed to be aligned with realities of softening spot international prices. It was pointed out, in the course of talks, that while most Indian long-term LNG import contracts were about $8 or $9 for a million metric British thermal unit, prevailing spot prices were almost half of that level. About 1.44-million tons a year of inward LNG shipments were locked up in long-term contracts with Australian suppliers. This compared with 8.5-million tons a year imported under long-term contracts with Qatar, 5.8-Million tons a year from the US and 2.5-million tons a year from Russia. Though not specifically related to imports from Australia, Indian Petroleum and Natural Gas Minister Dharmendra Pradhan said in a statement last month that “India will re-look at pricing of long-term LNG import contracts at the appropriate time”. He was quick to add that all long-term import contracts would be honoured, but that at the same time the price sensitivity of Indian consumers would also need to be protected if the country was to move towards a gas-based economy and achieve the target of LNG constituting at least 15% of the country’s total energy mix by 2030, up from 6% at present. A section of industry in India expressed reservations over the possible success of renegotiation of long-term contracts with Australian LNG suppliers considering the rapid rise in Chinese demand for LNG shipments from Australia. The industry sources pointed out that China was inching close to the levels consumed by Japan, currently the highest importer of Australian LNG. While Japan accounted for 39% of Australian LNG exports last financial year, China’s rising energy demand saw shipments increase to 36% of Australian exports. Given such a rising demand for Australian LNG from key Asian markets, questions remained as to whether Indian demands for renegotiating long-term supply contracts would find any takers among Australian LNG suppliers, industry sources in India added.
China’s top shale gas field Fuling to pump record 7 bcm in 2020
China’s top shale gas field Fuling in the country’s southwest is expected to pump at a record 7 billion cubic metres (bcm) in 2020, as operator Sinopec Corp is set to add nearly 100 new production wells this year, according to a media report and a Sinopec official * The Fuling field currently has a total of 402 wells in production, pumping 17.755 million cubic metres of gas a day, according to a report published on Thursday on the Wechat platform of state-run Chongqing Oil & Gas Exchange, citing local paper Chongqing Daily * Forecast 2020 production at 7 bcm will represent an increase of about 16% over the field’s output in 2018, said a Sinopec official based in Fuling, in southwestern Chongqing city. The official also confirmed the number of new production wells planned for this year * China’s shale gas output could reach 280 bcm, or 23% of the country’s total gas output, by 2035, according to a top researcher at PetroChina. China last year produced about 10.9 bcm shale gas, less than 7% of the nation’s total gas output
Karnataka: Residents of Hubli, Dharwad to receive PNG connections this year
The residents of the twin cities of Hubli and Dharwad are all set to receive Piped Natural Gas (PNG) connections in their households this year. A project of Indian Oil – AdGas Private Limited, the joint venture has set an ambitious target of providing 40,000 domestic connections this year itself. Speaking to media persons on Wednesday, project head, Arun Nayak stated, “The project will cover the Hubli Dharwad Municipal Corporation area. In South India, after Bengaluru, Ernakulam and Hyderabad have this facility.” “Our target is to cover 40,000 households this year itself,” Nayak added. A resident, Ashok expressed his excitement at the prospect of receiving a PNG gas connection in his home. “I have aged people in my house who cannot lift the heavy LPG cylinders and moreover, piped gas is safer and they also offer much better services,” Ashok said.
Vedanta Cairn Oil and Gas to invest Rs 2,142 crore in Rajasthan
Vedanta’s upstream arm Cairn Oil and Gas plans to drill 78 exploratory wells at a cost of Rs 2,142 crore in a block in Rajasthan, which it had won under the first round of Open Acreage Licensing Programme (OALP). The RJ-ONHP-2017/3 block is spread across Bhinmal, Bagoda, Raniwara, Sanchor and Chitalwana of Jaore districts of Rajashtan, the company said in an application to the environment ministry. A small part of the block is also located in Gujarat but no exploration activities have been planned by the company in the state for the block. The project will include setting up of Early Production Units (EPUs) for produced well fluid processing and production up to 32,000 barrel of oil per day (BOPD) and up to 4.8 Million Standard Cubic Feet per Day (MMSCFD) of natural gas. The company expects to ramp up its overall crude oil and natural gas production by 50 per cent to an average of 260-270 thousand barrels of oil equivalent per day (kboepd) by the end of the current financial year from its current production of 180 kboepd. The company expects 70 per cent of the increase in oil and gas production to come assets in Rajasthan, Vedanta group CEO Srinivasan Venkatakrishnan said in a stakeholder meeting recently. The company has commenced an investment of $3.2 billion to monetise 400 million barrels and has deployed 10 development rigs at the site currently. The work programme for the fiscal year includes drilling over 500 wells. Of these, it has already drilled 139 wells and hooked up around 46 wells. In order to increase production from all of its assets Cairn has tied-up with multiple oilfield service companies including Halliburton, Baker and Hughes GE (BHGE), Schlumberger, Petrofac, Megha Engineering, and L&T. The company has appointed Lloyd’s Register for integrated project management for the 41 blocks won under the first round of OALP and expects to award project contracts for the blocks soon.