Dharmendra Pradhan visits Baghjan, vows action against guilty
Union minister of petroleum and natural gas Dharmendra Pradhan visited the Baghjan blowout site in Tinsukia district on Sunday and promised compensation for those affected and strict action against those found guilty. The minister took stock of the ongoing operation to control the gas well on the 19th day of the Baghjan gas well blowout, which erupted on May 27. Pradhan, accompanied by Assam chief minister Sarbananda Sonowal and Union MoS for food processing industries Rameswar Teli, surveyed the situation on ground zero and took stock of the ongoing efforts being undertaken to cap the well. They also had a detailed discussion with the team from OIL and ONGC and experts from Alert Disaster Control. The Union minister also visited three relief camps and inspected the inmates’ living conditions. Over 7,000 evacuated people are staying in 14 relief camps. Promising adequate compensation for those affected, Pradhan said, “Today, I have come here on the direction of Prime Minister Narendra Modi, who is closely monitoring the situation. The priority of the Centre is the well-being and safety of the people. On behalf of the Centre, I would like to assure you that no one found responsible for the well blowout incident will be spared. Accountability will be fixed and action will be taken against them, no matter how powerful they are,” Pradhan said. The Assam government as well as the Centre have ordered a high-level inquiry into the incident. The findings of will be known soon. “The affected people, who have suffered losses will be adequately compensated as suggested by the state government. Tea gardens, crops, farm, land, fish farms, homes affected by the blowout will all be properly compensated,” Pradhan said.
New pipeline tariff, authorisation policy to push for higher share of gas in energy basket
In a bid to raise the share of natural gas in the energy basket, India will soon have a new tariff policy that will help bring down the cost of transporting the environment friendly fuel. Also, oil regulator PNGRB is working on a new regime for authorisation of gas pipelines that will make it more investor friendly. Speaking at the launch of nation’s maiden online gas trading platform by IGX, both Oil Minister Dharmendra Pradhan and regulator PNGRB Chairman Dinesh Kumar Sarraf spoke of a new pipeline tariff policy that will replace existing practice of seven different pipeline operators charging separate rates and customers away from gas source paying more than those nearer to source. “PNGRB is also working on rationalisation of tariffs to make natural gas affordable in every part of the country. It will facilitate development of gas market in eastern and north eastern part of the country,” Pradhan said. Petroleum and Natural Gas Regulatory Board (PNGRB) Chairman Sarraf hinted of single rate across pipelines so as to make the price of fuel uniform for customers across the country. A draft regulation for the new tariff policy will be issued in next few weeks and after stakeholder inputs, the policy will be finalised, he said. Presently, customers near the gas source, such as those in Gujarat – where most of imported gas as well as domestic production from western offshore fields lands – pay less than those in other parts. The transportation tariff goes up as the gas travels into the hinterland, making the fuel up to USD 2-3 per million British thermal unit more than those near source. Sarraf said the regulator was also working on a new regime for authorisation of pipelines as well as open up city gas distribution networks for third party access after the end of exclusivity period. Proposal before PNGRB to have a single rate across all pipelines. But prior to that suggestions have been made to split state-owned GAIL to resolve the conflict of principal transporter also being the biggest gas marketer. Pradhan said GAIL has come up with a proposal to have pipeline and gas marketing business in separate divisions. “There will be an infrastructure company for pipelines.” The share of natural gas in India’s energy basket is 6.2 per cent and the government has set a target to raise this to 15 per cent by 2030 to replace some of the polluting liquid fuel and coal with the environment friendly fuel. Gas transportation through pipelines is the most economical means to transport in the country. At present, about 16,788 km long gas pipeline network is under operation in the country and around 14,500 km pipeline is approved/under construction. “Efforts are underway to complete the Gas Grid in a time-bound manner. PNGRB is in a process of bidding out the pipelines for missing sections to complete the national Gas Grid,” he said. The minister said since 2014, the government has given a thrust to expand the gas infrastructure coverage for increasing the share of natural gas in our primary energy mix. “In this direction, we are also progressively moving towards creation of a free gas market in the country,” he said adding the country’s s first online gas trading platform will help discover price of the fuel. This platform is going to support the government’s vision of a free gas market in the country, he said. “The gas trading platform will play a vital role to discover our own price benchmark for gas, address demand supply gaps, accelerate investments in the value chain. The transparency, reliability, flexibility, and competitiveness of our gas markets will contribute in reviving India’s industrial and economic growth,” Pradhan said. With evolution of gas markets, future policies and regulatory framework is also going to be more market-friendly and to accommodate the market needs, he said. “We are a price sensitive market in India and the Exchange will play in a key role in discovering gas prices,” he said.
Iraq agrees with oil companies on deeper output cuts in June
Iraq has agreed with major oil companies operating its giant southern oilfields to cut crude production further in June, Iraqi officials working at the fields told Reuters on Sunday. Baghdad aims to improve its compliance with its output cut targets under a global deal with OPEC and its allies to reduce oil supply. Iraq has agreed with Russia’s Lukoil to start an additional cut of 50,000 barrels per day (bpd) as of June 13 to lower production from the West Qurna 2 field to around 275,000 bpd. Lukoil cut output by 70,000 bpd in May in response to a request by Iraq’s oil ministry, two Iraqi oilfield managers told Reuters on Sunday. Production from West Qurna 2 was around 395,000 bpd in April, the managers said. The Iraqi oil managers, who oversee production operations, said state-run Basra Oil Company had asked BP to cut production from the Rumaila oilfield by around 140,000 bpd of its total production, which stands at between 1.4 million bpd to 1.45 million bpd. Exxon Mobile Corp has agreed also to cut an additional 70,000 bpd from the West Qurna 1 field to reduce production to around 350,000 bpd in June, the two Iraqi managers said. Production was cut by around 50,000 bpd in May and stood at around 420,000 bpd. Lukoil, BP and Exxon were not immediately available for comment. Iraq has told OPEC it would start an urgent plan to cut its oil production gradually to fully comply with its quota, after the group demanded that Baghdad and other laggards adhere to a pact on output curbs. “We will keep lowering production gradually to comply with OPEC quota,” said one Iraqi oil official. OPEC, Russia and allies agreed on June 6 to extend record oil production cuts until the end of July, prolonging a deal that has helped crude prices to double in the past two months by withdrawing almost 10 per cent of global supplies from the market. The group, known as OPEC+, also asked countries such as Nigeria and Iraq, which exceeded production quotas in May and June, to compensate with extra cuts in July to September.
India to get its maiden gas trading platform
India will on Monday get its very own natural gas trading platform that will help discover local market price for gas through transparent demand-supply matching. Oil Minister Dharmendra Pradhan will launch the Indian Gas Exchange (IGX) to kickstart natural gas trading, official sources said. IGX is India’s first automated national level trading platform to promote and sustain an efficient and robust gas market and foster gas trading in the country. The platform will feature multiple buyers and sellers trading in spot and forward contracts at designated physical hubs. IGX is a neutral and transparent market-place where both buyers and sellers will trade gas as the underlying commodity. The contracts traded at IGX are for compulsory specific physical delivery and settlement of the trade is subject to the condition that such contracts are non-transferable in nature and without any netting-off thereby. Sources said IGX will enable efficient and competitive discovery of gas prices and one of its most important objectives is also to maintain market integrity. Initially, trading is proposed to commence at the physical hubs at Hazira and Dahej in Gujarat and Oduru/Kakinada in Andhra Pradesh. Going forward, new hubs would be introduced, they said. For price discovery, the exchange will invite time scheduled bids from buyers and sellers, on which a price discovery mechanism will be run to settle delivery of gas. It will offer six market products — day-ahead, daily, weekly, weekdays, fortnightly and monthly. Some of these contracts will be available on Day 1 of trading, that is June 15, while some will be introduced later, they said. IGX has successfully held three mock trading sessions (March 20, April 9 and May 21) with significant participation from the industry. IGX technology platform provides rapid, accurate, secure and efficient trade, catering to the requirements of pre-and post-trade functionalities with the capability to handle complex orders. The bidding is done in an anonymous manner, where the buyer and seller do not know their counterpart. The price discovery will be either through double-sided closed auction with uniform price mechanism or through continuous trade mechanisms. In a double-sided closed auction, the participants input their bids to buy/sell at a specific price point. The market will determine one single uniform market clearing price. In continuous trade, the price will be matched based on bids and offers in continuous sessions. Sources said the bids will be monitored securely to ensure the highest integrity and efficacy of the marketplace. The platform also provides counterpart guarantee in terms of fund obligation to its members.
Mexico’s oil hedge to be pricier, but government likely doing it anyway
Mexico will have to pay more for less coverage under its giant oil revenue insurance policy for 2021, but will likely go ahead anyway to avoid further damaging its financial standing with international investors, sources said. The finance ministry’s billion-dollar oil hedge is the world’s largest. It has been a pillar of the budget for more than two decades for Mexico, which pumps about 1.7 million barrels per day of crude. The policy ensures Mexico can sell oil at a predetermined price, guaranteeing a portion of revenues crucial for the state budget – no matter what happens in the global oil market. Many countries dependent on oil revenues face massive budget shortfalls due to collapsing prices and demand during the coronavirus pandemic, yet Mexico’s insurance policy is expected to deliver a $6 billion payout this year – its largest ever. Bankers and officials on both sides of the secretive deal expect a smaller hedge this year since market volatility and lower crude prices have sharply hiked the cost of options Mexico typically uses to hedge oil sales. Those oil derivatives for 2021 are 40% more expensive than normal, several market sources said. At the same time, resources available to finance the hedge are dwindling. Despite the bumper hedge payout, lower revenues have forced Mexico’s government to plug the gap by spending more of the stabilization fund that also pays for the hedge. “There are lots of challenges, and everything points to it being more difficult,” said a Mexican source who worked on last year’s hedge. Finance ministry sources said internal discussions center on either hedging a smaller part of the country’s exports in 2021; buying cheaper options; or using a less costly strategy. Negotiations with banks on the hedge have yet to start, ministry and Wall Street sources said. The hedge is designed to protect about one-fifth of Mexico’s budget revenues, current and former Mexican finance and energy ministry officials said. The finance ministry, energy ministry and the president’s office did not reply to requests for comment. The government has grown more secretive about its strategy so other traders cannot easily profit from speculating on its giant options purchases with bets that can in turn make the hedge more expensive. Finance Minister Arturo Herrera is a strong proponent of the hedge and likely to keep it, said several Mexican sources familiar with his thinking. JPMorgan Chase & Co , Citigroup Inc , Goldman Sachs Group Inc , BNP Paribas SA and Shell are among those the finance ministry tapped to execute the hedge last year, sources familiar with the deal said. Investors and credit rating agencies consider the hedge a measure of fiscal prudence that offsets oil market volatility. Scrapping it might prompt some bond investors to demand higher yields. If Mexico’s borrowing costs rise, it could also mean even higher financing costs for ailing state oil company Petroleos Mexicanos [PEMX.UL], already a junk-rated company. Mexico is still rated investment grade, but all three major credit rating agencies – Fitch Ratings, Moody’s Investors Service and S&P Global Ratings – downgraded the country this year, and could lower its rating in coming months. “The hedge insures federal revenues,” said Luis Gonzali, a portfolio manager at Franklin Templeton, one of the world’s top investors in emerging markets. “Not having this insurance would put pressure on the country’s finances, investor confidence and eventually the credit rating.” Mexico estimates its main Maya crude export will average $30 per barrel in the coming year. Brent crude is expected to average about $46 in 2021, according to Reuters polling. As of Friday, Brent was trading at $38 a barrel, while Maya bound for the U.S. Gulf Coast traded at $33.37 on Thursday, according to S&P Global Platts. MORE EXPENSIVE Mexico typically hedges in a straightforward way: it purchases put options, which give the holder the right but not the obligation to sell at a predetermined price. The options have been trading at higher prices due to market volatility, the main driver of those prices. With coronavirus lockdowns slamming demand in April, oil prices plunged to multi-year lows. U.S. crude actually fell into negative territory for the first time in history. Mexico may try to save cash by buying put options at a lower level – known as a strike price. That would cost less, but such a hedge would only pay out if oil was at lower level. In the past, when oil prices were lower, Mexico has hedged fewer barrels to offset the higher cost, said one banker who has negotiated with Mexican officials in the past. “Without a doubt, the hedge for the coming year, if it’s done, will carry much higher premiums,” a source in the finance ministry said. “In this market, it’ll be complicated for the Mexican government.”