EU countries seek to prolong bloc’s funding for gas projects
European Union countries will seek to prolong EU support for cross-border natural gas projects, a stance at odds with the European Commission’s plan to end such funding, according to a draft document. The EU’s “TEN-E” rules define which cross-border energy projects can be labelled Projects of Common Interest (PCI), giving them access to certain EU funds and fast-tracked permits. The EU is rewriting the rules in line with its climate change goals, as it seeks to reach zero net greenhouse gas emissions by 2050. The Commission proposed new TEN-E rules in December, which excluded dedicated oil and gas infrastructure. EU member states, who must approve the final rules, look set to challenge that position via a proposal drafted by Portugal. The draft, seen by Reuters, said projects in Malta and Cyprus that currently have PCI status should retain it until those countries are fully connected to the European gas network. That could help ensure the completion of Greece, Cyprus and Israel’s Eastmed pipeline to supply Europe with gas from the eastern Mediterranean. The countries aim to reach a final investment decision by 2022 and complete the project by 2025. The proposal, due to be discussed by EU ambassadors next week, also said that until 2030 investments to retrofit gas pipelines to carry hydrogen should be allowed to continue carrying natural gas blended with hydrogen. Portugal declined to comment. The PCI list is revised every two years. Campaign group Global Witness said the rules should not support fossil fuels, and pointed to an International Energy Agency report this month that said investments in new fossil fuel supply projects must cease if the world wants to reach net zero emissions by 2050. EU countries disagree on the role of gas in meeting green goals. Gas produces roughly half the CO2 emissions of coal when burned in power plants, but the fuel is not zero-carbon and gas infrastructure is associated with emissions of planet-warming methane.
India’s oil industry struggles to predict when demand will recover
Indian energy demand is taking a big hit as Covid-19 runs rampant across the country. But uncertainty around when the virus wave will subside and the lack of a unified government response has left the oil industry in the dark as to how quickly consumption might pick up again. The demand destruction over the last couple of months has been less severe than last year, when the government imposed the world’s biggest national lockdown. However, the lack of a coordinated effort to shut down activity to halt the virus’s spread will likely lead to a longer, although less pronounced, economic slump. “When it will return to normalcy is a very difficult question to answer,” said Shrikant Madhav Vaidya, chairman of Indian Oil Corp., the country’s biggest refiner. “We can only hope and pray that with the vaccination drive underway, things will come out well. But when, I don’t know.” Unlike last year, Prime Minister Narendra Modi hasn’t imposed a countrywide lockdown. States have been left to fend for themselves, leading to a patchwork of curfews and restrictions that are being constantly extended as record infections and deaths overwhelm hospitals and crematoriums. “We hope the situation will be clearer by the end of this month or the first week of June,” said Mukesh Kumar Surana, chairman of Hindustan Petroleum Corp. Demand should be better in the quarter through September, he said. Diesel and petrol, which account for more than half of oil consumption in India, are bearing the brunt of localised lockdowns. Sales of the two fuels at the three biggest retailers are about a third lower so far in May compared with pre-virus levels two years earlier. That’s not as bad as April 2020, however, when demand nearly halved. This time round, more factories have remained open and cargo movements between states haven’t been as badly affected. Even so, around 65% of India’s truck fleet is idle due to weak demand and a shortage of drivers, according to Naveen Kumar Gupta, secretary general of All India Motor Transport Congress. Localized restrictions are creating hurdles to truck movement and the slow progress on vaccination of drivers and a reverse migration of labor back to rural areas is really hurting the industry, he said. Indian refiners were hoping to keep processing rates reasonably high this year, encouraged by low stockpiles and export opportunities, even as consumption dropped. May shipments of clean fuels like gasoline and diesel are set to be the highest since January 2020, according to oil analytics firm Vortexa. However, a slowdown in construction and factory activity has led to a build-up of sulfur and bitumen stockpiles, making it more difficult to maintain operations. Crude processing fell to 4.86 million barrels per day in April, from 4.96 million in March, official data show. FGE sees run rates at 4.45 million this month, 4.6 million in June and then averaging 4.8 million over July and August. Demand for key oil products — diesel, petrol, LPG, naphtha, jet fuel and fuel oil — is set to drop by about 730,000 barrels per day in May from 4 million in March, the industry consultant said. June demand will be only around 30,000 barrels a day higher than this month, according to FGE. “The regional lockdowns and periodic announcements do make it difficult to predict,” said Senthil Kumaran, head of south Asia oil at FGE, who has already revised Indian fuel demand estimates lower twice this year. “I strongly believe the impact will linger through the third quarter as well. It’s going to be very difficult for Indian oil consumption to reach March levels anytime this year.”
Analysis: Strong Asian LNG demand soaks up India cargo diversions amid COVID-19 crisis
Strong Asian LNG demand for summer and tight supply amid maintenance and outages at multiple terminals have helped the market absorb the spot LNG cargoes rejected by India due to its COVID-19 related lockdowns, according to traders and market participants. This has muted the market impact of the diversions and enabled Indian gas importers and their suppliers to find alternate destinations for contracted LNG volumes without any force majeure notices being issued or triggering any major disputes, they said. In contrast, during India’s first nationwide coronavirus lockdown in late March 2020, its gas demand plunged and gas companies Gujarat State Petroleum Corp. and GAIL Ltd. had to issue force majeure notices to their suppliers for March-April delivery cargoes to LNG terminals like Dahej, Mundra and Dabhol, which exerted downward pressure on regional LNG prices. This time around, LNG sellers were able to offer the diverted term cargoes in the spot market — and fetch a higher price — amid sustained high spot LNG price levels. The S&P Global Platts JKM was assessed at $10.47/MMBtu on May 21, nearly five times the assessment on May 22, 2020, at $2.15/MMBtu. A Singapore-based trader said that a term cargo priced at a 13% slope to Dated Brent, which works out to around $8.60/MMBtu, could be sold at a 15% slope or more than $10/MMBtu in the spot market, making it profitable for traders to divert unwanted LNG. “It’s a win-win for diversions from India,” the trader said. Asia’s spot LNG market is being supported by unprecedented LNG demand from North Asia, especially China, where economic activity has been relatively robust in 2021 on the back of recovery from the pandemic. “The market is quiet about the diversions from India, which have not affected the market at all,” an Atlantic Basin LNG supplier said. Several LNG carriers headed for Indian ports have been diverted in recent weeks; the South Korea-flagged HL Ras Laffan was diverted from Dahej to South Korea on May 15-16, and other vessels were previously diverted to Fujian, Europe and the Middle East, according to shipbrokers and vessel tracking data. India’s state gas company GAIL was heard seeking an LNG cargo for June 11-13 delivery to Hazira terminal, but this was due to disruptions at ONGC’s offshore gas production platform on the west coast due to Cyclone Tauktae, which recently damaged offshore vessels, killing dozens. COVID-19 impact India’s gas-fired power generation has dropped as economic activity remains affected in several states by restrictions to stem the coronavirus resurgence. “India’s power generation from gas-fired power plants averaged 4.7 GW for the first half of May, which is 1.5 GW lower year on year. This is equivalent of a decline in gas demand of about 10 million cu m/day,” said Andre Lambine, Senior Power Analyst at S&P Global Platts Analytics. While Indian gas importers have largely backed away from the heavy spot market procurement seen earlier this year, the reduction in buying interest is also partly due to the high spot prices. Citigroup in a May 24 update said that various firms in India have requested canceling or delaying some of their LNG deliveries, particularly for June, but at the same time the Indian market was also highly sensitive to high LNG prices, both spot and oil-indexed, that have reduced its appetite for LNG. “Although such cancelations or delays, if realized, would make available more LNG for the rest of the market globally, the actual number of cargoes freed up might not be large,” Anthony Yuen, Managing Director and Head of Commodities Strategy for Pan-Asia at Citi, said in the report. To put Indian volumes into context, Yuen said India has been importing about 3 Bcf/d of LNG in recent months, with around 2.6 Bcf/d believed to be under contract, and cutting 0.5 Bcf/d of LNG imports for a month might only amount to about 15 Bcf, or 0.42 Bcm. “To illustrate the relative size of this development, total natural gas storage in much of Europe is about 13 Bcm below the 5-year average. The price impact, using European coal-to-gas switching as a sensitivity, might only be about $0.05/MMBtu,” Yuen added. COVID-19 induced demand destruction in India threatens some of the upside to Asian LNG prices, but overall Indian growth is still positive at more than 29 million cu m/d, keeping Asia-Pacific LNG imports over 90 million cu m/d stronger year on year, Chris Durman, Head of LNG Analytics at S&P Global Platts, said earlier in May. “But continued further strength in the JKM is likely to cause end-users to retreat to the sidelines,” Durman added.
IndianOil demand forecast to recover slowly by end-2021
India’s transport fuel demand is likely to grow this year, analysts told Argus, but at a slower than expected pace with uncertainty persisting around the further extension of Covid-19 lockdowns and the pace of vaccinations. Coronavirus cases have surged to 27mn in India, according to government data, making it the second-most infected country after the US. This has prompted many Indian states to impose strict lockdowns and curfews to curb the spread of infections, in turn weighing on fuel consumption. The country’s first-half May diesel, gasoline and jet fuel consumption slumped compared with the first half of April. Analysts expect fuel demand to recover in this year’s final quarter and reach pre-pandemic levels next year. US bank JP Morgan has cut its Indian oil demand projections by 690,000 b/d for May, with gasoline and diesel demand down by 275,000 and 370,000 b/d respectively, and by around 400,000 b/d for June, compared with its forecasts at the start of April. The bank predicts total Indian oil demand to drop to a 4.8mn b/d average in the second quarter before recovering to a 4.9mn b/d average in the third quarter and ending the year at an average of 5.3mn b/d in the final quarter, which would be 3.7pc higher than pre-pandemic levels in 2019. But there is a downside risks to these forecasts if India’s Covid-19 outbreak persists longer than expected or rebounds later in the year, it warned. Auto fuel demand in May is likely to be flat from the previous month but see some increases in June, said ratings agency Icra’s vice-president and co-head of corporate ratings Prashant Vasisht. But fuel demand on a quarterly basis will see a 15-20pc dip in the April-June first quarter of 2021-22, which could reduce crude demand by 300,000-500,000 b/d, he added. Refiners are now cutting production in response to falling domestic demand. “State-owned refineries are more likely to reduce runs as India’s product consumption declines, since a greater share of their products are marketed domestically,” said Rystad Energy analyst Sofia Guidi Di Sante, who expects demand to average 4.4mn b/d this year and increase to 5mn b/d next year. Rystad forecasts India’s refinery runs at 4.2mn b/d in May, down by 700,000 b/d or 14pc from April, and at an average of 4.8mn b/d in 2021 that will be 340,000 b/d below the pre-pandemic levels. Indian state-controlled refiner IOC is operating its 1.34mn b/d of capacity at 75-80pc in the second half of May, while Bharat Petroleum is running its 705,000 b/d of capacity at 80-85pc this month. Hindustan Petroleum’s 540,000 b/d of capacity is operating at 70pc, while MRPL is running its 300,000 b/d Mangalore refinery at 65-75pc of capacity. Demand for diesel and gasoline will rebound by 12-14pc from a year earlier in 2021-22 as mobility restrictions and lockdowns start to ease from the second quarter of the current fiscal year, said CRISIL Research director Hetal Gandhi. Gasoline “demand will be further supported by changing preference for personal mobility in wake of a Covid-led change in consumer behaviour,” Gandhi added.
Chevron shareholders approve proposal to cut customer emissions
Chevron Corp investors voted in favor of a proposal on Wednesday asking the oil major to cut its customer emissions, joining shareholders around the globe in raising pressure on energy companies to reduce their carbon footprint. Shareholders voted 61% in favor of a proposal to cut so called “Scope 3” emissions, generated by the use of its products, according to a preliminary count announced by Chevron at its annual general meeting. Chevron’s investor vote comes as a bitter shareholder revolt at its closest rival Exxon Mobil Corp nears a conclusion. Engine No. 1, a tiny activist fund, has proposed three of its own nominees to Exxon’s board and is arguing that the top U.S. oil producer needs a better response to growing climate concerns. While the “Scope 3” proposal does not require Chevron to set a target of how much it needs to cut emissions or by when, the overwhelming support for it shows growing investor frustration with companies, which they believe are not doing enough to tackle climate change. Chevron has pledged to limit the pace of growth of its carbon emissions that contribute to climate change, but has not set long-term targets to achieve net zero as many European oil companies have done. A Dutch court on Wednesday ordered European oil major Shell to significantly deepen planned greenhouse gas emission cuts, a landmark ruling that could pave the way for legal action against energy companies around the world.
BPCL declares record Rs 12,581 cr dividend ahead of privatisation
Bharat Petroleum Corporation Ltd (BPCL) on Wednesday declared a record Rs 12,581 crore dividend, more than half of which will go to the government, ahead of the privatisation of the company. In a regulatory filing, BPCL said its “Board of Directors has recommended a final dividend of Rs 58 per equity share (including one-time special dividend of Rs 35 per equity share of Rs 10 each) for the financial year ended March 31, 2021 subject to the approval of the shareholders.” The dividend works out to Rs 12,581.66 crore, including special dividend of Rs 7592.38 crore. The government, which is selling its entire 52.98 per cent stake in BPCL, will get Rs 6,665.76 crore plus dividend distribution tax. The dividend declared is in addition to the interim dividend of Rs 21 per share paid earlier in the fiscal. The company did not give any reason for declaring the record dividend but the firm had received Rs 9,876 crore from sale of its 61.5 per cent stake in Numaligarh refinery in Assam to a consortium of Oil India Ltd, Engineers India Ltd and the Government of Assam in March. Almost simultaneously, the firm had bought 36.62 per cent of the equity held by OQ S.A.O.C (formerly known as Oman Oil Company S.A.O.C) in Bina refinery for Rs 2,399.26 crore. The net gain made by BPCL after the two deals was Rs 7,477 crore — almost the same amount as the special dividend declared on Wednesday. For the fiscal year ended March 31, 2021 (FY 2020-21), BPCL reported a record standalone net profit of Rs 19,041.67 crore on back of the stake sale as well as higher refining margin resulting from inventory gains accruing from rebounding oil prices. The profit compared with Rs 2,683.19 crore net profit in 2019-20, the filing showed. In the January-March quarter, net profit rose to Rs 11,940.13 crore from Rs 2,777.62 crore a year back. The firm earned USD 4.06 on turning every barrel of crude oil into fuel in FY21 as compared to a gross refining margin of USD 2.50 per barrel a year back. Also, the company made a gain of Rs 199.75 crore on foreign exchange as compared to a loss of Rs 1,662.34 crore in FY20. “The market sales of the Corporation for the year ended 31st March 2021 was 38.74 million tonnes as compared to 43.10 million tonnes achieved during the year ended 31st March 2020. “Decrease is mainly in diesel (-10.66%), petrol (-7.83%), ATF (-60.32%) and partly offset by increase in LPG (6.24%),” the firm said. Commenting on the fourth quarter earnings, BPCL Director (Finance) N Vijayagopal said, “We witnessed a V-shaped recovery in the second half of the financial year resulting in robust growth in fuel sales.” “In an unprecedented year that began with a lockdown across the country and subdued business and economic activities, the fourth quarter was a stand-out quarter that helped the company to report its highest ever growth in bottomline,” he said. BPCL market sales of diesel grew by 5.98 per cent and petrol by 9.89 per cent. “Our debt level has come down to normal level of Rs 26,000 crore,” he said.
Gulf 2021 deficits to fall to $80 bln on higher oil – S&P
Budget deficits of the six Gulf Cooperation Council countries are expected to drop sharply this year, supported by higher oil prices, fiscal consolidation and a rebound in economic output as coronavirus measures are eased, S&P Global Ratings said. The aggregate deficits of the central governments of the GCC are expected at about $80 billion this year from $143 billion in 2020, S&P said in a report on Wednesday. “Nevertheless, still-high GCC central government deficits will result in continued balance sheet deterioration in most cases,” S&P said. But it noted that, with the exception of Kuwait and Bahrain, the countries’ budgetary performance was stronger than in 2016 – the prior oil price crash. The Gulf was hammered by the double shock of a historic crash in oil prices last year as well as the economic impact of the coronavirus pandemic and related health safety measures. Higher oil prices, while supportive for GCC sovereign ratings, have in the past derailed consolidation reforms and therefore led to higher spending or delays in planned fiscal reforms, S&P said. “Many Gulf states have shown spending restraint in response to the double external shocks of 2020 … (and some) have also made inroads to diversifying their government revenue streams away from hydrocarbons,” S&P said. Saudi Arabia tripled a value-added tax last year to boost state finances hurt by the coronavirus crisis and lower oil revenues, while Oman introduced VAT for the first time last month. “We expect fiscal deficits will reduce over 2021-2022 and widen again in 2023-2024 given our oil price assumptions, as well as the gradual tapering of oil production cuts in line with the May 2021 OPEC+ agreement,” the ratings agency said. It assumed a Brent crude price of $60 per barrel for the rest of 2021, the same in 2022 and $55 per barrel from 2023. S&P expected GCC government debt issuance to average about $50 billion per year from 2021 to 2024, compared to $70 billion last year and close to $100 billion in 2017.
Total suspends gas-linked cash payments to Myanmar army
French energy giant Total said Wednesday that Myanmar’s army would no longer receive cash payments linked to a pipeline it operates through a joint venture with the military, following February’s military coup. Total said in a statement the decision was made at a May 12 meeting of shareholders of Moattama Gas Transportation Company Limited (MGTC), a unit that includes the French firm, Chevron, and a military-controlled energy company. “In light of the unstable context in Myanmar… cash distributions to the shareholders of the company have been suspended” effective from April 1, the company said. It added that it “condemns the violence and human rights abuses occurring in Myanmar” and would comply with any potential sanctions against the junta from the EU or US. Total has come under pressure from pro-democracy activists to “stop financing the junta” since a military coup in February which has been followed by a brutal crackdown on dissent. The MGTC pipeline — 15-percent owned by the military-controlled Myanmar Oil and Gas Enterprise (MOGE) — brings gas from the offshore Yadana field operated by Total to Myanmar’s border with Thailand. Total said it would continue to produce gas so as not to disrupt electricity supply in either country. French newspaper Le Monde revealed Total’s involvement in MGTC in early May, also reporting that the company was based in tax haven Bermuda. “The colossal profits of the gas operations do not pass through the coffers of the Myanmar state, but are massively recuperated by a company totally controlled by the military,” Le Monde found. Days after publishing the story, Le Monde said Total pulled several adverts it had planned to run in its pages in the following weeks.
Govt looks exit option while BPCL seeks open offer exemption
Privatisation bound Bharat Petroleum Corporation Ltd is seeking exemption for successful bidder of the company from mandatory open offer to be made to shareholders of two promoted companies – Petronet LNG and Indraprastha Gas Ltd. Sources said, the oil refiner is looking to get the Securities and Exchange Board of India (Sebi) to give exemption for the open offers to the successful bidder of BPCL as already done when ONGC acquired a government stake in HPCL. BPCL is one of the promoters of both PLL and IGL with a shareholding of 12.5 per cent and 22.5 per cent respectively. The promoter status in these companies means that once BPCL changes hands to new entity post the strategic sale process, its new owners will have to make open offer for another 26 per cent stake in both the promoted companies as per SEBI regulations. This would make BPCL’s acquisition expensive by about Rs 20,000 crore for potential bidders that could further deter interest in company in the time of the pandemic. “It is right for BPCL to look for exemption from open offer in case of PLL and IGL. But how this exemption is given, needs to be watched as the earlier experience in case of the ONGC-HPCL deal, the promoters of both the firms were the same i.e. the government of India and there was no change of ownership,” said an energy sector expert not willing to be named. Sources said that open offer exemption has been discussed by BPCL management in their meeting with disinvestment department Dipam. But the thinking in the government seems to be more inclined towards BPCL shedding its promoter status in the two companies by selling stake before its own strategic sale. Both BPCL and Centre do not want to wane investor interest in the refiner as additional spending could make the already large sized deal further expensive. The sale of government’s 52.98 per cent stake in BPCL is valued at about Rs 55,000 crore at the current share trading price. The requirement for making an open offer for additional 26 per cent to minority shareholders of the company will cost an additional Rs 27,000 crore. In addition, if open offers has to be made for additional 26 per cent in PLL and IGL, the spending could go up by another Rs 18,000-20,000 crore. Also, IGL and PLL may not give value proposition to bidders who are mostly eyeing BPCL’s oil refining assets and its large retail network. Sources said that BPCL also does not want to dilute stake in PLL and IGL as it may substantially erode its value.