USD 75 million investment so far in four OALP bid rounds, according to DGH
Having committed USD 2.3 billion investment, energy firms such as Cairn Oil & Gas spent USD 75 million (about Rs 550 crore) in oil and gas hunt in the first two years of India’s maiden open acreage licensing policy, according to the Directorate General of Hydrocarbons (DGH). In a bid to expedite oil and gas exploration and raise domestic production, the government had in 2018 launched the first bid round under the Open Acreage Licensing Policy (OALP) that allowed explorers to carve out desired areas for exploration and offered liberal terms. Five rounds have been concluded so far, with winners of the fifth bid round announced on Thursday. In the first four rounds, USD 2.317 billion investment was committed by firms such as Vedanta Group firm Cairn Oil & Gas, state-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd in 99 blocks awarded for exploration and production of oil and gas, according to the latest data put out by the DGH. Of this, USD 75 million has so far been invested till March 31, 2020, DGH, the upstream nodal authority of the Oil Ministry, said. OALP offers revenue sharing contracts where operators bid for a share of oil and gas they would share with the government, with the one offering the highest share winning the block. OALP replaced the New Exploration Licensing Policy (NELP) under which contracts were awarded to firms that committed to investing most in exploration of oil and gas. While OALP offers complete pricing and marketing freedom, the government had a role in deciding pricing as well as customers of gas in NELP rounds. The 1.38 lakh square kilometre of area offered for finding oil and gas in the first four rounds of OALP was double the acreage of the 254 blocks awarded in nine rounds of NELP between 1999 and 2010. The biggest chunk of USD 815 million was committed in the OALP-I round that saw Cairn Vedanta walking away with 41 out of the 55 oil and gas blocks on offer. Of this, only USD 46 million has been invested so far, DGH said. In 14 blocks of OALP-II, USD 452 million investment was committed, but only USD 2 million has been invested so far in exploration. The third round of OALP saw USD 709 million commitment in 23 blocks, of which USD 21 million has been invested. Only USD 6 million out of the USD 341 million committed in seven OALP-IV blocks have been invested so far. NELP attracted USD 29.15 billion investment since its launch in 1999 against the committed spending of USD 11.7 billion. Against the USD 11.728 billion committed for exploration in the 254 blocks awarded in nine rounds of NELP, USD 17.09 billion was invested. Another USD 12.061 billion was invested in developing discoveries made in those blocks. While no discovery has so far been made in the OALP blocks, 1,163.50 million tonnes of oil and oil equivalent gas reserves were established in NELP blocks. DGH had on October 22 announced the winners of the OALP-V round, with ONGC walking away with 7 out of the 11 blocks on offer. OIL won the remaining 4 blocks. The round attracted just 12 bids for the 11 blocks on offer. The previous bid round, OALP-IV, had also seen just eight bids coming in for seven blocks on offer. ONGC had walked away with all the seven oil and gas blocks on offer.
LNG tanker rates soar ahead of expected cold Asian winter
Shipping rates for liquefied natural gas (LNG) tankers have soared to their highest in a year ahead as demand for cargoes rose on expectations of a colder than expected winter in North Asia, shipping and trade sources said on Monday. The daily charter rate for shipping LNG on a 160,000 cubic metres tanker in Pacific and Atlantic basins are currently estimated to be about $85,000 to $105,000 a day, four shipbrokers told Reuters. Rates rose by $23,750 a day on Friday, the biggest daily rise since last October, said Tim Mendelssohn, managing director at Spark Commodities. Mendlessohn listed severeal reasons for what would have been an increase of around 29 per cent. “Strengthening cargo prices, an increasing arbitrage, no planned U.S. Gulf Coast cargo cancellations and a more bullish winter sentiment are driving charterers to secure LNG tonnage across both basins,” he said. “This is translating into significant increases in spot and front month freight rates in both the Atlantic and Pacific.” Asian spot LNG cargo prices rose to their highest since January on Friday on the back of firm demand from North Asian buyers ahead of a colder than expected winter, traders said. Monthly LNG shipments into North Asia are set to rise to their highest since January, primarily driven by a jump in demand from South Korea, shiptracking data from Refinitiv Eikon showed. There are also expected to be no cargo cancellations from the United States, after dozens of cancellations earlier this year, shipbrokers said. “Everyone’s holding on to their ships and are not sub-letting,” one of them said. LNG shipping rates are expected to improve further next year as demand recovers in the region once recovery from the coronavirus pandemic takes hold, said analysts from Jefferies Shipping Weekly. “We believe the LNG shipping market will improve in 2021 relative to a weak 2020 as global demand for LNG recovers post-COVID, especially in Northeast Asian markets,” they said in a note on Monday.
Taxes on petrol, diesel may go up further to mobilise additional revenue for Covid relief
The economic crisis triggered by the Covid-19 pandemic and subsequent pressure on revenues may again push the Centre to raise excise duty on petrol and diesel. Sources indicated that another Rs 3-6 per litre increase in excise duty on petrol and diesel may come soon if the government felt the need to mobilise more resources to finance additional economic recovery packages to fight Covid-19 related disruptions. This level of increase could provide government additional revenue to the tune of Rs 60,000 for full year. In the balance period, about Rs 30,000 crore could be mobilised. An internal examination to look at duty structure on the two products is on and exact timing of the announcement may be finalised soon, sources indicated. Government wants that any duty hike on petrol and diesel should not result in an increase in the retail price of the two products as it would not be popular with the consumers besides the increase could have inflationary implications on the economy. Experts said that current juncture would be ideal for an excise duty on petrol hike as petrol and diesel prices have not been revised for the past almost a month even though global crude prices have softened and reached about $ 40 a barrel from a month ago high of over $45 a barrel. In March, the government had taken Parliamentary approval to raise special additional excise duty on petrol to Rs 18 per litre and on diesel to Rs 12 per litre but did not change the levy then. In May, it raised special additional excise to Rs 12 on petrol and to Rs 9 on diesel. This leaves the government with the space to increase excise duty on petrol by a further Rs 6 per litre and on diesels by Rs 3 per litre. This option is being examined now. For consumers, any further increase in duty should not impact much as retail prices may be left unchanged or marginally increased as lower oil prices would allow for absorbing any increase in price. However, a further increase in taxes on fuel would make the product most taxed globally. The current taxes account for close to 70 per cent of the price of petrol and diesel. With any further increase in duty, this could reach 75-80 per cent level. Higher retail price is not an option for the government at this juncture as it could push inflation. With increased excise duty on petrol and diesel the government is already set to increase in oil revenue by close to Rs 1.75 lakh crore this year. This is in addition to over Rs 2 lakh crore it collects from petroleum products as annual excise revenue. Centres fiscal situation is stretched this year due to Covid-19 related disruptions and additional commitments to states over GST compensation shortfall. The fiscal deficit is already estimated at a high of 8 per cent of GDP for FY21.
Gas and tensions in the eastern Med
The discovery in recent years of huge natural gas reserves in the eastern Mediterranean has whetted the appetite of nearby countries but exacerbated geopolitical tensions between Turkey and its neighbours. Relations have been strained in recent months following Turkish exploration and drilling operations in waters claimed by both Cyprus and Greece. Here is the latest on these so-called “blue gold” reserves. – Cypriot fields – Cyprus, which has aspirations of becoming a major energy player in the region, has a key exclusive economic zone (EEZ), divided into 12 blocks and potentially rich in gas. Last November, it signed its first operating license with three Energy heavyweights, Noble Energy, Shell and Delek. The deals, which last 25 years, allow operations at the Aphrodite gas field, discovered in block 12 south of the island in 2011. Aphrodite’s reserves are estimated at 127.4 billion cubic meters (m3) of gas. In return, Nicosia is expected to earn revenues estimated at $9.3 billion over 18 years, according to calculations by its energy ministry. Italian firm ENI and France’s Total are also mounting exploration activities further west, particularly in block 6 at a site called Calypso, which could contain between 170 and 225 billion m3 of gas. Meanwhile further south in block 10, US giant ExxonMobil and Qatar Petroleum announced the discovery in 2019 of the Glaucus-1 field, which could house 130 billion m3 of gas. – Other fields – The East Mediterranean has been “an explorer’s paradise in the past decade with giant low-cost gas discoveries”, explained Aditya Saraswat and Pranav Joshi, analysts at Rystad Energy. In Israeli waters, local company Delek began exploiting the Leviathan field located 81 miles (130 kilometres) off the coast of Haifa in January 2020. Discovered a decade earlier, it is thought to contain 539 billion m3 of natural gas. The Tamar deposit — closer, at just 50 miles from Haifa — has been in operation since 2013 and its reserves are estimated at 238 billion m3. In addition, Israel has fields of smaller sizes, including Tanin and Karish. Neighbouring Egypt also has a gigantic offshore field, Zohr, discovered in August 2015 by ENI, which could house 850 billion m3. – Gas pipeline – To transport this abundance of gas to the rest of Europe, and help meet its aim of reducing energy dependence on Russia, Cyprus, Greece and Israel struck an agreement in December 2018 to build a gas pipeline, called East Med. This 1367-mile pipeline is set to pass 106 miles south of Cyprus and end in Otranto, in southern Italy after crossing the Greek island of Crete and mainland Greece. The cost of its construction is estimated at $7 billion and it should be able to transport 20 billion m3 of natural gas annually. However, building the pipeline is still several years away and it would not be operational until 2025 at the earliest. In the meantime regional tensions abound, with Greece accusing Turkey of violating international maritime law by prospecting in its waters. Ankara maintains that it has the right to conduct energy research, arguing small Greek islands near its coast do not preclude it from exploring the vast waters of the eastern Med. It dispatched a gas exploration vessel there in August, but after provoking a storm of regional controversy withdrew it shortly before a European summit in early October. Turkey also maintains a fraught relationship with its Cypriot neighbour, decades after its 1994 invasion of the northern part of the island in response to a coup by Greek Cypriots wishing to unify with Greece. Formal discussions on reunification have stalled since 2017. Israel’s turbulent relations with its neighbours add to regional tensions, including an ongoing dispute with Lebanon over an offshore zone. While the Jewish state has been exporting natural gas from the Leviathan and Tamar fields to Egypt since January, Jordan has passed a motion to ban Israeli gas imports, undermining a 2016 agreement allowing them.
Chevron bets on Middle East gas riches and reconciliation
After years of focusing on U.S. shale, Chevron Corp is staking its natural gas future on the Middle East, a volatile and divided region where energy majors have long tread warily. CEO Michael Wirth’s pivot away from home is underpinned by a bet that the Middle East is entering an era of reconciliation that will make it ideal for tapping natural gas, as demand for the cheaper and cleaner fuel is forecast to outstrip oil. The new strategy is seeing the company pitch new gas deals in Egypt, Israel, Qatar, while cutting spending on American shale exploration. The plan is anchored by Wirth’s $11.8 billion purchase this month of U.S.-based Noble Energy, which holds a stake of about 40% in the aptly-named Leviathan gas field in the Mediterranean Sea, off the coast of Israel. “Five years ago the Eastern Med wasn’t viewed as endowed from a resource standpoint as I think most people would say today. That’s a fundamental shift,” Wirth told Reuters in an interview. “There’s not a lot of capital investment required in the near term,” he said. “At a time when cash flow matters, that’s a very appealing attribute.” The deal brings an alliance with Israel that has been smoothed by the narrowing of some historical rifts in the region, such as the establishment of formal ties between Israel and the United Arab Emirates in an agreement signed last month. Wirth said Middle Eastern commercial and diplomatic relations “are becoming more codified and stronger, that’s a trend that we think augurs well for the region.” Chevron also made a courtesy call about the Noble deal to officials in Saudi Arabia, a key partner in several Chevron oil projects and a nation with historically strained relations with Israel, according to a senior source at the U.S. company. The Saudi government media communications office did not respond to a request for comment, while Chevron said it did not discuss details of meetings. RISKS AND RENEWABLES Yet the regional political and security risks that have deterred some companies in recent years still exist. Syria and Yemen are riven by wars, with uncertain consequences for a wider region where archrivals Saudi Arabia and Iran are waging a proxy battle. Just this January, the U.S. killing of Iranian general Qassem Soleimani in Iraq – and a reprisal by Tehran – illustrated the instability of the Middle East and threatened to engulf it in conflict. Despite such risks, Chevron – which at one point leap-frogged rival ExxonMobil this month to be the largest U.S. oil company by market value – is plowing ahead with efforts across the region. The Leviathan field and others nearby have the potential to become major factors in regional fuel supplies. Chevron could send gas to a Egyptian liquefied natural gas (LNG) plant that could ship the fuel to Europe or Asia, Wirth said. European and Asian nations have been moving toward gas, solar and wind, and away from coal and nuclear power. “The reality is you need gas in tandem with renewables,” said Christopher Kalnin, CEO of Banpu Kalnin Ventures, which invests in U.S. shale gas. Asia in particular will remain dependent on imported gas, he said, because it complements solar and wind. Global gas demand through 2025 is projected to rise 1.5% per year on average, largely on growing purchases by customers in China and India. In contrast, oil consumption may have already peaked at last year’s 100 million barrel per day (bpd) level, forecasters say, and this year could sink to 91.7 million bpd, a seven-year low. PERMIAN COST-CUTTING The Middle East produces a third of the world’s oil and one sixth of its natural gas, and has long drawn the interest of foreign oil companies. Chevron produces fewer barrels of oil and gas in the region than other majors, according to Rystad Energy data, but it is the only major to have had a continuous presence in Saudi Arabia for 70 years and has maintained good relations with governments in the region. “Chevron is extremely good at what I would call crown jewel government relations, big assets in challenging countries,” said Robin West, a board member of Spanish oil major Repsol SA and head of Boston Consulting Group’s Center for Energy Impact. “They very quietly work away at things.” The Noble deal fits Wirth’s effort to adapt to a low-cost energy world and expand in Qatar, Egypt and Iraq. It brought Chevron nearly 1 billion cubic feet of natural gas reserves, and ensures it remains among the world’s top 10 gas suppliers. “The size of the opportunity was way beyond the capacity of a company like Noble,” said a former Chevron executive who declined to be identified because of ongoing relationships. The purchase may help Chevron’s bid for a stake in Qatar’s LNG production expansion, where it is competing with Exxon, Shell and Total SA, among others. Chevron also recently signed a preliminary agreement for oil exploration in southern Iraq. Wirth cautioned that negotiations were ongoing: “There’s no certainty of outcome on either of those.” Wirth has, meanwhile, intensified his cost-cutting at home. Chevron has slashed its spending in the top U.S. shale field by half, to around $2 billion this year. It had just four active drilling rigs in the Permian Basin as of September, down from 16 in March, according to consultancy Rystad Energy.