Reliance Industries seeks minimum $14 for gas from CBM block
Reliance Industries Ltd is seeking a minimum of USD 14 for selling natural gas being produced from coal seams in a block in Madhya Pradesh as it looks to cash in on the recent spike in energy prices globally. Reliance sought bids from users for the sale of 0.65 million standard cubic meters per day of gas from its coal-bed methane (CBM) block SP-(West)-CBM-2001/1 for a one-year period beginning April 1, 2022, according to a Notice Inviting Offer (NIO) published by the firm. Bids have been sought at a premium over the base of 14 per cent of the Brent crude oil price. “A Bidder shall be required to quote the variable denoted as ‘V’ in USD per million British thermal unit terms as a positive number pursuant to the gas price formula” of “14% x Dated Brent + V,” the NIO said. The starting ticker for ‘V’ has been kept at USD 1 per mmBtu, which means bidders will have to quote at least USD 1 plus 14 per cent of dated Brent crude oil to buy the CBM gas. Brent crude oil is currently trading above US 92.5 per barrel and at this price, the floor rate for Reliance gas comes to USD 13 per mmBtu. Adding ‘V’ of USD 1, the minimum price comes to USD 14 per mmBtu. The sale price will be higher of the bid price or the government-approved rate for domestic gas, NIO said. The government dictated price for gas produced by state-owned firms such as ONGC presently is USD 2.90 per mmBtu. The rate Reliance is seeking is higher than the price at which the company had sold the same gas last year. Gas will be delivered at Shahdol in Madhya Pradesh, which is connected to the nationwide gas pipeline network through the HVJ pipeline, the NIO said. Last year, Reliance had sold three-fourths of the gas from the same CBM block to an affiliate of the company. India Gas Solutions Private Limited, a 50: 50 joint venture of Reliance and UK’s bp, bought 0.62 mmscmd out of 0.82 mmscmd gas bid out in that auction. State-owned gas utility GAIL India Ltd cornered 0.17 mmscmd while 0.03 mmscmd was picked by Reliance Gas Pipeline – the entity that transports gas from the CBM blocks in Madhya Pradesh to consumers. The price bid was 9.2 per cent of the prevailing rate of Brent crude oil price, which translated into a rate of USD 8.5 per mmBtu at current oil prices. In the last year’s auction, Reliance had sought bids for 0.82 mmscmd. Bids were initially sought at 9.5 per cent of Brent rate as the base or minimum price and asked bidders to “enter bids that are higher than or equal to it.” It later lowered the base price to 8.7 per cent of Brent. At the current USD 92.5 per barrel Brent crude oil price, the price of gas produced from coal seams, called CBM, comes to USD 8.5 per mmBtu. Reliance started commercial gas production from the CBM blocks in March 2017 and reached a peak of 3 mmscmd before the end of 2018. CBM is natural gas stored or absorbed in coal seams and contains 90-95 per cent methane. The pricing formula used last year and this year is a variation over the 2017 formula when Reliance had sought bids in the form of a deductible from 12.67 per cent of prevailing Brent crude oil price plus USD 0.52 per mmBtu plus USD 0.26 per mmBtu. In that bidding for up to 3 mmscmd of gas, Reliance had outbid rivals including GAIL to buy the entire volume. Last year, Reliance and its partner BP plc of UK bid out 7.5 mmscmd of gas from its eastern offshore KG-D6 block by pricing the fuel at JKM (Japan Korea Marker). The JKM represents the price for spot LNG delivered in the Asian market and is now being widely used in the LNG industry as a marker for medium/long-term LNG contracts instead of traditional linkage to oil.
Budget 2022: Govt focus on energy transition and clean energy
The Budget 2022 is growth-oriented with focus on ‘Make in India’ or ‘Atmanirbhar Bharat’ by rationalising custom duty exemptions and procedures and incentivising new manufacturing companies and startups. Additional restrictions have been introduced for availing Input Tax Credit (‘ITC’) in certain circumstances, which would require a detailed analysis of the supply chain by the oil and gas companies. In light of India’s commitment to the COP26 Glasgow summit, the Union Budget 2022 has focused on promoting the use of cleaner energy alternatives. Though there are no specific policy announcements for the oil and gas sector, various rationalisation measures are proposed with respect to customs duty rates, simplification of procedures relating to claiming current customs duty or exemptions and various conditions relating to obtaining Input Tax credit (‘ITC’) under GST regulations. Certain key changes in customs and GST regulations are: • Exemption from Basic Customs Duty (‘BCD) for imports for petroleum operations has been restricted to specified list of goods • Procedural conditions for availing aforesaid exemptions have been simplified by removing the requirement of producing a certificate from Directorate General of Hydrocarbons; • Exemption from BCD for raw material imports for manufacture of goods required for offshore operations has been withdrawn with effect from April 1, 2023 • Increase in BCD rates has been proposed for goods required for setting up crude petroleum refinery and LNG re-gasification plant; and • To promote blending of ethanol, methanol and bio-diesel, additional basic excise duty of Rs 2 per litre will be levied with effect from October 1, 2022, on unblended petrol and diesel. Further, additional restrictions have been introduced for availing Input Tax Credit (‘ITC’) in certain circumstances, which would require a detailed analysis of the supply chain by the oil and gas companies. Some of these circumstances include continued default in payment of tax by vendor, difference between tax filing and tax payment amounts of vendor, avail of excess ITC by vendors. No corporate tax concessions/benefits/incentives have been granted for Research & Development and technological upgradation for the sector. To their merit, there is no increase in the levy of corporate tax. In accordance with the expectations, the sunset date for commencement of manufacture or production for new manufacturing companies has been extended to March 31, 2024, to avail the concessional tax rate of 15%. Similarly, the sunset date for incorporating startups has been extended from March 31, 2022, to March 31, 2023, to claim tax holidays by such startups. Such extensions will incentivise new manufacturing companies and startups to make future investments within the extended time limit to obtain tax benefits, which in turn would optimise the overall cost in the supply chain. The Budget 2022 is growth-oriented with focus on ‘Make in India’ or ‘Atmanirbhar Bharat’ by rationalizing custom duty exemptions and procedures and incentivizing new manufacturing companies and startups.
With oil prices over $90, is demand at risk?
Even though in their latest meeting, OPEC+ ministers agreed to maintain the planned monthly increase of 400,000 barrels per day in March, prices remained firm while crude prices continued their backwardation. Bullish market sentiment is likely to continue, thanks to persisting supply outages and low oil inventories while the US-Russia tensions continue to add a risk premium to crude prices. Some signs are now emerging, however, that suggest a turning point in prices may be on the horizon. Oil prices could soften since some temporary drivers that are supporting high prices are falling away as we head into the second quarter of the year when refineries worldwide start their maintenance, leading to a lower demand for crude Winter is drawing to a close, which will lower demand for natural gas and, in turn, demand for diesel and fuel oil as cheaper alternatives for power generation and industrial use. The arrival of spring will also lower demand for heating oil. As for consumer sentiment, it is currently in the doldrums, falling to its lowest level since November 2011. This does not bode well for sustained demand under high prices. Furthermore, a US-Iran agreement could be reached earlier than the market anticipates, which could allow for the gradual lifting of sanctions as soon as April. Crude oil prices were supported by the EIA weekly report showing a draw in US crude oil and distillates stocks. Refining margins are recovering as demand continues to recover faster than supply, providing a boost for US refiners who just two years ago were struggling to break even on a barrel of oil. Crude exports from Russian seaports are poised to dip by almost 120,000 bpd in February. Capacity constraints will become more limiting in the coming months, raising concerns in the market. Genuine risks have already raised demand for inventory. India’s gasoline and diesel sales slumped in January as the third COVID-19 outbreak pushed people back to their homes, slowing consumption. Oil markets will be vulnerable to disruptions, capacity constraints and geopolitical risks, but supplies will be increasing in 2022, leading to an expected build-up of surplus in the market as it is projected by industry sources, which will likely put pressure on prices. US shale crude and condensate growth accelerated to 0.7 million bpd this year, after two years of decline. Global gas markets are painting distinctly different pictures as supply uncertainty in Asia supports prices but European markets are starting to see downside potential on the horizon. Mild weather in Europe and frigid forecasts for the US will drive price behavior in the coming days. With no sign of a diplomatic breakthrough to a potential conflict in Ukraine, Europe is engaged in diplomacy to see where it could acquire LNG supplies if Russian piped gas flows are cut off. Speculators are betting on higher prices because they see strong demand while supply struggles to keep up. Some experts argue that oil is on its way to $100 or higher, but there is no guarantee that this will not lead to demand destruction. Higher oil prices can have an indirect impact on oil demand by stalling the economic recovery from the pandemic and fueling inflation. Elevated levels usually take a toll on household and business budgets, ultimately slowing economic growth.
Air quality panel issues fresh directions to industries in NCR to switch to PNG
The Commission for Air Quality Management (CAQM) has reiterated its push for industries in the National Capital Region (NCR) to switch to Piped Natural Gas (PNG) or biomass fuel. In an order issued recently, the CAQM said that industries in the NCR which have not shifted to PNG or biomass fuel, despite the availability of natural gas infrastructure and supply, are to switch over completely by September 30, “failing which such industries shall be closed down and not permitted to schedule operations thereafter.” Early in December, the commission had restricted operations of such industries not running on PNG or cleaner fuel to eight hours per day for five days a week, on account of deteriorating air quality in the NCR. These restrictions were in place till Friday, when the CAQM lifted them. In its order, the commission noted that apart from those in Delhi, a majority of industries in the industrial areas across the NCR, where gas infrastructure and supply are available, are still not fully operating on PNG or cleaner fuels and continue to run on coal or high-speed diesel. The commission also noted in its order that in those industrial areas where PNG infrastructure and supply is not available, industries shall plan and switch over to running on biomass fuel at the earliest. In August last year, the commission had directed Haryana, Uttar Pradesh and Rajasthan to prepare a time-bound action plan to supply gas in the industrial areas within the NCR districts to ensure that industries run on PNG in all industrial areas. It also noted then that out of 1,469 industrial units identified for switching to gas in Haryana, only 408 had made the shift, while in Uttar Pradesh, the figure was 1,161 industrial units that had shifted to gas out of 2,273 identified in the NCR districts.
Oil And Gas Will Keep Meeting India’s ‘Baseload’ Energy Demand- Oil Minister
Oil and gas will continue to meet the ‘baseload’ energy demand of India in the “foreseeable future” even as the world’s third-biggest crude importer takes steps to move to cleaner sources to cut emissions, oil minister Hardeep Sing Puri said on Friday. India has set a goal to achieve net-zero carbon emissions by 2070. “As our economy grows to $5 trillion by 2025, and towards $10 trillion by 2030, our burgeoning energy needs will take shape and in turn, the global energy markets will be shaped by India’s requirements,” Puri told the World Energy Policy Summit. Imports cover about 85 per cent of India’s overall crude needs, but it’s per capita energy consumption is just a third of the global average. Hit hard by a rally in global oil prices, India is taking steps to boost its oil and gas output while accelerating energy transmission to cut emissions. However, Puri said, “the oil and gas will continue to meet the baseload energy demand for the foreseeable future.” India’s top oil explorer Oil and Natural Gas Corp is scouting for partnerships with global companies to boost oil and gas output, its chairperson Alka Mittal said at the online event. ExxonMobil Gas (India) chief executive Monte Dobson said his company would help ONGC in boosting oil, gas output from ONGC’s difficult and challenging fields in India’s east and west coasts. India Oil Corp, the country’s top refiner, is expanding into low carbon businesses, by expanding its gas sales business and building infrastructure to help boost the role of electric vehicles in India’s transport fleet. “IOC is leveraging the surplus hydrogen capacities available at its refineries as a potential source for promoting fuel cell mobility,” its chairman S.M. Vaidya said.
Panel to choose new chairman of ONGC
Eight months after its headhunter failed to find any suitable candidate for top job at ONGC, the government will deploy a sparingly used committee approach to find a new chairman and managing director of India’s top oil and gas producer. Most board level appointments at public sector companies are done on the basis of recommendations of the Public Enterprise Selection Board (PESB) but the government headhunter had in June last year did not find anyone suitable from nine candidates, including two serving IAS officers, to head Oil and Natural Gas Corporation (ONGC). “Keeping in view the strategic importance and vision for the company and its future, the Board did not recommend any candidate and decided to constitute a Search Committee,” PESB had said in a notice after interviews on June 5, 2021.