Bringing natural gas under GST crucial for national grid, gas trading hub
Bringing natural gas under the ambit of goods and services tax (GST) will not only make transport of the fuel across the country more efficient but also facilitate setting up of the much discussed domestic gas trading hub, said industry players and analysts. Finance minister Nirmala Sitharaman on Saturday announced plans for expansion of the National Gas Grid to 27,000 km from the present 16,200 km and said that to deepen gas markets in India, more pricing reforms will be undertaken. “For free movement of natural gas, be it a gas grid or trading hub, GST is essential. Pipelines reaching more areas is positive and more and more consumers will at least be closer to the gas. However, if they shift to using gas as a fuel for their industrial units, it will depend on the economics of fuel,” said a chief executive of a gas company on the condition of anonymity. “A gas trading hub can aid people buying the gas directly and sell it directly. Today gas is locked up in contracts and a trading hub will be a kind of a spot market, which will be good.” The government has been discussing the idea of a gas trading hub for nearly two years now. While a trading hub would facilitate availability of gas, the grid would help connect gas sources to consumption hubs which is key to government’s plans to increase the share of natural gas in India’s energy basket to 15% over the next decade from 6.2% now. India’s downstream oil and gas regulator, the Petroleum and Natural Gas Regulatory Board (PNGRB), had in May 2018 appointed Crisil Infrastructure Advisory Services as a consultant to prepare regulations for the planned gas trading hub. “Gas trading hub should be positive for the upstream oil companies, as it will enable them to achieve higher price levels than the one prevailing currently, which are based on certain formula linked to global prices,” said K. Ravichandran, senior vice president & group head, corporate ratings, ICRA Ltd. Currently, price of domestically produced natural gas is fixed by a formula that averages out rates in gas surplus nations such as Russia and the US. The idea of a natural gas trading platform is to create an ecosystem where competing buyers would be able to buy gas from competing sellers and transport the same from the source to the place of their requirement by getting a non-discriminatory access to the pipeline capacity. “Unless you have a clear bifurcation that the facility owner is not marketing the gas, this framework would be only in theory. There needs to be a transparent mechanism in place for gas customer,” said the CEO quoted above. India, along with China, is expected to be a significant driver of demand for natural gas. Being the biggest emitter of greenhouse gases after the US and China, India aims to achieve emission reduction targets pledged at the 21st session of the Conference of the Parties (CoP) in Paris by promoting the use of natural gas and green fuel. Currently, gas pipelines in India are concentrated in the western and northern part of the country. Last month, as part of its focus on India’s northeast, the Centre provide ₹55.59 billion for the construction of the North East Gas Grid project across Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, and Tripura. The Cabinet Committee on Economic Affairs had approved the project of Indradhanush Gas Grid Limited “with viability Gap Funding/Capital Grant at 60% of the estimated cost of ₹92.65 billion (including interest during construction).” On 23 January, the Ministry of Petroleum and Natural Gas had released a draft city gas distribution policy that may be adopted by states to facilitate speedy implementation of city gas distribution (CGD) networks and value-added services. Reduced road taxes, value-added tax (VAT) may also be in the offing for gas-driven vehicles. “In order to provide user-friendly clean and green fuel CNG and PNG to the general public at affordable and reasonable rates, the Value Added Tax (VAT) rates may be reviewed and rationalized to a uniform VAT rate with a ceiling of 5% and to promote faster investment in the CGD sector and development of Gas Based Economy,” the draft policy had said.
Petronet LNG to sign $2.5 bln U.S. gas deal during Trump’s India visit
India’s top gas importer Petronet LNG and U.S. liquefied natural gas (LNG) developer Tellurian Inc are preparing to sign a $2.5 billion deal during President Donald Trump’s maiden visit to New Delhi later this month, two sources familiar with the matter said. India and the United States have built close political and security ties and want to strengthen trade links, with Trump aiming to boost energy supplies to India, the world’s third biggest oil importer. Petronet will invest the money over a five-year period in Tellurian’s proposed $27.5 billion Driftwood LNG export project in Louisiana and the deal will give Petronet an equity stake in the project and rights for up to 5 million tonnes a year of LNG, the sources said. “Supplies will begin from 2024 and will be gradually raised to 5 million tonnes a year in 2028,” one of the sources said. The delivered price of gas to India would be below $6 per million British thermal units (mmBtu), the source added. This will work out to about 30 per cent cheaper than the country’s current long-term deals with Qatar. “India will be getting the producer-based prices unlike other deals where Indian companies are only one of the customers,” the source said, declining to be named. Tellurian is offering an equity interest in Driftwood Holdings, which comprises Tellurian’s upstream company, its pipeline and the upcoming terminal that will be able to export 27.6 million tonnes of LNG a year. Tellurian did not respond to Reuters email seeking comment. Petronet was not available for comment. The two companies signed a preliminary non-binding deal in September last year, when Prime Minister Narendra Modi visited the United States as the two nations want to deepen their energy and trade relations. India wants to raise the share of gas in its energy mix to 15 per cent by 2030 from the current 6.2 per cent as it battles high levels of pollution in many big cities, including the capital New Delhi. The South Asian country is expanding its pipeline network and building new LNG import terminals to encourage the use of cleaner fuel. In a bid to make gas more affordable, it has asked its biggest gas supplier Qatar to change the pricing under its long term oil-linked gas supply contracts as spot Asian LNG prices have tumbled.
D1/D3 gas field in Reliance’s KG-D6 block shuts down
D1/D3 gas field, India’s first deepwater gas field, ceased to produce on Monday after a USD 1 billion investment and mammoth technological intervention by Reliance Industries and its partner BP Plc of UK extended the life of dwindling fields by four years. In a late evening statement, Reliance-BP confirmed that it has completed the safe cessation of production in a planned manner from D1/D3 field. “The RIL-BP joint venture has successfully worked to extend the life of production from the D1/D3 Field which otherwise would have ceased production in 2015 due to issues of reservoir pressure and water ingress. Through innovation and application of ‘first-of-their-kind solutions, the field’s life was extended for almost five years, to February 2020, maximizing the recovery from the field,” it said. The first-gas from new fields in the block is expected in mid-2020, it added. D1/D3 field, in Block KG D6 (KG-DWN-98/3) located in the Bay of Bengal, was India’s first deepwater gas field to be put on production in April 2009. Output, which peaked at over 61 million standard cubic meters per day in 2010, had been on a decline as sand and water ingress forced wells to shut down one after the other. While at the peak, it was India’s biggest gas field, in the last quarter D1/D3 produced an average of just 1.5 mmscmd. Sources said only three out of the 18 wells drilled on the fields had remained on production and they too died on Monday. In perhaps one of its kind intervention in a deepsea field, Reliance-BP through use of a combination of complex techniques kept the wells flowing at Dhirubhai-1 and 3 (D1&D3) fields for the last four years. Reliance had to date made 19 oil and gas discoveries in the Krishna Godavari basin. Of these, D26 or MA — the only oil discovery in the block — was the first field to began production in September 2008. D1 and D3 fields went onstream in April 2009. MA field cessation expected by September 2018, the sources said, adding the field at its peak had produced 1,08,418 tonnes of oil in May 2010. MA also started producing gas from April 2009, just when D1 and D6 went live. It peaked to 8.4 mmscmd in August 2010 before sand and water ingress forced shutting down of well after well. D1 & D3 field too had a peak that year in March when it touched an output of 61.4 mmscmd. KG-D6 produced about 3 trillion cubic feet equivalent, saving about USD 30 billion in energy imports. The sources said the field infrastructure would be utilized to bring on stream the next set of fields in the block. The joint venture has committed USD 5 billion (Rs 35,000 crores) of investments towards monetizing another 3 trillion cubic feet equivalent (about 500 Million Barrels of Oil equivalent) reserves from three projects – R cluster, Satellite Cluster and MJ fields. These projects will be utilizing most of the existing gas production facilities, they said, adding once commissioned, the three fields will deliver a peak production of 1 billion cubic feet per day, which is about 20 per cent of the current domestic production. Although there were initial setbacks due to geological surprises, the challenge was to extend life of the field beyond 2015 due to lower reservoir pressure and water ingress, the sources said. Reliance-BP innovated and applied first of their kind solutions to extend field life and maximize recovery, which included sidetrack/substitute wells, reduction of arrival pressures, and mitigating the effect of water in the network. This effort extended production up till this month. The sources said despite best efforts, in recent times the field instability exacerbated due to water and sand ingress leading to a sharp decline in production. Consequently, to preserve the facilities for future use, the field had to be safely shutdown on Monday. The field set several global benchmarks set in terms of deepwater operational performance – 99.9 per cent uptime, 100 per cent incident-free operations and no security incident. Reliance is the operator of KG-D6 block with 66.6 per cent stake, while BP has the balance.
Prices in India’s Torrent Power LNG tender average $3.50-$3.70/per million British thermal units
India’s Torrent Power has awarded its tender for four liquefied natural gas (LNG) cargoes at an average of $3.50-$3.70 per million British thermal units (mmBtu), three market sources said on Monday. The cargoes are for delivery in April, June, October and December this year. The price spread between different delivery months was likely to have been significant. The price of the April cargo was close to $3.10/mmBtu, two of the sources said.
Budget stepped on the gas for GAIL, IGL; but no fuel for RIL, ONGC & OIL
Budget 2020 had a fair dose of measures for the oil & gas sector, including an increase in petroleum subsidies, expansion in gas grid and abolition of anti-dumping duty on PTA (purified terephthalic acid). Analysts see neutral impact on the sector from these announcements. IIFL Securities said the Budget has raised allocation on LPG and kerosene subsidy by 6 per cent for FY21. “For FY21, the subsidy amount has been raised by 6 per cent to Rs 40,900 crore from Rs 38,600 crore. Within this, LPG subsidy has risen 9.4 per cent to Rs 37,300 crore while provisions for kerosene has been reduced (perhaps due to declining consumption),” it said and said the step should be neutral for the sector. Reliance Securities said cooking fuel subsidy for FY21 is budgeted at a crude price higher than $68 a barrel, a level crude price is unlikely to touch anytime soon. “It indicates that the government continues with the reforms agenda with no subsidy burden for ONGC, OIL and OMCs,” it said. Shares of ONGC have fallen 5 per cent in the last two days to Rs 103.40. Oil India has fallen 5 per cent in the two-day period to Rs 123.10. OMCs IOC and HPCL have declined 4-5 per cent while BPCL has gained 0.82 per cent in the last two days. Kotak Mutual Fund estimates gross under-recovery at Rs 31,500 crore for FY21, valuing crude at $65 a barrel. “The Budget allocation will thus be utilised for carry forward Q4 subsidy into the next year,” it said. The abolition of customs duty on very low sulphur fuel oil (VLSFO) to nil from 10 per cent will have a negative impact on GRM of refineries, Kotak said. Companies such as RIL and IOC will be hit by the development. “The removal of anti-dumping duty ($27-$80per mt) on PTA, just after it was extended for five years in June 2019, is a negative for the sector,” IIFL said, adding that the reduction in customs duty on propane and butane to 2.5 per cent from 5 per cent is also a negative for oil players. The government unveiled a proposal to expand the gas pipeline network from 16,200 km to 27,000 km. Reliance Securities said it would benefit gas transmission companies and city gas distributors such as GAIL, GSPL, IGL, Gujarat Gas, Mahanagar Gas. Gail has dropped 4.98 per cent (Saturday and Monday combined) to Rs 114.45, Gujarat Gas has declined 1.9 per cent to Rs 282.95, Mahanagar Gas has fallen 0.71 per cent to Rs 1165.20. IGL has gained 0.6 per cent to Rs 510.50. “While the expansion plan of the gas grid is long awaited, its roadmap remains unclear. Also, transparent pricing is necessary for higher utilisation of the gas grid. PNGRB is already working on developing a national gas trading exchange,” said Motilal Oswal Securities.
New production from KG D6 project to start by mid-2020: RIL-BP
Reliance Industries Ltd (RIL) and British multinational oil and gas company BP Plc have said their joint venture completed the safe cessation of production in a planned manner from the D1 D3 field in block KG D6 off the east coast of India. The D1 D3 field was India’s first deepwater gas field to be put on production in April 2009. “The RIL-BP joint venture has successfully worked to extend the life of production from the D1 D3 Field which otherwise would have ceased production in 2015 due to issues of reservoir pressure and water ingress,” it said in a statement. Through innovation and application of first-of-their-kind solutions, the field’s life was extended for almost five years, to February 2020, maximising the recovery from the field, it added. The KG D6 block has so far produced an overall 3 trillion cubic feet equivalents (TCFes) resulting in energy import savings of over 30 billion dollars. These fields also established several global benchmarks in terms of operational performance including 99.9 per cent uptime and 100 per cent incident-free operations. The JV has committed an additional five billion dollars (about Rs 35,000 crore) of investments towards monetising about 3 TCFes (about 500 million barrels of oil equivalent) reserves from three projects — R cluster, satellite cluster and MJ fields. These projects will utilise the existing gas production infrastructure. Further, this infrastructure can act as a hub for the development of any discovery from contiguous areas. The first-gas from these fields is expected in mid-2020. The peak production from these three fields is expected to reach 1 BCFe per day which is about 15 per cent of the then envisaged India’s demand. BP is one of the largest international energy companies in India employing around 7,500 people in the natural gas, lubricants and petrochemicals businesses. Reliance Industries is India’s largest private sector company with a consolidated turnover of Rs 6.22 lakh crore. Its activities span hydrocarbon exploration and production, petroleum refining and marketing, petrochemicals, retail and digital services.