India May Become Guyana’s Most Important Oil Client
Nowadays one of the main buzz stories of the crude market has been focusing on Indian oil demand slumping as a consequence of the COVID-19 surge. As painful as India’s travails might be, the past weeks also seem to be giving traction to a new partnership, one that perhaps would aid the country in its quest of decreasing its massive oil imports bill. Considering its geographic remoteness from India, Guyana could be seen as one of the least viable alternatives to supply crude. Below the surface, however, there are many reasons indicating that India’s Guyana deal indeed would come to fruition. India needs new sources of supply, whilst the Guyanese government needs a reliable and long-term partner for its own equity, having so far failed to find a marketer for its crude. India has reached out to Guyana, lured by the opportunity of marketing the crude entitlement of the Guyanese government. Liza started producing in January 2020 and the first 3 entitlement cargoes were allotted to Shell. When the Shell tender ran out, newly elected President Irfaan Ali has directly contacted other Stabroek stakeholders and then opted for Hess, committing 2 Suezmax cargoes in January-February 2021. Simultaneously the new Guyanese authorities have launched a longer-term tender that would finally satisfy the new political elite – unfortunately for Georgetown only the Russian oil firm Lukoil presented a qualified bid of the more than two dozen interested companies so the Ali Administration has relaunched the process once again, saying that it would seek direct negotiations instead of the tendering process. Thus, the prize at stake are 5-6 Liza cargoes per year, of which at least two have already been taken and moved out. Of course, should an Indian company land the deal it would most probably go beyond the year 2021. Moreover, once ExxonMobil launches the 2nd phase of Liza (assumed to take place in 2022-2023) the number of cargoes would almost triple. Interestingly, the above-mentioned Liza cargo going to India was purchased and eventually refined by private refiner Hindustan Petroleum-Mittal Energy, however the talks on India potentially becoming Guyana’s marketer were conducted on a governmental level, implying that there might be a place for one of India’s state-owned refiners in the suggested scheme. According to India’s High Commissioner to Guyana, it would be the national NOC, the Indian Oil Corporation (IOC), that would be involved in the purchase scheme. It is against this background that the Indian government has initiated negotiations with Georgetown. To back its claim, India has bought its first-ever Guyanese cargo in March 2021, the Suezmax-sized cargo arrived on April 08. There have been no new India-bound purchases of Liza since. Thus, India’s overall share in Guyanese exports remains rather slim – most of cargoes have been split between Panama, the United States and China. As we will see below, Panama only acts a transhipment site and does not refine Guyanese crude, meaning that Liza’s most likely market outlets are located on the US East Coast and in southern. When checking various data providers on the final destination of respective Liza cargoes, Panama would come up as the most frequent one (averaged 78kbpd so far this year). In reality, none of the Liza cargoes actually end up in Panama, most of them are getting transhipped for further deliveries in the Pacific region. Thus, both Panama-bound Liza cargoes of April 2021 have eventually ended up in California – one in Benicia (San Francisco) and the other in Long Beach (Los Angeles). In March 2021, two nominally Panamanian cargoes went to California and the other landed in Quanzhou, China. There are two main tenets in India’s interest in Guyanese crude. The first, economic, stems from India’s willingness to diversify its crude imports away from the Middle East. Despite its current COVID-triggered difficulties, India’s appetite for crude will continue to increase in the upcoming years. India has been voicing its discontent with OPEC pricing and production policies and securing a new stream would come in very handy for Indian refiners. The second link between Guyana and India might be less evident however still deserves to be noted – the Indo-Guyanese represent the largest ethnic group in Guyana, making up almost half of the population. As opposed to the previous President David Granger (who was Afro-Guyanese and sought no overtures vis-à-vis India), Guyana’s new head of state Irfaan Ali is Indo-Guyanese and this cultural affinity seems to be drawing the two nations together. Even if New Delhi and Georgetown manage to iron out all differences in the upcoming weeks and the Guyanese government is not hindered by political obstructionism, increasing the government’s take to more than 1 cargoes every two month would require substantially increasing overall output levels, at least to stabilize it. Liza production has been hindered by recurring problems with the Liza Destiny FPSO, as recently as this April ExxonMobil was forced to cut down on production rates because of a discharge silencer, an element of the recently reinstalled gas compressor. Unfazed by the upstream helter-skelter, the Guyanese-Indian negotiations are poised to continue, primarily in an effort to find a mutually acceptable pricing formula. How to gauge the progress on the Indo-Guyanese talks? The next Liza cargo that should go to Guyana’s government is due this June – check out where it goes.
Intense bidding for KG-D6 gas in e-auction on DGH-approved platform; O2C, IOC bag supplies
As many as 14 users across sectors slugged it on a third party electronic platform for seven-and-half hours to secure natural gas supplies from the eastern offshore KG-D6 block before the oil-to-chemical (O2C) unit of Reliance Industries Ltd bagged most of the supplies, sources said. Reliance Industries Ltd and its partner BP Plc of the UK, who are bringing a second set of gas discoveries in their Bay of Bengal KG-D6 block, had offered 5.5 million standard cubic meters per day of additional gas in the auction for a flexible tenure of between 3 to 5 years. Gas users companies like Indian Oil Corporation (IOC), Reliance O2C, GAIL Gas, Adani Total Gas Ltd, Torrent Gas, Torrent Power and gas trading companies like GAIL, Shell and IGS were locked in the intense bidding war on the e-auction that happened on May 5, sources in the Reliance-BP consortium said. At the end of the intense bidding war, Reliance O2C walked away with 3 mmscmd of supplies, offering better prices than competitors, they said. India Gas Solutions (IGS) – a gas sourcing and marketing joint venture of Reliance and BP – bagged another 1 mmscmd, while IOC got a similar volume. The remaining volume was picked by Adani Gas (0.15 mmscmd), IRM Energy (0.10 mmscmd), GAIL (30,000 cubic meters per day) and Torrent Gas (20,000 cubic meters per day). This is the third auction that Reliance-BP conducted on a third party independent platform approved by the Directorate General of Hydrocarbons (DGH). The online web-based electronic bidding platform of CRISIL Risk and Infrastructure Solutions Ltd (CRIS) was also used for e-auction in February this year as well as in 2019. In the three auctions, Reliance-BP has sold around 18 mmscmd of domestic gas from new fields in the KG-D6 block, which would help substantially reduce reliance on imported LNG, the sources said. In the May 5 auction, Reliance-BP had asked bidders to quote a price linked to Platts JKM (Japan Korea marker), the liquefied natural gas (LNG) benchmark price assessment for spot physical cargoes. The lowest bid that could be placed was JKM minus USD 0.3 per million British thermal unit. The highest acceptable bid would be JKM plus USD 2.01 per mmBtu. The bidding, they said, started with a USD 0.45 discount to JKM price and intense competition led to the discovery of a price of JKM minus USD 0.6 per mmBtu (discount of USD 0.6 to ruling JKM price). The intense competition indicates a preference for domestic gas vis a vis LNG for Indian consumers. At current prices, the discovered price translates into a price of about USD 9 per mmBtu, but the buyers will be required to pay only the cap or ceiling price that the government has set for such fields. The government sets a cap or ceiling rate at which natural gas from difficult fields like deepsea can be sold. This cap for the period April 1, 2021, to September 30 2021 is USD 3.62 per mmBtu. Even though the gas prices for April-September 2021 are capped by the government notified ceiling price of USD 3.62 per mmBtu, the discovered formula would result in a price of more than USD 6 per mmBtu in the second half of the fiscal and more than USD 7.5 thereafter as the ceiling price will go up in lag with international prices, they said. Ceiling prices are set by the government based on international prices prevailing in the last 12 months with a three months lag. With the return of demand, international rates have rebounded, which will reflect in the prices in the second revision due on October 1. In February this year, Reliance-BP sold 7.5 mmscmd of natural gas at a price of JKM minus USD 0.18 and in November 2019, they sold 5 mmscmd of gas at a price in a range of 8.5 to 8.6 per cent of Brent crude oil. Reliance-BP has been developing three sets of deepsea fields in the KG-D6 block — R-Custer, Satellite Cluster and MJ — which together are expected to produce around 30 mmscmd of gas by 2023, meeting up to 15 per cent of India’s gas demand. R-Cluster, which started producing in December last year, will have a peak output of 12.9 mmscmd, while satellites, which started producing a couple of weeks back, would produce a maximum of 7 mmscmd. MJ field will start production in the third quarter of 2022 and will have a peak output of 12 mmscmd. Reliance has so far made 19 gas discoveries in the KG-D6 block. Of these, D-1 and D-3 — the largest among the lot — were brought into production from April 2009 and MA, the only oilfield in the block was put to production in September 2008. While the MA field stopped producing last year, output from D-1 and D-3 ceased in February. Other discoveries have either been surrendered or taken away by the government for not meeting timelines for beginning production. Reliance is the operator of the block with 66.6 per cent interest, while BP holds the remaining stake