Australian gas producer Santos raises 2020 production forecast
Australia’s No. 2 independent gas producer Santos Ltd on Tuesday raised its 2020 output forecast and lowered its production cost expectations, delivering on measures taken earlier this year in response to the COVID-19 pandemic. The Adelaide-based company lifted its production forecast to a range of 87 million barrels of oil equivalent (mmboe) to 89 mmboe, with costs expected to be between $8 and $8.5 per barrel of oil equivalent (boe). “Our base business is strong with production levels expected to remain relatively steady for the next decade and providing significant free cash flow,” said Chief Executive Officer Kevin Gallagher in a statement. Santos in July had forecast output of between 83 mmboe and 88 mmboe in fiscal 2020, and production costs of between $8.25 and 8.75 per boe. Earlier this year, Santos had cut its full-year capital spending by $550 million, targeting free cash flow to breakeven at an oil price of $25 per barrel. The company on Tuesday also hiked its expectations of cost savings from the integration of ConocoPhillips’ Northern Australia business to a range of $90 million to $105 million per year, from $50 million to $75 million per year forecast earlier.
Petrol prices witness steep rise following successive rate hikes
Petrol prices have scaled a 25-month peak following successive rate hikes by state oil companies in the last ten days. Since 19th November, petrol prices have risen by Rs 1.28 per litre while diesel prices are up by Rs 1.96 per litre. Petrol sold for Rs 82.34 per litre on Monday in Delhi, the highest since 19th October 2018. Diesel sold for Rs 72.42 a litre, the highest since 16th September this year. Petrol and diesel rate rise has followed a sprint in international crude oil prices that are up a quarter in November. Crude oil is trading around $47 a barrel currently. Hopes that an effective vaccine could help contain the pandemic and the consequent demand damage, and the possibility that key producers’ cartel would roll over supply cut have boosted oil prices. Members of the Organisation of Petroleum Exporting Countries, Russia and smaller allies will decide in a two-day meeting starting Monday on whether to extend output cut. Domestic fuel prices are expected to be aligned with the international rates of fuel daily but they often diverge.
CNG stations at petrol pumps not to be opened for third party access
CNG stations anchored on petrol pumps will not be open to third party hiring, gas regulator PNGRB has said. Also, oil marketing companies – such as Indian Oil Corp (IOC) – will be barred from setting up their own CNG dispensing units in their petrol pumps that have been let out for CNG supplies to a city gas licensee. Petroleum and Natural Gas Regulatory Board (PNGRB) has notified the final regulations, governing open access for city gas distribution (CGD) networks whose marketing exclusivity period has ended. After the expiry of the exclusivity period, which is of minimum five years, third parties can access pipelines that carry gas within a city as well as district regulatory stations for a fee, PNGRB said in the notification. However, “CNG compression and dispensation related equipment and facilities” will not be shared or be part of common infrastructure, it said. As per the law, PNGRB gives out licences to entities for the retailing of CNG to automobiles and piped natural gas to household kitchens and industrial users with a specified area. Any entity winning the licence has a period of exclusivity of operations, after which the city is open for other entities to operate. PNGRB, in the notification, detailed the methodology for the determination of transportation rates for the pipelines with a city distribution network. A third party can access pipelines with the city to sell gas to an industry or a domestic consumer. They can also use the same for transporting their own fuel to a CNG station it may set up. Commenting on the regulation, Citi Research said the final version of the access code appears significantly more watered down. “The PNGRB has stated that the intent of the regulation is the creation of additional infrastructure and, based on our initial read of the regulations, clarified that existing CNG stations on oil marketing companies (OMCs) outlets (petrol pumps) shall not be considered for allowing the third party open access,” it said. In other words, the fear that the OMCs, whose outlets the CGDs extensively use for retailing CNG, would be able to retail the fuel on their own after open access was implemented may now not transpire, it said. Kotak Securities Ltd said PNGRB’s gazette notification on access code for CGD network suggests that the existing stations operated by dealers and franchises of authorised entities, including OMCs, will not be provided open access. “This regulation will prohibit the OMCs from setting up their own dispensing units in their existing network, that has been let out for CNG supplies on behalf of authorised CGD entities; it may also reduce the bargaining power of OMCs to negotiate trade discounts, which anyway have been passed on to end-consumers historically. “This could additionally also reduce the bargaining power of the OMCs which had recently sought a steep 90-100 per cent hike in CNG commissions,” Citi said. The biggest beneficiaries of this should be Mahanagar Gas Ltd (the firm that retails CNG in Mumbai) and Indraprastha Gas Ltd (Delhi) for whom CNG constitutes about 73 per cent of total volumes (OMC stations comprise 72 per cent and 57 per cent of their total CNG outlets, respectively). “The final regulation also clarifies that CNG compression remains a part of infrastructure exclusivity and would therefore be retained by the incumbent CGD, i.e., a third party will only be permitted to set up its own CNG dispensing facilities (and cannot set up compression facilities),” Citi said. This would likely be a significant deterrent for a third party new entrant as it could lead to a material increase in costs (for the transport of compressed gas) and reduction in flexibility, it said. PNGRB has also removed certain onerous conditions pertaining to the cancellation of the incumbent CGDs’ infrastructure exclusivity in the final version of the regulation. Kotak said the regulator seems to have incentivised the creation of new infrastructure to foster competition instead of encouraging competition in the existing network, which could have benefited consumers by a plausible reduction in CNG margins and in turn, prices. “To be sure, open access will be provided for new CNG stations; however, OMCs may have limited fuel retail outlets with adequate available space to let out for CNG infrastructure in cities like Delhi and Mumbai,” it said. “Further, the economics in these cities may not be compelling enough to set up a new outlet given the high cost and limited availability of land – authorised CGD entities have struggled to add more outlets in these areas in recent years.” It is, however, not clear if the existing captive stations of state transport units such as DTC and BEST will be provided open access or not.