Budget 2022 must focus on India’s new energy transition
India imports 80 percent of crude oil, and 54 percent of LNG representing ~38 percent of India’s energy consumption. For every 10 percent increase in crude oil price, there is an impact on India’s current account deficit by $10 billion, or negative 0.4 percent of GDP. Crude oil prices have increased by nearly 28 percent between December ’21 and January ’22, potentially impacting India’s GDP growth. For India to achieve a $5 trillion economy by 2025, a focus on new energy transition in the domestic market will strengthen energy security, facilitate economic growth, limit carbon emissions, and manage its fiscal deficit. New energy transition plans are built on India’s advantage as the world’s lowest-cost geographic zone for renewable energy generation, and upcoming giga-factories by leading corporates. Given this, it will be interesting to see what the announcements in the Union Budget are towards the energy sector, particularly in new energy. Green hydrogen, produced using renewable energy sources, is a versatile source of energy that can contribute to decarbonise the economy. While India has the cheapest renewable Levelized Cost of Energy (LCOE), it is essential to drive down the Levelized Cost of Hydrogen (LCOH) through capacity building, and policy interventions. Below are a few parameters: Technology innovation and development: There is a need for new technologies to reduce emissions in energy intensive ‘hard-to-abate’ sectors. Technological advancement across the green hydrogen value chain, starting from production (electrolysers), transportation (trailers, carriers – ammonia/methanol), storage (batteries, fuel cell, etc.) to end-use applications (powertrain, refuelling stations, etc.), will bring overall conversion efficiencies. India needs to be proactive in creating technological advancement through research projects, prioritise medium- to large-scale demonstration and global collaborations. While the government is working jointly with several companies on public-private participation, in Budget 2022 it should introduce policies towards funding R&D activities, subsidise early adopters, and layout national standards for safer storage, transport, and distribution. Enhance domestic manufacturing: Historically, manufacturing of clean energy technologies (solar PV, lithium-ion batteries, etc.) has occurred largely outside India. To support domestic manufacturing, Budget 2022 should introduce policies, provide incentives and subsidies for electrolyser manufacturing. The manufacturing scheme such as Production-Linked Incentives can be extended for localised manufacturing of electrolysers in a phased manner like solar PV cells, modules and Advance Chemistry Cell (ACC). Economies of scale: The current global demand for hydrogen is ~80mt, and green hydrogen demand is expected to rise 100x from 0.08 mtpa in 2021 to 10 mtpa in 2030, thereby building a huge demand potential for electrolyser manufacturing in India. With increasing scale, the cost of electrolysers is expected to drop by 50 percent in 2030. It is essential to create domestic green hydrogen demand at cost-parity with grey hydrogen so that the supply-side will penetrate at a much faster rate. The Government of India had announced the National Hydrogen Mission in Budget 2021 for making a hydrogen roadmap. However, a milestone based national hydrogen roadmap with financial incentives and policies to create a guaranteed market such as ‘dollar denominated’ green hydrogen purchase obligations must be mandated for different sectors such as petroleum, fertilizers, steel, and cement. Building out infrastructure: This is an essential parameter capturing the touch points of the green hydrogen value chain providing flexibility, connectivity, and operational efficiency. Pipelines are the cheapest option for green hydrogen distribution in local or regional networks (up to 5,000 km). For regional and long-range distribution, the infrastructure cost can represent ~50-70 percent of the total cost. Whereas for onsite installations, transmission takes only 20 percent of the total supply cost. Exploring options on new business models will help in bringing cost optimisation measures. Incentivise hydrogen production and investment tax incentives like a 10-year tax credit worth up to $3/kg of green hydrogen approved by US and provide long-term financing (debt, equity, grants) at lower rates. Climate market initiatives data anticipate an annual green bond issuance of $1 trillion by 2023, and the Government of India should provide the requisite push for ease of green bond access to corporates and startups. India is on the threshold of a generational shift from a net importer of fossil fuel to a potential net exporter of green hydrogen in the new energy transition journey by 2030. The Union government has shown interest and inclination towards developing green hydrogen as a future fuel and feedstock. There needs to be a strong policy and regulatory framework push for commercialising the green hydrogen value chain and industrial clusters in India. For this, all eyes will be on Budget 2022.
Aramco CEO says energy transition “not going smoothly”
Saudi Aramco CEO Amin Nasser said on Thursday that the energy transition “was not going smoothly,” pointing to a resurgence in demand for oil and gas as the global economy recovers while supplies lag on the back of falling investment, according to Reuters. “We all agree that to move towards a sustainable energy future a smooth energy transition is absolutely essential but we must also consider the complexities and challenges to get there,” he told the B20 conference in Indonesia via video link. “We have to acknowledge that the current transition is not going smoothly,” he said.
LNG Alliance To Take FID On India LNG Project By Dec: Interview
Singapore-based LNG Alliance is expected to take the final investment decision (FID) on the recently announced India LNG import terminal project by December this year, LNG Alliance CEO Muthu Chezhian tells NGW. “We are aiming for the FID around December of this year. It is an early-stage project, so maybe the timeline could slip by a month or so. But we are confident of having a decision within a year,” says Chezhian. LNG Alliance, together with the government of Karnataka, has proposed to develop an LNG import terminal in Mangalore, with an initial capacity of 4mn metric tons/year that could be later expanded to 8mn mt/yr in line with projected demand growth over the next twenty years. In addition, this import and regasification terminal will also have an ISO LNG containerisation and LNG truck loading facility for serving the industrial and transportation sector. This will also be India’s first dedicated LNG bunkering facility that will provide LNG as fuel for ships and bunkering shuttles operating off the west coast of India. The memorandum of understanding with the government of Karnataka to develop the terminal was signed in July last year and was followed by a cooperation agreement in December. Chezhian says that the floating storage and regasification unit (FSRU) selection process will begin in February this year while the relevant EPC contracts will be awarded by November 2022. “We plan to lease the FSRU and expect the FSRU to arrive at the terminal by September 2024 and the first gas is expected after a month’s time, say around October 2024,” says Cheryl Goh, the executive director of LNG Alliance. LNG Alliance intends to invest approximately $290mn dollars to develop, construct, and operate the terminal. “As part of this agreement, LNG Alliance will develop a tolling fee based floating LNG import terminal. This terminal will also be open for third party access and will provide the most competitive tolling rates in India, based on the LNG sourced from our supply partners,” says Chezhian. The terminal will have eight truck-loading bays and each bay will be able to load 10 containers daily. “The terminal can easily load 80 LNG containers every day. We can easily double that if the operations are streamlined,” adds Goh. Strong demand potential The Karnataka state is a fast-growing economy in southern India with a robust industrial base. When it comes to the gas supply-demand situation, the state is extremely well-positioned, Goh says. The captive natural gas demand in Karnataka will be served through a combination of pipeline gas supply and virtual pipeline supply using LNG trucks, with almost 60% of the offtake planned to be allocated to India’s national energy companies and the remaining 40% of the tolling capacity to be allocated to the CGD licensees from Karnataka and the hinterland regions of south India. “The strong regional demand for natural gas and LNG, combined with the active support from the state government of Karnataka, with their streamlined and transparent business processes and with the investment-friendly business climate in Karnataka, we are confident and committed to making the first LNG available in Karnataka by 2024 and contributing to the decarbonisation plans of India,” says Chezhian.
India dials oil producers to raise output as Brent tops $90 a barrel
India is back on the diplomatic table pushing oil producing countries to raise production in a bid to cool down runaway oil prices. Brent crude oil prices traded above $90 a barrel, on Thursday, for the first time since 2014. Brent is the most popular marker for crude oil trade. It is used as a benchmark for two-thirds of the world’s internationally traded crude oil. The high prices mean pressure on oil marketing companies to raise domestic auto fuel prices, a move that has been kept in abeyance in light of looming assembly elections in five states. Earlier this week, Petroleum Minister Hardeep Puri had a telecall with the Sultan Al Jaber, the Managing Director and Group Chief Executive Officer (CEO) of the Abu Dhabi National Oil Company (ADNOC), the national oil company of oil rich United Arab Emirates (UAE). In a tweet, Puri said that that the two deliberated on various issues relating to the bilateral energy partnership. He also condemned the terror attack on the UAE in which two Indian’s had lost their lives. Officials in the know said these calls are among the measures that India is taking to nudge crude oil producing countries to raise output and lower prices. The 25th OPEC and non-OPEC Ministerial meeting of the Organisation of Petroleum Exporting Countries (OPEC) is scheduled for Wednesday next week (February 2, 2022). It is expected that this meeting will result in a decision on whether oil producing countries will hike output or not. Since OPEC operates as an international cartel, the oil producers mutually decided to lower global output, resulting in higher prices to their benefit. These developments push up the Indian Basket of Crude oil, an estimate of the average price at which domestic refiners buy crude oil, to $ 88.23 a barrel on Wednesday. But prices of petrol and diesel sold by IndianOil (IOCL), Hindustan Petroleum Corporation (HPCL), and Bharat Petroleum Corporation (BPCL), the three public sector undertaking (PSU) oil companies, have remained unchanged from November 4, 2021. The Indian Basket of Crude oil had averaged at $ 80.64 a barrel during November 2021. “We are currently making losses on product sales,” an official at one of the three PSU OMC’s told Business Standard. “The impact of $ 90 a barrel crude oil will be more pronounced in 15 days,” he added. But this period will coincide with ongoing assembly elections and the companies are expected to continue bearing losses on fuel sales with the centre dissuading them from politically unpopular moves such as hiking petrol and diesel prices. Higher crude oil price also means more expensive Liquefied Petroleum Gas (LPG) or cooking gas. Price of domestic LPG cylinders have also remained unchanged since October 6, 2021. “The OMCs did not cut petrol and diesel prices when crude oil prices had fallen in December 2021 (Indian Basket averaged at $ 73.30 a barrel during the month). The understanding was that any losses that OMCs made on domestic LPG will be made good by higher margins on petrol and diesel. But with crude oil prices rising and elections around the corner, loses are bound to widen,” the official said. This sentiment is being echoed in the share market as well. Shares of the PSU OMCs are down from a week ago levels (January 20, 2022). The IOCL scrip is down 2.35 per cent to Rs 122.60 a share, HPCL is down 5.17 per cent to Rs 309.10 a share, and BPCL is down 3.51 per cent to Rs 382.40 a share on the BSE. These higher crude oil prices also result in more subsidy burden on the exchequer. But the centre has not been bearing any subsidy on sale of domestic LPG since May 2020. It continues to subsidise freight costs for domestic LPG cylinders being sold in farflung areas. This has resulted in the LPG subsidy allocation during 2021-22 being largely unspent. Officials say that there will be an allocation for LPG subsidy in the Budget 2022-23 too, but the centre is yet to decide the sale price beyond which this subsidy will be disbursed to beneficiaries.
Asian countries evaluate oil and gas price risks, contingencies amid Ukraine crisis
The oil and gas ministries of Asian countries have been assessing the risk of surging fuel prices and supply disruptions due to the Ukraine conflict, and evaluating contingency plans in consultations with national oil companies and other energy firms. South Korea is concerned about price hikes of crude oil and LNG due to the Ukraine crisis, an energy ministry official said Jan. 27, but has so far ruled out any major impact on supply chains because its purchases are based on long-term contracts. The country’s Ministry of Trade, Industry and Energy convened a meeting with the country’s energy importers and energy-intensive manufactures Jan. 26 to discuss energy supply conditions over the Ukraine crisis, joined by state-run Korea Gas Corp., one of the world’s biggest LNG importers, the country’s main oil and gas developer Korea National Oil Corp, chip makers, offshore plants builders and major think tanks. South Korea, the world’s fifth-biggest crude oil buyer and the world’s third-biggest LNG buyer, is vulnerable to price hikes because it imports all of its crude oil and LNG requirements. “The participants expressed concerns about price hikes of crude oil and LNG, with the forecast of possible supply disruptions due to the Ukraine crisis,” the MOTIE official said. “Energy prices are expected to get stronger even without armed conflicts there.” The prolonged tension could push up prices of oil and other types of energy, and a possible armed clash and subsequent US sanctions against Russia could disrupt global trade and supply chains and have far-flung implications across the globe, leading to supply disruptions of LNG and oil, he said. “The government will operate an early warning system on the supply of key industry materials and energy resources, while closely monitoring the situation,” Vice Industry Minister Park Jin-kyu told the emergency meeting. “We will be fully prepared while bearing the worst-case scenario in mind.” In Australia government officials said there has been no formal request from the US to ramp up LNG supply for Europe, but said Australia stands ready to support its allies and that banks should continue to invest in the gas sector. South Asia impact Indian LNG importers ruled out any immediate fallout on gas supplies as the Ukraine transit point is meant for Russian gas supplies to Europe, oil ministry officials said Jan. 27, allaying fears of any short-term supply crunch if tensions escalate. “There won’t be any gas supply constraint as Russia is our most dependent friend,” a senior ministry official said. Officials said a possible war-like crisis between Russia and Ukraine would not make supplies to India costlier as the global price depends on supply and demand factors, and US LNG producers have been producing while the winter season in Europe is set to subside. “We expect the global price to ease after March by when the winter season in Europe would be over,” an official at Petronet LNG, India’s largest state-run LNG importer, said. Indian LNG buyers in the private sector echoed the sentiment of state-owned LNG importers like Petronet, with an executive at H-Energy saying Russia or Gasprom are not expected to cut off gas supplies. He said cutting Russian supplies would starve Europe of gas and the punishment would be harder on Europe than on Russia. “It’s still a wait and watch the game,” the executive said. H-Energy is developing over 1,000 km natural gas pipelines to connect its LNG regas terminals on the west and east coasts to downstream gas markets. Unlikely scenario “While our base-case remains that disruptions are unlikely to occur, the price risk to exposed commodity markets is nonetheless skewed to the upside relative to 2014 given tighter inventory levels,” Goldman Sachs said in a note to clients Jan. 26. It said further escalation or a physical supply outage raises upside risks for European gas prices of Eur12/MWh given the still critically tight inventory situation. Goldman expects the impact on oil prices to be modest at around $2/b given limited loss of un-reroutable pipeline volumes, with dirty freight markets likely to rally significantly instead, given the ability to redirect flows to the seaborne market. “More broadly, commodity markets are increasingly vulnerable to disruptions, after a couple years of historically low outages following the initial COVID shock,” the bank said, adding that the backdrop of the tightest inventory levels in decades, low spare capacity and a less elastic shale sector “points to the skew of large energy price moves shifting to the upside.”