Petroleum Minister justifies fuel price hike
A combination of factors, including increased investment in development of basic infrastructure, had resulted in the frequent increase in fuel prices in the country, Minister of Petroleum and Natural Gas and Steel Dharmendra Pradhan told mediapersons here on Saturday. The road and rail sectors got the highest ever allocation in the recent Union Budget. There was a 34% increase in allocation for infrastructure projects. The tax collected from the sale of fuel is among the sources garnering revenue for that. Another priority area is welfare projects. Around 80% of India’s fuel is imported and oil-producing countries are demanding a higher price, since their economies are not in good shape. However, oil-producing countries had announced future pricing mechanisms where they had given some relief to Asian countries like India, he added. On why the government had invested ₹60 billion in a petrochemicals complex at the Kochi Refinery (which will be inaugurated by Prime Minister Narendra Modi on Sunday), even as BPCL’s disinvestment process was on, Mr. Pradhan said the project would help the process of India becoming self-sufficient, for instance, in the manufacture of paints, where ₹40 billion worth of items were imported every year. The private sector had much to offer, he said, citing the example of the Cochin International Airport, the first airport in the country to be built on public-private partnership model. “Air travellers are thus getting good quality service from the airport, at affordable cost.” On Hibi Eden, MP, approaching the Lok Sabha Speaker citing breach of privilege and protocol violation over him being omitted from the dais when the Prime Minister would launch four projects in Kochi on Sunday, the Minister said he had written to Mr. Eden. The MP had said that people’s representatives from the Congress were “deliberately omitted from the dais as part of a conspiracy” and that it showed that the BJP was “hand in glove” with the CPI(M). Ro-ro vessels Ports, Shipping and Waterways Minister Mansukh Mandaviya said the two container roll-on roll-off (ro-ro) vessels of the Inland Waterways Authority of India (IWAI), that Mr. Modi would launch in Kochi on Sunday, would play a role in taking container lorries off city roads by helping ferry containers through the backwaters and National Waterway III. Coastal shipping promoted by the Centre was also important in decongesting roads, he added. The vessels cost ₹125 million each and were built at the Cochin Shipyard. The IWAI has handed them over to Kerala Shipping and Inland Navigation Corporation (KSINC) for operation. Each of the vessels, m.v. Adi Shankara and m.v. C.V. Raman, has a capacity to carry six 20-ft trucks, three 20-ft trailer trucks, three 40-ft trailer trucks and 30 passengers.
Gulf expat exodus could continue until 2023, S&P says
The population in the Gulf Cooperation Council (GCC) states declined by about 4% last year due to an exodus of expatriates after the coronavirus crisis and lower oil prices, S&P Global Ratings said in a report on Monday. The oil producing region was hit hard last year as COVID-19 restrictions impacted non-oil economic sectors, and lower oil prices and crude output cuts weighed on its main income source. “We expect the proportion of foreigners in the region will continue to decline through 2023 relative to the national population, because of subdued non-oil sector growth and workforce nationalization policies,” S&P said. Gulf states rely heavily on foreign workers in sectors ranging from financial services to healthcare and construction, but efforts to nationalise the workforce to fight rising unemployment among nationals have accelerated in recent years. The overall GCC population is unlikely to return to 2019 levels of 57.6 million people until 2023, S&P said. “These changes could have repercussions for the regional economy and pose additional challenges to diversifying away from its heavy reliance on the hydrocarbon sector in the long run, if not met with economic and social reforms that foster human capital,” it said. S&P estimated the sharpest population decline last year occurred in Dubai, the Middle East business hub, where the impact of the pandemic on key employment sectors like aviation, tourism and retail led to an 8.4% population decline. In Oman, where the government has in recent weeks intensified a long-standing policy, known as Omanisation, to create employment for its citizens, the expat population declined by about 12% last year, the agency said. The region’s largest economy, Saudi Arabia, saw its population shrink by 2.8% last year, and S&P estimates a growth of 0.8% by 2023. The agency expects oil prices to remain at $50 per barrel this and next year, and to rise to $55 from 2023. “As these levels are below the fiscal breakeven oil price for all GCC sovereigns except Qatar, we expect governments will moderate public investment spending, which is the main impetus of non-oil growth in the region,” it said.
ONGC takes leaf out of Reliance’s book, floats subsidiary to buy own gas
Taking a leaf out of Reliance Industries Ltd’s playbook, state-owned Oil and Natural Gas Corporation (ONGC) is forming a new subsidiary for gas business that could be used to bid and buy gas from the firm’s own fields. The board of ONGC at its meeting on February 13 approved creation of a new wholly-owned subsidiary company for gas and liquefied natural gas (LNG) business value chain subject to necessary approvals, according to the firm’s third quarter earnings announcement. “The company is being formed with the objective of sourcing, marketing and trading of natural gas, LNG business, Hydrogen enriched CNG (HCNG), gas to power business, bio-energy/ bio-gas/ bio methane/ other biofuels business, etc,” it said. ONGC may use the new subsidiary to buy any new gas that the firm produces from fields such as KG-D5 in the Krishna Godavari basin, people with direct knowledge of the matter said. The government had in October 2020 allowed affiliates of gas producers to buy the fuel in open auction. This policy change allowed Reliance to buy two-thirds out of the additional 7.5 million standard cubic metres per day of gas it along with partner BP plc of UK plans to produce this year from the new fields in KG-D6 block. “ONGC too can look at this option now. The new subsidiary can participate in any auction that ONGC will do for incremental gas from KG-D5 block,” a source said. Besides ensuring competition and fair price discovery, the ONGC subsidiary can then sell the gas so sourced to firms such as Mangalore Refinery and Petrochemicals Ltd (MRPL) at a margin. This would help ONGC earn better margins on the gas produced. “Right now gas is a loss-making business for ONGC. The government controls gas price which is less than cost of production,” the source said. The government has fixed a price of USD 1.79 per million British thermal unit for ONGC’s fields. This is half of the cost of production. It allows a higher rate of USD 4.06 per mmBtu for difficult fields such as deepsea fields (KG-D6 and KG-D6) but even that is less than the cost of production from highly capital intensive projects. The current regulation means even if Reliance discovered a price equivalent of USD 6-7 per mmBtu for the 7.5 mmscmd of new gas from KG-D6, it would get only USD 4.06 till March 31. The same would apply for ONGC. It might discover a rate higher for the 15 mmscmd incremental gas planned from KG-D5 block but it can get only USD 4.06 as per current price. “So, essentially the ONGC’s gas subsidiary can bid and buy KG-D5 gas. It will pay ONGC USD 4.06 per mmBtu but can sell to MRPL or any other customer at a price higher than that, ensuring that the gas business becomes a viable proposition,” the source said. The government has given operators the freedom to discover market prices but this rate is subject to a pricing ceiling or cap that the government notifies every six months. The cap for six months to March 31, 2021 is USD 4.06 per mmBtu. In the February 5 auction, Reliance O2C Limited, an affiliate of Reliance Industries Ltd, picked up 4.8 mmscmd out of the 7.5 mmscmd gas auctioned. State gas utility GAIL (India) Ltd won 0.85 mmscmd of supplies while Shell picked up 0.7 mmscmd. Adani Total Gas Ltd got 0.1 mmscmd, Hindustan Petroleum Corporation Ltd (HPCL) 0.2 mmscmd and Torrest Gas 0.02 mmscmd. Other buyers included IRM Energy (0.1 mmscmd), PIL (0.35 mmscmd) and IGS (0.35 mmscmd), they said. Sources said the gas was bought at a price of USD 0.18 per million British thermal unit discount to JKM (Japan/Korea liquefied natural gas import price), that is price of JKM (minus) USD 0.18 with tenures ranging from 3 to 5 years. Reliance O2C is the new unit that holds the firm’s refinery and petrochemical assets. Earlier in November 2019, 5 mmscmd of natural gas was sold at a price in the range of around 8.6 per cent of Brent crude oil for tenure ranging from 2 to 6 years. That gas went to buyers like Essar Steel, Adani Group and state-owned GAIL. Reliance-BP started production of gas on December 18 last year from the R Cluster ultra-deep-water gas field in block KG-D6 off the east coast of India. The duo are developing three deep-water gas projects in block KG-D6 — R Cluster, Satellites Cluster and MJ — which together are expected to meet around 15 per cent of India’s gas demand by 2023. ONGC is developing a set of discoveries in the KG-D5 block which sits next to Reliance’s D6 area. ONGC’s fields, which began production last year at a limited rate of 1 mmscmd, are estimated to have peak production rates of 16 mmsmd of natural gas and 80,000 barrels per day of oil.
Oil hits 13-months highs on fears of Middle East tensions
Oil prices soared on Monday to their highest in about 13 months as fears of heightened tensions in the Middle East prompted fresh buying, while hopes that a U.S. stimulus and an easing of lockdowns will buoy fuel demand provided support. Brent crude was up $1.09, or 1.8%, at $63.52 a barrel at 0428 GMT, after climbing to a session high of $63.76, the highest since Jan. 22, 2020. U.S. West Texas Intermediate (WTI) crude futures gained $1.28, or 2.2%, to $60.75 a barrel. It touched the highest since Jan. 8 last year of $60.95 earlier in the session. Oil prices gained around 5% last week. The Saudi-led coalition fighting in Yemen said late on Sunday it intercepted and destroyed an explosive-laden drone fired by the Iran-aligned Houthi group toward the kingdom, state TV reported, raising fears of fresh Middle East tensions. “An early spike in oil markets was triggered by the news,” said Kazuhiko Saito, chief analyst at commodities broker Fujitomi Co. “But the rally was also driven by growing hopes that a U.S. stimulus and easing of lockdowns will boost the economy and fuel demand,” he said. WTI may be pulled back by profit-taking as it reached a key $60 level, he added. U.S. President Joe Biden pushed for the first major legislative achievement of his term on Friday, turning to a bipartisan group of local officials for help on his $1.9 trillion coronavirus relief plan. Oil prices have rallied over recent weeks also as supplies tighten, due largely to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the group OPEC+. “On top of that, robust global stock markets boosted investors’ risk appetite,” said Satoru Yoshida, a commodity analyst with Rakuten Securities. Asian shares advanced to record highs on Monday as successful coronavirus vaccine rollouts globally raise hopes of a rapid economic recovery amid new fiscal aid from Washington. “With cheap money supply amid monetary easing worldwide, swift rollout of the vaccine and tight supply from OPEC+ and U.S. shale oil producers, crude oil prices may be headed toward $70 a barrel,” Yoshida said.