Global jet fuel demand under pressure from Omicron, border curbs
Global jet fuel markets stayed under pressure on Tuesday as more countries expanded border restrictions to keep the new Omicron coronavirus variant at bay, prompting travellers to reconsider their plans. Jet fuel demand – the biggest laggard in the oil complex – had been forecast to post the strongest growth of 550,000 barrels per day to 5.9 million bpd in fourth quarter, according to the International Energy Agency in its Nov. 16 report. IEA/S But now Omicron pose the greatest risk to jet fuel consumption. Hong Kong expanded a ban on entry for non-residents from several countries, the latest to expand travel curbs after Israel and Japan have already announced border closures to all foreign travellers. Britain and Australia have tightened rules for all arrivals in response to the new variant while hundreds and thousands of would-be travellers are now considering to cancel or delay their trips in response to renewed restrictions. “The real risk from the new variant is … the reimposition of more widespread flight restrictions during the winter and again reducing current global jet fuel demand of some 6 million barrels per day significantly,” energy consultancy FGE said in a note. Asian refining margins for jet fuel slumped to their lowest in more that two months on Monday at $6.92 a barrel, while the front-month time spread for the aviation fuel in Singapore flipped to a contango for the first time since end-September. “Current jet demand levels are just 1 mb/d above last winter, when cases and hospitalizations were far higher and before any widespread vaccinations,” Goldman Sachs analysts said in a Nov. 26 note. “While a worst case outcome could be a return to last winter’s levels, 0.5 mb/d downside to our current base-case until 2Q22 would be a conservative assumption given what we know at present.” Global airlines, most of which have been struggling since last year’s plunge in air travel as a majority of long-haul international flights remained grounded, are now scrambling to limit the impact of the latest variant on their networks. “In total, 2.4% of scheduled (global airline) capacity has been removed for the next four months,” aviation data firm OAG said. “But it is too soon to say whether this is due to slightly weaker demand than expected, or an early response by some airlines to the prospect of the Omicron variant of the COVID-19 virus causing a return to border restrictions for international air travel.” Trade sources said the new variant have dampened the near-term hopes for any substantial demand recovery. “Now it’s like the snake and ladder boardgame. I think Vaccinated Travel Lanes (VTL) would be important to keep the momentum in the aviation industry,” a Singapore-based jet fuel trader said. “Definitely, there’s no hope to see a speedy recovery, which was expected before this Omicron variant.”
Govt’s excise mop-up from petrol, diesel doubles to Rs 3.7 lakh crore in FY21; states get Rs 20,000 crore
The central government’s mop-up from excise duty levied on petrol and diesel more than doubled to Rs 3.72 lakh crore in the pandemic year 2020-21, out of which states were given less than Rs 20,000 crore, according to a reply by the government in the Rajya Sabha on Tuesday. Minister of State for Finance Pankaj Chaudhary in a written reply to a question stated that collection from levy of central excise duty on petrol and diesel increased from Rs 1.78 lakh crore in 2019-20 to Rs 3.72 lakh crore in 2020-21 (April 2020 to March 2021). The increase in the collection was mainly on account of rise in the incidence of taxation on fuels. Total excise duty on petrol was Rs 19.98 per litre in 2019 and Rs 15.83 a litre on diesel. The government raised excise duty twice last year to Rs 32.98 per litre on petrol and to Rs 31.83 on diesel. The duty was moderated to Rs 32.90 a litre on petrol and Rs 31.80 on diesel in the budget this year. And it was cut by Rs 5 a litre on petrol and Rs 10 per litre on diesel this month after retail prices jumped to record high across the country. “The total amount of tax devolved to state governments from the corpus collected under the central excise duty in FY 2020-21 was Rs 19,972 crore,” Chaudhary said. While the total incidence of excise on petrol currently is Rs 27.90 a litre and that on diesel is Rs 21.80, states are entitled to get a share only from the basic excise duty. Out of the total incidence of taxation, the basic excise duty on petrol is Rs 1.40 a litre. On top of this, special additional excise duty is levied of Rs 11 and a road and infrastructure cess of Rs 13 a litre. A Rs 2.50 agriculture infrastructure and development cess is levied on top of this. Similarly, on diesel, the basic excise duty is Rs 1.80 a litre. Rs 8 per litre each is charged as special additional excise duty and road and infrastructure cess while a Rs 4 per litre agriculture infrastructure and development cess is also levied. “Devolution to state governments is made out of the basic excise duty component on the basis of the formula prescribed by the Finance Commission from time to time. At present, the rate of basic excise duty is Rs 1.40 per litre on petrol and Rs 1.80 per litre on diesel,” he said. Total excise collection from fuel was Rs 2.22 lakh crore in 2016-17, which inched up to Rs 2.25 lakh crore in the following year but fell to Rs 2.13 lakh crore in 2018-19. Petrol and diesel is currently not under the Goods and Services Tax (GST) regime and states levy VAT on top of the excise duty charged by the centre. “The total amount of tax collected under VAT on fuel across various states from April 2016 to March 2021 is Rs 9.57 lakh crore,” he said. This compares to Rs 12.11 lakh crore collected by the central government during the same five year period, according to the minister’s reply.
Carmakers will be mandated to introduce flex-fuel engines: Nitin Gadkari
Union Minister of Road Transport and Highways Nitin Gadkari on Monday said he would issue an order in the next two-three days to make it mandatory for the carmakers to introduce flex-fuel engines in vehicles. Flexible fuel vehicles (FFVs) have an internal combustion engine and are capable of operating on both gasoline (petrol/diesel) and any blend of gasoline and ethanol. These vehicles are popular in countries like Brazil, Sweeden, France and Germany, among others. Addressing an event, Gadkari said, India imports petroleum products worth 8000 billion every year, and if the country continues to depend on fossil fuels, then its import bill will rise to ₹2.5 million in the next five years. “To reduce import of fossil fuels, I am going to sign a file in the next 2-3 days, in which carmakers will be asked to make flex-fuel engines vehicles (that can run on more than one fuel),” the road transport and highways minister said. Flex-fuel, or flexible fuel, is an alternative fuel made of a combination of gasoline and methanol or ethanol. Gadkari said that top officials of Toyota Motor Corporation, Suzuki and Hyundai Motor India have assured him that they will introduce flex engines in their vehicles. He also said India is the fastest-growing economy in the world. Gadkari noted that politics is an instrument of socio-economic reform.
GAIL Seeks Partners to Set Up Electrolyzer Manufacturing Unit to Produce Green Hydrogen
The Gas Authority of India Limited (GAIL) has issued an expression of interest (EoI) to select partners for setting up an electrolyzer manufacturing facility to produce green hydrogen. GAIL intends to set up an electrolyzer manufacturing project by incorporating a special purpose vehicle (SPV) or stock acquisition in an electrolyzer manufacturing company under operation or construction. In the case of an equity partnership, GAIL will hold 26% equity in the said entity. The last date to submit the bids is December 17, 2021. The EoI is valid for six months from the date of submission. Companies or consortiums from India or countries that share a land border with India can participate in the bidding. Apart from investing in the proposed electrolyzer manufacturing project, the proposed entity will secure land and project financing and select technology partners, engineering consultants, environmental consultants, and EPC contractors. The entity will monitor and review project development activities and ensure project execution timelines are met. The proposed entity will also manage the operation and maintenance of the electrolyzer project and get statutory approvals and clearances. The entity will also market the electrolyzers with an option for captive use for utilization by GAIL or their affiliates. Each organization can submit only one bid, either as a party or as a lead member of the consortium. The authorized person signing the EOI document should be a managing director, chairman, or C-suite executive. The bidders should state the equity they wish to acquire in the SPV or the equity it intends to offer GAIL in their existing company. The bidders should also specify the electrolyzer technology that would be used in the project. The bidders have to submit an estimated capital investment and operating cost for the annual electrolyzer manufacturing capacity of 200 MW, 500 MW, 1 GW, and 2 GW, along with the cost breakup of all major components. Recently, another government-owned enterprise, Indian Oil Corporation Limited, issued a global tender to develop green hydrogen generation facilities on a build, own, operate (BOO) basis at its refineries in Mathura, Uttar Pradesh, and Panipat, Haryana. In August 2021, NTPC issued an expression of interest (EoI) for Indian and global companies to set up a pilot project to blend green hydrogen with natural gas in the city gas distribution network.
India’s gasoline revival hopes shrouded with uncertainty as omicron lurks globally
India’s gasoline output rose in October, with production hitting a seven-month high on robust local demand as driving activity accelerated, but a sense of cautious optimism prevails as the new COVID-19 variant omicron emerges worldwide, threatening to put brakes on this recovery, industry sources told S&P Global Platts. “The market is assessing the impact of the new variant, especially as the oil complex is already fragile from the spike in cases and news of fresh restrictions in Europe and Asia,” a Singapore-based source said. India’s domestic gasoline production in October rose 11.95% month on month to 3.447 million mt, according to latest data from the Petroleum Planning and Analysis Cell, or PPAC. The country’s domestic gasoline production was last higher in March at 3.583 million mt, the data released Nov. 24 showed. In October, India’s domestic gasoline demand rose 5.81% on the month to a record high of 2.75 million mt, the PPAC data showed Nov. 11. This came as the festive season spurred motor fuel demand amid rising vaccination rates. Driving activity, a proxy for gasoline demand, averaged 91.60% above baseline levels in October, up from the 72.90% above baseline levels recorded in September, according to data from Apple Mobility. The total number of doses administered in the world’s second most populous country has already crossed the 1-billion mark. This comes after a second wave of the COVID-19 pandemic in India around May derailed economic activity. Refiners’ raise run rates State-controlled refineries in India were heard to be operating at maximum capacity or higher as the transport sector received a boost on fewer movement restrictions amid improved vaccination. Improved demand for transportation fuels in India prompted Indian Oil Corp., or IOC, the country’s No. 1 state-owned refiner, to run its nine refineries at an average of around 90% so far in October, company officials said Oct. 26. This was up from 82% in September. The average run for all categories of refineries in India rose to 99% in October, compared with 89% in September, as domestic fuel demand rebounded on easing restrictions, the latest survey of the oil ministry showed Nov. 23, reflecting improved economic activity in Asia’s third-largest economy. October’s run rate was also higher compared with the 87% run rate in the previous year, reflecting improvement in overall economic activity since the first wave of coronavirus in 2020. “Run rates [in December are] expected to keep at current levels,” said an India-based refiner source, adding that “everything is as per normal now.” “[Domestic] demand is very good, but we are keeping an eye on the global situation,” the refiner said. Higher refining margins was also reflected in the higher Asian crack spreads in October. The front-month FOB Singapore 92 RON gasoline crack against Brent swap averaged $9.60/b in October, up $2.50/b from the September average, Platts data showed. On the physical front, the FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures averaged $12.22/b in October, up $4.96/b from the September average. The FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures averaged $10.89/b over Nov. 1-29, Platts data showed. Road ahead Moving forward, market sources are cautious as global mobility is expected to take a hit, with the emergence of the new COVID-19 variant adding additional pressure on gasoline demand. “We are already approaching the winter months when gasoline demand is seasonally lower. Bearish headlines on COVID-19 will just add more pressure,” a market source said. Meanwhile, S&P Global Platts Analytics expects some reprieve in India’s gasoline demand growth in November while still staying circumspect about the outlook in December as the threat of renewed local restrictions lurks if the variant spreads. Several local media have recently reported that COVID-19 cases have been detected among some arrivals into India from South Africa. However, the variant had not been confirmed in India at the time of writing. “We expect the gasoline demand to grow in Q4 on a quarter-on-quarter basis, with November expected to show a positive growth over October as suggested by mobility indicators,” Shreyans Baid, a South Asia oil market analyst with Platts Analytics said. “December gasoline demand may face headwinds if there are restrictions due to the omicron variant from various state governments, like Maharashtra warning its citizens of a lockdown if COVID appropriate behavior is not followed,” Baid said. The growth in gasoline demand may not be impressive in coming months as there has been a year-on-year decline in two-wheeler and four-wheeler sales due to semiconductor shortages, Baid added.
CAG: Only 21% of cess on crude oil utilised for intended purpose in 5 yrs
Flagging concerns that cess proceeds collected by the Centre is not being fully utilised for the identified purpose, the Comptroller and Auditor General of India (CAG) said only Rs 155.06 billion or 21% of the total receipt of Rs 724.84 billion from cess on crude oil have been spent for development of oil industry during FY16-FY20. Oil Industry (Development) Act, 1974 provides for establishment of Oil Industry Development Board (OIDB) for the development of Oil Industry and for that purpose levy a duty of excise on crude oil and natural gas as a cess. CAG audit scrutiny for the period FY10 to FY20, showed that no funds from cess proceeds have been transferred to OIDB as against the total cess collection of Rs 1284.61 billion. It is also significant that since inception of OIDB only Rs 9.02 billion had been transferred to the body and since FY92, no funds out of the cess collected by the government were transferred to OIDB. Responding to CAG findings, the petroleum ministry has said that the government was financing various activities from the budget which included proceeds from the cess, and this qualified as being for development of the oil industry in terms of the OIDB Act. “It may, however, be noted that treatment of the cess as a general pool tax defeats the very purpose of levy of the cess which was to create a non-lapsable pool of funds for specified use,” the CAG said in its report tabled in Parliament on Monday. In the case of Universal Access Levy (UAL), for achieving universal service objectives by providing access to telephone services in rural and remote areas, CAG said against the total collection of UAL amounting to Rs 79.62 billion in FY20, only Rs 29.26 billion was transferred to the USO Fund, resulting in short transfer to the USO Fund by Rs 50.3553 billion.