India, Nepal hold JWG meeting, discuss new pipelines for petroleum products
India and Nepal had a Joint Working Group meeting last week, during which the two sides discussed future areas of cooperation in the petroleum energy sector, including possibilities of new pipelines for supply of petroleum products to the Himalayan nation, said the Indian embassy on Saturday. The second meeting of India-Nepal Joint Working Group (JWG) on oil and gas cooperation was held through video conferencing on August 13, the embassy said in a statement. The meeting was co-chaired by BN Reddy, Joint Secretary in Ministry of Petroleum and Natural Gas and Prem Kumar Shrestha, Joint Secretary in the Ministry of Commerce, Industry and Supplies, Government of Nepal, the statement stated. Representatives from the Embassy of India in Kathmandu, Indian Public Sector Oil and Gas companies such as IOCL, GAIL and HPCL, Ministries of Finance and Foreign Affairs of Nepal and Nepal Oil Corporation (NOC) participated in the JWG meeting. “The meeting expressed satisfaction on functioning of the Motihari-Amlekhgunj Petroleum Products Pipeline, which was jointly inaugurated and operationalised by Prime Ministers of both countries in September 2019,” the release stated. The pipeline, first of its kind in South Asian region, has been supplying the majority of the fuel requirement of Nepal to Amlekhgunj Depot of NOC. “Both sides also discussed future areas of cooperation in the petroleum energy sector, including possibilities of new pipelines for supply of petroleum products to Nepal,” the release stated. “Both sides encouraged their respective companies to work closely for expanding engagement in the petroleum sector,” it added. The JWG mechanism was set up in 2017 to further strengthen the long-standing cooperation between IOCL and NOC and diversify areas of cooperation between the two countries in the oil and gas sectors. The first meeting of the JWG was held in January this year in New Delhi
Saudi Aramco continues to explore India investment plan
Worlds largest oil company Aramco remains committed on its investment plan in India, including a $15 billion deal with Reliance Industries, even though Covid-19 pandemic has made life difficult for oil companies with suppressed demand and falling oil prices and wide scale erosion in valuations. Replying to a query from IANS, Aramco said that it remains interested in all its Indian investment plan and will give appropriate updates soon. This would include proposed $15 billion investment in RIL’s refinery and chemicals business. Doubts were raised about investment plan of Saudi Aramco after the oil giant reported a 50 per cent fall in net income for the first half of its financial year, reflecting a devastating year for oil markets and the global economy at large as the world continues to battle the coronavirus pandemic. “Aramco continues to explore potential growth opportunities in Asia including India,” the company said in an e-mail reply. “We are still engaging in discussions with Reliance Industries and will make appropriate updates as and when necessary,” it added. Apart from the Reliance deal, Saudi Aramco has expressed its desire to participate in several other ventures in India, the world’s third biggest oil consumer. There have been government-to-government discussions for Aramco to pick up entire government’s stake in state-run refiner Bharat Petroleum Corporation Ltd. This would give the Saudi entity presence in vast Indian retail market with huge potential for growth. Indian government is also looking at Aramco’s investment in $60 billion oil refinery proposed in Maharashtra as well get its investment oil marketing and retailing in the country. The oil giant is also exploring options to put some of its oil in India’s strategic oil reserve. Despite the concerns for the oil market, analysts have said Aramco was better prepared to weather market volatility, owing to its size and scale, its low cost of production and solid free cash flow generation in a weak oil price environment. This is good news for its investment plan for Asia. India’s Ministry of Petroleum and Natural Gas recently notified liberalised guidelines for bulk and retail marketing of petrol and diesel, offering new opportunities for foreign oil companies, including those in the Gulf, to enter this lucrative energy business. India is one of the biggest markets in the world for petrol and diesel with retail and bulk domestic sales growing by approximately eight per cent a year. Leading global energy companies, including Saudi Aramco, Total of France and Trafigura, headquartered in Singapore, have been urging the Indian government to allow them to enter the retail segment of fuel marketing. “The simplified guidelines aim at increasing private sector participation, including foreign players, in the marketing of motor spirit (petrol) and high speed diesel. An entity desirous of seeking authorisation for either retail or bulk must have a minimum net worth of rupees 2.5 billion at the time of making the application and rupees 5 billion in case of authorisation for both retail and bulk,” the notification said. To get approval for retail marketing, a company must undertake to set up at least 100 sales outlets across India. “The policy has opened up the marketing sector of petroleum products by removing the strict conditions applicable earlier,” the Ministry claimed. “The new policy has the potential to revolutionise marketing of transport fuels in the country. It will also encourage dispensing of alternate fuels and augmentation of retail network in remote areas and ensure higher levels of customer service,” the notification said. Until now, oil firms seeking to enter fuel retailing business had to have specified investments in refining, pipelines, oil exploration and production or terminals in India. Only Indian state-run oil companies had such investments, restricting fuel marketing business to these companies.
Petronet CEO gets 27% salary raise in FY20; Search launched for new chief
India’s biggest gas importer Petronet LNG Ltd gave its outgoing chief executive Prabhat Singh a record 27 per cent rise in remuneration in FY20 and has now begun a search for a new CEO on modified terms that made just retired executives of PSUs ineligible. Singh, who completes his five-year term as managing director and CEO next month, took home a record Rs 18 million in fiscal 2019-20 (April 2019 to March 2020), according to Petronet’s latest annual report. This included Rs 2.25 million commission on profit. Petronet, which is registered as a private limited company but is headed by the oil secretary, had paid him a total of Rs 14 million in the previous fiscal. The salary paid to the CEO of Petronet is much higher than that is drawn by chairmen of its promoter PSUs, namely GAIL, IOC, ONGC and BPCL. Singh was appointed CEO of Petronet on September 14, 2015, and that year he took home Rs 4.04 million (the remuneration for six-and-a-half-months). In the following year, he took home Rs 10.8 million. Though Singh, 63, was eligible for an extension till he achieved superannuation age two years later, Petronet has begun a search for a new CEO. The company has invited applications from eligible candidates by September 9, according to a notice. “The candidate should be aged minimum of 48 years and maximum of 60 years on the date of vacancy i.e. September 14, 2020,” it said. Also, the “applicant must, on the date of application, as well as on the date of interview, be employed in a listed company with a turnover of Rs 50 billion or more,” it said. This is a new clause and essentially bars executives of gas utility GAIL (India) Ltd, refiners Indian Oil Corp (IOC) and Bharat Petroleum Corp Ltd (BPCL) and explorer Oil and Natural Gas Corp (ONGC) who have either just retired from service after attaining 60 years of age or are due to superannuate this month. The ’employment status’ was not an eligibility criterion when past CEOs including Singh were appointed, sources in the know said. The selection of the new CEO will be done through a search committee of the board of Petronet, where state-owned GAIL, IOC, ONGC and BPCL hold 12.5 per cent equity stake each. Chairmen of promoter PSUs are normally the nominee director on the Petronet board. The notice also stated that the candidate “should have held the position of a director on the board of the company (with a minimum turnover of Rs 50 billion) in the oil and gas/hydrocarbon sector (public limited company”. “The position carries an attractive perquisite which includes retiral benefits, performance incentive, company vehicle, medical facility, post-retirement medical scheme, group term-life insurance, group personnel accident insurance, etc, as per company’s policy,” it said. Petronet operates liquefied natural gas (LNG) import terminal at Dahej in Gujarat and Kochi in Kerala. The Mumbai listed firm had a turnover of Rs 350 billion in FY20. Alongside the CEO’s position, Petronet also advertised for Director (Business Development and Marketing), seeking candidate between the age of 48 and 57 years who are on “regular/permanent” employment with a PSU or private company “in the grade/position of maximum two-level below the board.” The employment status eligibility is also first for a director appointment.
Surge in spot Asian LNG prices looks good on paper, but deceives: Russell
The spot price of liquefied natural gas for delivery to north Asia has more than doubled since hitting an all-time low earlier this year, but the gain is more impressive on paper than in reality. The spot price ended last week at $4.10 per million British thermal units (mmBtu), its highest since mid-January and 122 per cent above the record low of $1.85 touched in separate weeks at the beginning and end of May. While traders playing the spot market could in theory have booked major profits from such a strong percentage increase, the reality for LNG producers selling into Asia is somewhat different. Spot LNG prices in Asia tend to be cyclical, with the high point for the year coming in the peak of northern winter demand, and generally a smaller peak occurring during the summer demand period. The economic fallout from the novel coronavirus pandemic, coupled with a surge in supply, has upended the usual cyclical behaviour of spot prices, with a clear downtrend from the pre-winter peak of $6.80 per mmBtu in October last year to the lows in May. The recovery in spot prices may not be driven mainly by improving demand, rather it may be linked to rising prices of natural gas in the United States and Europe due to a hotter than usual summer boosting air-conditioning demand for electricity. U.S. natural gas futures have gained 65.2 per cent between the closing low for the year so far of $1.482 per mmBtu on June 25 to the $2.448 finish on Aug. 21. Similarly, UK natural gas futures have leapt 168 per cent from their year-to-date low of $1.027 per mmBtu to the close of $2.755 on Aug. 21. The increase in these two benchmarks is likely a catalyst for spot Asian LNG’s recent gains, as well as some signs that supply had been tightening, with a maintenance shutdown scheduled for Chevron’s Gorgon project in Western Australia and cancellations of U.S. cargoes. However, the supply issues may not have much impact, with Gorgon now undergoing a phased shutdown, and more U.S. cargoes expected in coming months. Buyers of U.S. LNG are expected to cancel 10 cargoes for October, the lowest number for at least four months, according to trade sources citied by Reuters. There is some evidence of improving LNG demand in north Asia, a region that includes Japan, China and South Korea, the world’s three biggest buyers of the super-chilled fuel. LNG imports by countries in north Asia are on track to be around 16.6 million tonnes, according to Refinitiv data, which would be the strongest month since February. SPOT PRICE STILL WEAK However, it’s worth noting that the current spot price for Asian LNG is barely enough to incentivise more cargoes to be offered in the market. Most U.S. projects require a price of $5-$6 per mmBtu to make shipping to Asia profitable, while Australia’s east coast ventures based on coal-seam gas are believed to need a spot price of at least $3.50 to make money, although the west coast projects need a far lower number of closer to $2. This means that even the recent sharp rise in the spot price isn’t enough to make U.S. exports to Asia viable on a spot basis, while Australian producers are only just in the money. A further concern for producers selling into Asia on longer- term, oil-linked contracts is that the lag typically built into these deals means that they are likely receiving less money for cargoes being delivered this month and next. The price of benchmark Brent crude futures dropped to a 22-year low of $15.98 a barrel on April 22, at the peak of the brief price war between top exporters Saudi Arabia and Russia. While the price war ended with an agreement by the group known as OPEC+ to deepen and extend crude production cuts, the crude-linked LNG that would have been arranged when the oil price was weak is likely being delivered in the third quarter. While the recovery in Brent to trade in a range around $44 a barrel will once again boost oil-linked LNG prices, this will likely only be a factor in the fourth quarter. This means that for the current quarter many LNG producers will be having to deal with weak oil-linked contract prices, as well as spot prices that are still soft in historical terms.
More oil and gas bankruptcies coming
Bankruptcies in the U.S. oil patch are on the rise after the global pandemic decimated demand. But shale companies were struggling before COVID hit, loading up on debt before prices came crashing down. Law firm Haynes and Boone counted nearly 500 bankruptcies among oil and gas companies since 2015, with 60 so far this year, and 18 filings in July alone. Buddy Clark, co-chairman for the firm’s energy practice, expects those bankruptcies to accelerate. His Dallas-based firm represents oil and gas clients in bankruptcy court, primarily creditors such as commercial banks and private equity firms. Clark explains that oil prices were soaring above $140 a barrel when hydraulic fracturing techniques were perfected, giving rise to a new, highly-leveraged industry overnight. Oil is now hovering around $42 a barrel. Answers have been edited for clarity and length. Q: How did we get into this situation with oil and gas companies increasingly going bankrupt? A: This new industry required, instead of 10 acres or 40 acre-tracts to drill oil, it required 1,000 acres, 2,000 acres, to properly exploit the shale. That required an incredible amount of capital. To play the game you had to acquire the leases and spend a lot of money drilling wells before you even saw a dime coming out of the ground. Nobody thought it was sustainable, but the anticipation was you develop the reservoir and you can then start producing, or you can take that property that you explored and developed and flip it to a bigger company. There certainly was a food chain that was established. But all those dominoes fell when the commodity price no longer kept propping up that business plan. And so when the dominoes fell, they fell hard, and they fell across the board. Q: The oil industry has been through a lot of ups and downs. What makes this downturn different? A: You can go back to the early 1900′s, when every time a new boom town was founded, the supply just overwhelmed the market so prices collapsed. What’s different now is the demand destruction. It’s going to take a long time to recover, and the question is does it ever recover, or do we see alternative sources of fuel taking up the slack? Q: Are you expecting bankruptcies to continue to accelerate in the oil and gas sector? We’re going to continue to see more pain in the industry. If you would tell me we could find a cure for COVID tomorrow, I could give you a much better, clearer idea of what’s going to happen. There is no clear future, so it makes it harder for people to invest in new properties, new companies, new employees. Prices will probably come up a little bit, but probably not high enough or fast enough for a number of companies that are still going to be filing for bankruptcy. Q: What types of companies are struggling the most? The new market entrants – they were late to the game but took on debt and then prices collapsed before they could establish any value. You’re also seeing the companies that bought on the fringes of the best plays. The other group you could look at are those with debt maturities coming up and there’s billions of dollars coming due in the next two to three years. But it’s not just these new market entrants that are hurting. There are some very substantial companies that have also filed. Q: Are you encouraging loans to or investments in shale companies? The lenders are only going to get a fixed return in investment, which is very low so there’s no value in them taking any risks at all. Private equity’s model right now is buy distressed assets, hold on through this downturn and then be in a position to flip or go public with the assets. Investments are being made, but it is not the go-go days that you saw between 2010 and 2014, where the banks could not throw enough money at these companies. Q:. You represent banks. Are they writing off oil and gas loans at this point? Most of the larger commercial banks have written down a substantial amount of their portfolio, which is very unheard of. Banks are taking hits this time around in 2020 that they didn’t take in 2015-2016. There was a smaller oil and gas lender that had a portfolio of loans outstanding, and they sold them for half that price. That’s a pretty stark indication of where the banks are valuing their loans. But the larger institutional commercial banks, you don’t see them selling off their loans. They’re going to hold onto it. If you sell at the bottom, you’ve locked in that loss.