Crude oil price drifts near 2018 highs ahead of OPEC+ meeting
Oil prices hit and then recoiled from highs last seen in October 2018 on Monday as investors eyed the outcome of this week’s OPEC+ meeting as the United States and Iran wrangle over the revival of a nuclear deal, delaying a surge in Iranian oil exports. Brent crude for August had slipped 1 cent to $76.17 a barrel by 0619 GMT while U.S. West Texas Intermediate crude for August was at $74.09 a barrel, up 4 cents. Oil prices rose for a fifth week last week as fuel demand rebounded on strong economic growth and increased travel during summer in the northern hemisphere, while global crude supplies stayed snug as the Organization of the Petroleum Exporting Countries (OPEC) and their allies maintained production cuts. The producer group, known as OPEC+, is returning 2.1 million barrels per day (bpd) to the market from May through July as part of a plan to gradually unwind last year’s record oil output curbs. OPEC+ meets on July 1 and could further ease supply cuts in August as oil prices rise on demand recovery. “Demand recovery has caught everyone by surprise and OPEC needs to respond,” Howie Lee, economist at Singapore’s OCBC bank, said. “There is some leeway for easing supply curbs given how high prices are, and we might see a 250,000 bpd increase from August.” ANZ and ING expect OPEC+ to increase output by about 500,000 bpd in August, which is likely to support higher prices. “Anything less than this amount would likely be enough to see bulls push the market higher in the near term,” ING analysts said in a note. One Singapore-based oil analyst said oil prices are unlikely to see a big correction unless OPEC+ increase supplies by 1 million bpd or more. Negotiations over the revival of Iran’s nuclear deal are expected to resume in coming days. A monitoring agreement between Tehran and the U.N. nuclear watchdog lapsed last week. A weaker U.S. dollar and a reversal of risk appetite in global markets also supported dollar-denominated commodity prices. The United States added 13 oil and gas rigs in June, up for an 11th month in a row along with higher oil prices, although it was the smallest monthly increase since September 2020, Baker Hughes data showed on Friday.
U.S. shale industry tempers output even as crude oil price jumps
Even with oil prices surging toward $75 a barrel, U.S. shale producers are keeping their pledges to hold the line on spending and keep output flat, a departure from previous boom cycles. This year’s run up in crude prices, and oil output curbs imposed by the OPEC+ producers group, historically would have triggered a drilling boom. But investors are demanding financial returns over more volume and energy financiers are shifting to renewables, so shale firms are determined to stay disciplined. “I’m still confident the producers will not respond” to the run-up in prices, said Scott Sheffield, chief executive of Pioneer Natural Resources, the largest producer in the Permian Basin shale field. A focus on shareholder returns has kept spending low, he said in an interview with Reuters. Last week, benchmark U.S. crude futures traded above $73 a barrel, the highest since October 2018. Back then there were 1,052 U.S. rigs drilling https://graphics.reuters.com/USA-OIL/ENERGY/nmovaxkjepa but today there are much less than half that many: around 470, according to Baker Hughes data. Shale output remains well below the January 2020 peak of 9.18 million barrels per day (mbpd), with production from the seven largest fields this month running 7.77 mbpd, or 15.4% below that level, according to U.S. government data. Overall U.S. first-quarter oil production averaged 83% of last year’s peak. The U.S. recently raised its 2021 average production outlook to 11.08 mbpd due to higher crude prices, but it remains about 200,000 bpd below last year’s average. “Oil prices will probably break $80 a barrel here shortly and I don’t see any rig adds,” Sheffield said. A spike in oilfield activity could drive up service prices, which are already up about 6%. Pioneer may reduce its active rigs as its operations have become more efficient, he said. OPEC EASING CUTS Shale’s restraint is key to OPEC’s next step. The oil producers’ group has gradually added more production, confident U.S. shale will not return to an era of explosive growth. It will meet Thursday and consider furthering unwinding cuts from August. “So far, activity levels support the capital discipline narrative,” said Jonathan Godwin, a senior associate at data provider Enverus. Frack fleet activity has held steady since jumping 20% at the start of the year, he said. In the United States, closely held companies have contributed substantially to rig additions this year, but Sheffield said those smaller firms should not drive up volumes enough to ruffle OPEC+ producers. “The quality of the acreage for privates is not as good as the publics,” Sheffield said, estimating private companies account for 40% to 50% of U.S. rig count. “We’re not seeing the upward pressure we would normally have predicted based on $73 oil,” said Paul Mosvold, president and COO of driller Scandrill, which operates super-spec drilling rigs, equipment in high demand since the oil market recovered. Mosvold reported a slight uptick in calls as oil prices have climbed, but said they are “not substantial.”
Eye on consolidation: Govt may end cross-holding in oil PSUs
The government may gradually end the cross-holding structure existing in the oil sector as it looks to further consolidate operations of public sector enterprises and go ahead with its privatisation plan by getting a fair valuation of assets. Official sources said that that all oil sector PSUs may be asked to exit from their investments made in equity shares of other state-owned entities. This could be done in phases, depending on the market conditions, so that the shares get a maximum valuation. The cross-holding structure among oil PSUs was built in the late 1990s as the government sold its shares in Oil India Ltd (OIL), Oil and Natural Gas Corporation (ONGC), Gas Authority of India Ltd (GAIL) and Indian Oil Corporation (IOC) in a bid to raise funds. Consequently, while GAIL and IOC hold 7.84 and 2.45 per cent stake respectively in ONGC and OIL hold 14.20 and 5.16 per cent stake respectively in IOC. Also, IOC and ONGC hold 2.47 and 4.94 per cent stake respectively in GAIL India, and BPCL (2.47 per cent), HPCL (2.47 per cent) and IOC (4.93 per cent) together own partial equity in OIL. Estimates suggest that if the government divests its stake by taking the entire proceeds from the sale of shares cross-held by oil PSUs, it could mobilise upwards of INR 40,000-INR 50,000 crores. However, it is likely that companies may plough back the money raised through equity sale to the government by declaring a special dividend. “The government wants to end cross-holding in the oil sector as its consolidation and privatisation roadmap would create two to three large integrated entities. This would create a situation where cross-holding could be seen as an anti-competitive and aiding conflict of interest,” said one of the sources quoted above. Analysts also believe that offloading listed investments could make sense even for strategic investors looking to buy into Bharat Petroleum Corporation Ltd (BPCL) as it would reduce the risk of any future government intervention. None of the PSU oil companies now hold any equity in BPCL and only LIC has a 5.66 per cent stake in the privatisation bound refiner valued at a current share price of INR 470.55 at INR 5,775 crore. Sources said that while the privatisation plan for IOC, GAIL, ONGC, OIL has not been drawn as of now, under the roadmap finalised by the government it would keep a bare minimum. This would mean that privatisation of mergers could be considered for remaining oil PSUs at a later stage as well. It is here that divestment of cross-holding would come in handy. Experts said that a listed investment is as good as a cash equivalent, it can be sold before disinvestment and the proceeds given as a one-time special dividend. Under the cross-holding structure, BPCL continues to hold a 2.47 per cent stake worth around INR 420 crore in OIL. To its advantage, BPCL has no cross-holding by any other PSUs that could have created problems in its valuation and sale to a strategic investor. Similarly, HPCL also does not have a cross-holding structure, one reason why its acquisition by ONGC last year proceeded smoothly. According to analysts, “other income” as a percentage of profit before tax of the oil marketing companies ranged between 15 per cent and 30 per cent last fiscal. And this high level of income could impact the valuation of companies as markets usually discount 20-30 per cent as holding company discount to the listed investment. Sources said that the Oil Ministry has already indicated to ONGC to exit from its investments in oil refiner and marketer IOC and gas transportation utility GAIL India, while the other two would also sell all their equity in the upstream company. This could, however, not be verified independently. “Each oil PSU has to take a call when the time is right to offload stakes held in others as cross-holding investments are dividend-paying and exits should only be made at the right value and when market conditions are stable. Hopefully, this call could be exercised in the last quarter of the current fiscal,” said a top official of a PSU oil company. It is not that companies have made major gains from cross-holdings. In fact, with volatility in the oil market certain investments have generated negative returns.
Cairn sets eyes on more state-owned assets to recover dues from Indian govt
UK’s Cairn Energy is targeting assets abroad of more state-run companies in a bid to recover dues from the government on the backdrop of the arbitration victory of the company over the Indian government. According to people in the know, the British energy major may file lawsuits across several countries to make government firms and banks liable to pay the dues. Cairn Energy already moved courts in the US, UK, Canada, France, Singapore, the Netherlands and three other countries to register the December 2020 arbitration tribunal ruling that overturned the Indian government’s Rs 10,247 crore demand in back taxes and ordered New Delhi to return $ 1.2 billion in value of shares it had sold, dividends seized and tax refunds withheld to recover the tax demand. After reports of identification of Indian assets overseas worth $70 billion by Cairn for potential seizure came out, government sources said that the Centre is well aware of its legal rights and will defend its case in courts if such proceedings materialise. Official sources said that the government is confident of winning its appeal in The Hague. Sources further pointed out that Cairn did not pay a single rupee tax anywhere in the world in respect of the impugned transactions. Cairn had also lost its appeal before the income-tax tribunal.
Budget 2021-22 – Expectations from the Oil & Gas sector
Given the onset of the COVID-19 pandemic, the past 12 months have been quite challenging for the oil and gas industry. Global crude demand dropped by about 30 percent and oil prices had a free fall. The Indian oil and gas industry responded commendably and operated safely during this period. Oil fields continued operation, refineries managed huge demand fluctuations (without shutting down even for a day), and fuel retailing (including LPG supplies to more than 250 million households) continued uninterrupted. Normalcy is gradually returning with demand reaching the pre-pandemic levels in many product categories and crude prices are back in the US$50/barrel plus range. The sector not only survived the crisis but also supported public finances of both the centre and state governments in terms of increased contribution of excise duty and Value Added Tax (VAT). However, the current crisis will have a lasting impact on the industry. This is because changes in operating models, travel habits, accelerating digitisation, and finally urgency for decarbonisation will result in demand rebalancing in the medium term and decline in the longer run. The oil and gas ecosystem will have to reconfigure based on these changing demand patterns and actions of governments and regulators, and investors’ preference. At regular intervals, Prime Minister Modi has articulated his vision for the Indian energy sector. These include the need to reduce import dependency in crude oil by 10 percent, increasing the share of gas in India’s energy supply basket, cleaner use of fossil fuels, promoting biofuels, moving to emerging fuels (such as hydrogen), and promoting digital innovation across the energy value chain. This vision has been put to action through a series of policy measures. These measures include the following: introducing Open Acreage Licensing Policy (OALP); moving to a revenue-sharing model, Hydrocarbon Exploration Licensing Policy (HELP); launching the Ujjwala scheme to increase LPG access using Jandhan-Adhaar-Mobile (JAM) for subsidy delivery; initiating City Gas Distribution (CGD) licensing rounds; rising capital expenditure to improve gas infrastructure; creating a gas exchange; using LNG as a transport fuel; putting in place a liberalised fuel retail licensing policy and a unified tariff structure for gas; and moving towards BSVI fuel through bio-fuel policy. When Finance Minister Nirmala Sitharaman will present the budget, the industry will be expecting fiscal interventions and support as the pace of recovery is still low and the oil and gas sector is at a historic crossroads. Contrary to PM’s expectation of increased domestic production, crude oil production has been continuously falling from its peak of 38 MTPA to 32 MTPA per Petroleum Planning and Analysis Cell (PPAC) data. A few fiscal tweaks may help reverse this trend. Oil industries development cess applicable on Pre-NELP exploratory blocks was raised from INR 2,500/tonne to INR 4,500/tonne in March 2012. This was changed to 20 percent ad-valorem in March 2016. The industry is asking for halving this cess to 10 percent as crude prices have been in the US$40−60 range for the past few years. This US$5−6 per barrel concession will make production viable in many fields. There is a perceived anomaly in tax law with the exclusion of ‘natural gas’ from the definition of ‘mineral oil’ for the purpose of tax holiday. This needs to be fixed. When Goods and Services Tax (GST) was introduced, petroleum products were excluded from the scope. This leads to stranded taxes, distorted tax value chain, and price inefficiency. Though this matter is the GST Council’s prerogative, a directional view from the finance minister will be soothing for the industry. As an interim measure, the industry expects the government to allow cross utilisation of GST Input Tax Credit (ITC) against excise duty or sales tax, which will at least take care of some stranded taxes. An estimated investment of US$60 billion is lined up to develop gas pipelines covering 14,700 km, a city gas distribution network, LNG regasification terminals, etc. Budgetary provision for viability gap funding and incentives for pension funds to invest in this segment would help fund this investment plan for the gas sector. Customs duty on LNG can be removed (quite similar to crude) from the current 2.5 percent. In 2018, National Biofuel Policy was launched to promote biofuels in mass scale with a target of 20 percent ethanol blending in petrol and 5 percent of bio-diesel by 2030. There is a roadmap to set up 5,000 compressed biogas plants with a target of 15 MMTPA and an investment of US$25 billion. Oil Public Sector Units (PSUs) account for a majority of the biofuel investment. Similar to the renewable energy sector, this budget must bring a mechanism for private-sector participation in the biofuel sector. This would imply government support in the form of capital grants or lower interest rates to offset high upfront capital costs. The government could play a role in streamlining feedstock availability viz. crop residues, and municipal solid waste for entrepreneurs in this segment. Tax incidence on retail prices of auto fuels, such as petrol and diesel, are high. As crude prices are increasing, retail prices are reaching an all-time high every day. Crude prices are expected to remain extremely volatile with an upward bias in the future. The finance minister may spell out a graded excise duty in different ranges of crude prices. By the next decade, India is expected to move towards multiple clean transportation choices, such as current Internal Combustion (IC) engines (using petrol and diesel), Electric Vehicles (EV), gas-based transportation, and hydrogen. Policy parity and consistency will be quite important. Clearly defining a roadmap for each fuel and factoring co-existence of clean fuels are important. This clarity will help drive investments for each fuel area. The proposal of having ‘green tax’ on older vehicles is a welcome move. A similar tax on the use of pollution-causing fuels by the industry wherein a gas network is available, will lead to an increase in share of gas in the primary energy basket.
Biden to pause oil and gas sales on public lands: Reports AP
President Joe Biden is set to announce a wide-ranging moratorium on new oil and gas leasing on U.S. lands and waters, as his administration moves quickly to reverse Trump administration policies on energy and the environment and address climate change. Two people with knowledge of Biden’s plans outlined the proposed moratorium, which will be announced Wednesday. They asked not to be identified because the plan has not been made been public; some details remain in flux. The move follows a 60-day suspension of new drilling permits for U.S. lands and waters announced last week and follows Biden’s campaign pledge to halt new drilling on federally controlled land and water as part of his plan to address climate change. The moratorium is intended to allow time for officials to review the impact of oil and gas drilling on the environment and climate. Environmental groups hailed the expected moratorium as the kind of bold, urgent action needed to slow climate change. “The fossil fuel industry has inflicted tremendous damage on the planet. The administration’s review, if done correctly, will show that filthy fracking and drilling must end for good, everywhere,” said Kieran Suckling, executive director at the Center for Biological Diversity, an environmental group that has pushed for the drilling pause. Oil industry groups slammed the move, saying Biden had already eliminated thousands of oil and gas jobs by killing the Keystone XL oil pipeline on his first day in office. “This is just the start. It will get worse,” said Brook Simmons, president of the Petroleum Alliance of Oklahoma. “Meanwhile, the laws of physics, chemistry and supply and demand remain in effect. Oil and natural gas prices are going up, and so will home heating bills, consumer prices and fuel costs.” Kathleen Sgamma, president of the Western Energy Alliance, which represents oil and gas drillers in Western states, said the expected executive order is intended to delay drilling on federal lands to the point where it is no longer viable. Her group pledged to challenge the order in court. “The environmental left is leading the agenda at the White House when it comes to energy and environment issues,” she said, noting that the moratorium would be felt most acutely in Western states such as Utah, Wyoming and North Dakota. Biden lost all three states to former President Donald Trump. The drilling moratorium is among several climate-related actions Biden will announce Wednesday. He also is likely to direct officials to conserve 30% of the country’s lands and ocean waters in the next 10 years, initiate a series of regulatory actions to reduce greenhouse gas emissions and issue a memorandum that elevates climate change to a national security priority. He also is expected to establish a White House office on environmental justice to serve low-income and minority communities that suffer disproportionately from air and water pollution and industrial waste and are often located near hazardous sites such as power plants, landfills and incinerators. Biden also will direct all U.S. agencies to use science and evidence-based decision-making in federal rule-making and announce a U.S.-hosted climate leaders summit on Earth Day, April 22. The conservation plan would set aside millions of acres for recreation, wildlife and climate efforts by 2030, part of Biden’s campaign pledge for a $2 trillion program to slow global warming. Under Trump, federal agencies prioritized energy development and eased environmental rules to speed up drilling permits as part of the Republican’s goal to boost fossil fuel production. Trump consistently downplayed the dangers of climate change, which Biden, a Democrat, has made a top priority. On his first day in office last Wednesday, Biden signed a series of executive orders that underscored his different approach – rejoining the Paris Climate Accord, revoking approval of the Keystone XL oil pipeline from Canada and telling agencies to immediately review dozens of Trump-era rules on science, the environment and public health. A 60-day suspension order at the Interior Department did not limit existing oil and gas operations under valid leases, meaning activity would not come to a sudden halt on the millions of acres of lands in the West and offshore in the Gulf of Mexico where much drilling is concentrated. The moratorium also is unlikely to affect existing leases. Its effect could be further blunted by companies that stockpiled enough drilling permits in Trump’s final months to allow them to keep pumping oil and gas for years. The pause in onshore drilling is limited to federal lands and does not affect drilling on private lands, which is largely regulated by states. Oil and gas extracted from public lands and waters account for about a quarter of annual U.S. production. Extracting and burning those fuels generates the equivalent of almost 550 million tons (500 million metric tons) of greenhouse gases annually, the U.S. Geological Survey said in a 2018 study. Under Trump, Interior officials approved almost 1,400 permits on federal lands, primarily in Wyoming and New Mexico, over a three-month period that included the election, according to an Associated Press analysis of government data. Those permits, which remain valid, will allow companies to continue drilling for years, potentially undercutting Biden’s climate agenda. The leasing moratorium could present a political dilemma for Biden in New Mexico, a Democratic-leaning state that has experienced a boom in oil production in recent years, much of it on federal land. Biden’s choice to lead the Interior Department, which oversees oil and gas leasing on public lands, is New Mexico Rep. Deb Haaland. If confirmed, she would be the first Native American to lead the agency that oversees relations with nearly 600 federally-recognized tribes. Haaland, whose confirmation hearing has been delayed until next month, already faces backlash from some Republicans who say expected cutbacks in oil production under Biden would hurt her home state. Tiernan Sittenfeld, a top official with the League of Conservation Voters, called that criticism off-base. “The reality is we need to transition to 100% clean energy” in order to address climate change, she said Tuesday. “The
Government to monetise Rs 60 billion GAIL pipelines through InvIT
The oil ministry is eyeing the InvIT (Infrastructure Investment Trust) the route to monetise pipelines worth about Rs 60 billion built by India’s largest gas utility GAIL, charting a new course for raising funds for the government as the pandemic spooks big-ticket disinvestments such as of Bharat Petroleum. Discussions on InvIT are on in the ministry in parallel to preparations for carving GAIL’s countrywide gas pipeline network into a fully-owned subsidiary. The ministry may seek Cabinet approval, although technically the GAIL board can decide to divest stake in pipelines through InvIT. The Dabhol-Bengaluru and the Dahej-Uran-Panvel pipelines will be the first to be monetised. “There could be gradual dilution, say in tranches of 10-20% stake, to begin with, but GAIL will retain majority stake,” one official said. GAIL will be the second state-run entity to dilute stake in projects through InvIT. The power ministry had in September 2020 secured Cabinet approval for PowerGrid to monetise transmission lines worth Rs 71.46 billion via InvIT. Under the InvIT route, the parent company gets the proceeds and the government makes money through capital gains tax etc. In case of public sector projects, the government, as the owner, can additionally demand higher dividend from the parent. The InvIT route fits well with GAIL’s bifurcation, after which the parent will continue to market gas and build pipeline connectivity. The subsidiary will operate the transportation network and continue to raise funds by monetising minority stake in pipelines. The government will retain control of the infrastructure, considered strategic asset, through GAIL and an independent TSO (transport service operator) will manage 25% of the network capacity under the open access policy. Typically, companies hive off projects to InvITs, or trusts formed to manage infrastructure assets, once they become operational and begin regular earning. This allows other investors in search of an assured return to step in, providing funds to the promoter for new projects. The government had last year suggested the InvIT route to state-run entities as an alternative mechanism for raising funds to reduce dependence on government support. Indeed, around August last year, during presentations to PM Narendra Modi, his economic advisers had suggested assets monetisation as a way to cover a part of the higher spending needed for providing additional economic stimulus to revive growth.
Flaming petrol prices to fuel CNG vehicles adoption: Report
Elevated prices of petrol due to a steep increase in taxes in the recent past is set to increase the adoption of compressed natural gas (CNG)-driven vehicles, Crisil Research said. Accordingly, the last time petrol prices had crossed the Rs 80 per litre mark was in October 2018, when Brent crude had surged to $80.5 per barrel. In contrast, the price has now touched an all-time high of Rs 85.2 per litre in New Delhi even though Brent has slid to $55 per barrel. The increase is due to higher excise duty, which rose by Rs 13 to Rs 32.98 per litre in 2020 and value-added tax. “Tax now accounts for over 60 per cent of the retail selling price of petrol, compared with 47 per cent in 2019,” said Hetal Gandhi, Director, CRISIL Research. “Given that the government has to find the money to ramp up public spending – and is also promoting usage of cleaner fuels – it is unlikely that the tax on petrol will come down to previous levels anytime soon.” In the current fiscal, the government is expected to earn incremental revenue of Rs 1400 billion because of higher excise duty – despite petrol and diesel sales volume likely declining 10-16 per cent. Besides, in 2021, Crisil Research expects Brent crude to rise 23 per cent on-year to an average $50-55 per barrel from $42.3 per barrel in 2020, riding on a gradual recovery in economic activity globally. “That would mean a 4 per cent increase over the average closing price of December 2020.” “In comparison, domestic gas prices are expected to rise over 20 per cent to $2.5-3.5 per million British thermal unit (mBbtu) in calendar 2021 from $2.45 in 2020.” Furthermore, the percentage increase in domestic gas prices is similar, the differential between petrol and CNG retail prices will remain wide because of higher taxes on the former. Parallelly, the government is ramping up city gas distribution (CGD) networks, which would also drive up CNG consumption. “Within CGD, the CNG segment – accounting for 40 per cent of CGD demand is expected to log a compound annual growth rate of 25 per cent between fiscals 2021 and 2023.” At present, CNG vehicles account for only 5 per cent of the passenger vehicles sold in the country annually. “With the implementation of Bharat Stage VI standards, prices of diesel vehicles have risen sharply, pushing most commercial players towards CNG.” “The price competitiveness of CNG is evident in consumption volumes, which have logged a CAGR of 11 per cent over the past three years.” About 1,80,000 CNG cars and passenger vehicles were sold last fiscal versus 1,40,000 in fiscal 2015. “CNG was always cheaper than petrol, but the price differential between the two has widened rapidly in the past two years,” said Mayur Patil, Associate Director, Crisil Research. “Today, the cost of running a CNG car is 44 per cent less than a petrol variant, if you consider the CNG price of Rs 42.7 per kg in New Delhi.” According to report, the ramp up in the share of natural gas in India’s energy mix is expected to take place via the trunk gas pipelines which are being laid, and deeper penetration of the CGD network. “A total of 136 ‘geographical areas’ have been awarded under Rounds 9 and 10 of CGD, which are expected to cover 71 per cent of the cumulative population.” “While growth in CNG vending outlets has more than doubled to 2,434 between 2015 and 2020, it is still significantly fewer than petrol outlets. The expansion of CGD network and increasing adoption of CNG as a fuel for personal vehicles will ensure this number increases faster than before.”
Reducing oil use to meet climate targets is tougher than cutting supply
Governments around the world have been slow to make uncomfortable decisions to persuade consumers to cut energy consumption to help achieve climate targets, often because consumers are not ready to pay up or compromise their lifestyles. Researchers, policymakers and energy executives told a Reuters Energy Transition conference this week that while energy companies were under pressure to accelerate measures to reduce emissions, governments have barely addressed reducing demand for the fossil fuels that warm the planet. A growing population in Asia and booming consumerism in industrialised nations make most climate targets very difficult, if not impossible to achieve. Just this month, Swiss voters rejected environmental proposals by governments to help the country cut carbon emissions, including measures to raise a surcharge on car fuel and impose a levy on flight tickets. The International Energy Agency, the steward of energy policies in industrialised nations, last month said the world should not develop new oil and gas fields to achieve net-zero targets by 2050. But its head Fatih Birol said this week net-zero targets were a pipe dream without global consumption patterns changing. “We see a widening gap between rhetoric and what is happening in real life,” he said. So many governments are coming with net-zero targets by 2050 and the same year CO2 emissions are growing and it will be the second-largest increase in history”. Emissions are rising sharply in 2021 after falling steeply in 2020 as a result of global lockdowns to slow the spread of coronavirus.– “Consumer behaviour needs to change as a result of government steps,” he said. Emissions are rising sharply in 2021 after falling steeply in 2020 as a result of global lockdowns to slow the spread of coronavirus. In France, according to Birol, the government is taking some very early steps to discourage short-distance travel by plane. At the same time, in Britain, the government is busy brainstorming how to revive the holiday season to save the airline and tourism industries. Birol said the IEA has over 400 milestones of what needs to happen to achieve net-zero targets by 2050 and 95% of those milestones should be driven by changes in demand, not supply. Many of those targets – such as banning internal combustion engines car sold by 2030 or 50% of aviation fuels coming from non-fossil fuels by 2040 – are still wishful thinking as there is no industry-wide, country-wide or global policy approach to making those targets happen. POLITICALLY UNCOMFORTABLE DECISIONS The International Monetary Fund has repeatedly criticised developing nations for wasting hundreds of billions of dollars on subsidising cheap diesel and gasoline for the poor. But even in the United States, which consumes a quarter of the world’s gasoline, prices are just halved of those in Britain because of low taxes. The government of U.S. President Joe Biden has made no signal it would change that. The transport sector may prove to be the hardest one of all to decarbonized, and not for technological reasons, but really for political reasons, economic reasons, business model reasons and societal acceptance reasonsKelly Sims Gallagher, professor of energy and environmental policy at The Fletcher School. Instead, Biden is proposing sweeping policy efforts to quickly electrify the nation’s vehicle fleet, as well as clean up the power industry that would charge them. But none of those goals will become reality without an act of Congress, an outcome that is far from certain given the country’s deep-seated political divisions. “The transport sector may prove to be the hardest one of all to decarbonized, and not for technological reasons, but really for political reasons, economic reasons, business model reasons and societal acceptance reasons,” said Kelly Sims Gallagher, professor of energy and environmental policy at The Fletcher School. “How do you convince people to buy an electric vehicle? There really isn’t a lot on the market that a lower-income family can buy… It really is going to require governments to make politically uncomfortable decisions”. A Reuters/Ipsos poll this month showed that Americans were sceptical about new electric car and truck models, expressing concerns about the potential costs and inconveniences of owning such vehicles. Sims Gallagher says the policies that would work to incentivize EVs are politically challenging – such as imposing a fee on high emissions vehicles and rebate on low emissions vehicles. Another challenge is a clean grid and many industrialised countries have old grids that need reconstruction. Rodolfo Lacy, director at the Organisation for Economic Co-operation and Development, estimates that more than $500 billion is being given by governments on fuel subsidies globally every year in one form or another. “We need to start to think about phasing out infrastructure and technologies that we do not need for the future,” he said. Besides direct fuel burn, the jury is still out if the world can afford to continue shipping huge amount of goods daily to deliver computer equipment from China to Europe or South American fruit out of season to the United States. Asia’s rising population will encourage further energy consumption and those people too aspire to have their standards of living improve. The heads of oil majors such as BP, ENI and Equinor, who took part in the Energy Transition conference made it clear – oil and gas prices were poised to rise as producers reduce their output of fossil fuels under pressure from investors while demand keeps rising. “I don’t sit here saying we have to wait for society… If the supply-side moves too early and society doesn’t move, we’ll have a mismatch,” said BP CEO Bernard Looney.
Enough scope for govt to cut fuel tax by 4.50 a litre: ICRA
The government can reduce fuel taxes by Rs 4.50 a litre and still keep revenue at last year’s level as the expected rise in consumption will make up loss of extra income from higher levies imposed last year, Moody’s investors service company ICRA said in a note on Friday. Such a tax cut will reduce pump prices and lower CPI (consumer price index) inflation by 10 basis-points, ease pressure on household budgets to allow a faster revival in consumer sentiment and give RBI’s monetary policy headroom to support a revival in growth, the note by ICRA chief economist Aditi Nayar said. Here’s how ICRA worked out the math. Petrol consumption is projected to post annual increase of 14% and diesel 10% in 2021-22 on the low base of 2020-21. But compared to 2019-20, sales are expected to be nearly 7% higher for petrol and about 3% lower for diesel. The increased sales will push up government’s aggregate fuel tax revenue by 13%, or Rs 40,000 crore, to Rs 3,60,000 crore in the current fiscal from Rs 3,20,000 estimated in 2020-21. If the government gives up the Rs 40,000 crore extra income, it can reduce pump prices by Rs 4.50 a litre but still have earnings at last financial year’s level. The Centre raised excise duty by Rs 13 on petrol and Rs 16 on diesel between March and May last year when oil prices collapsed due to the pandemic.