Indian Gas Exchange IPO in the offing
India’s only gas exchange, IGX, which is a subsidiary of the energy exchange, IEX, will come out with an initial public offering, IEX’s Chairman and Managing Director, Satyanarayan Goel, told B usinessLine on Tuesday. IEX, which today has 47 per cent stake in IGX, was launched on June 15, 2020, to enable trading of natural gas — either imported or the gas that is outside of price-controls. Since its launch, IEX has sold stake in IGX to ‘strategic investors’ — ONGC, IOC, GAIL, Torrent, Adani and NSE. “There are many investors asking for stakes, but as a matter of policy, we have given stakes to these strategic investors only,” he said. “As per the regulations of PNGRB (Petroleum and Natural Gas Regulatory Board), we must bring down our stake to 25 per cent,” Goel said, adding that an “IPO is the most efficient mode” of doing so. A year-and-a-half has elapsed since IGX was incepted; the company has three-and-a-half years to comply with the regulations. Gas traded hits a high IGX today announced that it traded 2.27 million MMBTu of gas in February; the highest single day trade, 688,500 MMBTu, happened on February 15. In 2021-22, up till February, 8.8 million MMBTu of gas has been traded over the exchange, according to a press release from IGX. IGX facilitates delivery-based trades in six different contracts — Day-Ahead, Daily, Weekday, Weekly, Fortnightly and Monthly — at five different designated physical hubs – Dahej, Hazira, Dabhol, Jaigarh and KG Basin. Currently, the trades can be executed for three consecutive months in different contracts. Goel said on Tuesday that, “while IGX is doing better than what we had expected”, volumes have been affected by the rise in gas prices from about $4-5 per MMBTu to over $30, before coming down a little. However, he expressed confidence that prices would fall and volumes on the exchange would pick up. The press release of today said the average gas price discovered on the exchange in February was $24.6 per MMBTu. “The price discovered on the IGX is reflective of India’s gas demand and supply, including the LNG long-term, spot and domestic gas prices.” One upside for IGX is the ongoing ‘discovered small fields’ programme of the government, under which it auctions small and marginal oil and gas fields already discovered and found to be too small for biggies like ONGC. The third round of auctions is underway; after several months of delay, the award of fields to the best bidders is expected to happen by April. Companies who produce gas from these fields might find it more remunerative to sell their gas on the exchange, than either directly to customers or to the public sector gas trader, GAIL.
Exxon’s exit from Russia puts OVL in a fix
Exxon Mobil Corp’s decision to exit Russia has put India’s flagship overseas firm ONGC Videsh in a fix as it is a partner in the global energy giant-operated Sakhalin-1 oil fields in Far East Russia, sources said. ONGC Videsh Ltd (OVL) and three other state-owned Indian firms hold 49.9 per cent stake in a separate Vankor oilfield in west Siberia but that investment will not be impacted as they repatriated their dividend income from last year in January 2022 and would not immediately face issues because of Russia being cut off from the global payment system SWIFT over its Ukraine invasion. ExxonMobil holds 30 per cent stake in the Sakhalin-1 offshore oil assets, where ONGC Videsh Ltd — the overseas investment arm of state-owned Oil and Natural Gas Corporation (ONGC) — has a 20 per cent interest. The field, which produced some 227,400 barrels of oil a day (11.35 million tonnes a year) and over 12 billion cubic metres of natural and associated gas in 2021, is operated by ExxonMobil. While it has not put a timeframe for leaving the venture, the exit of ExxonMobil would mean technical manpower and expertise would no longer be available at the project, three sources with direct knowledge of the matter said. In all likelihood, Russia’s Rosneft, which holds 20 per cent participating interest in the fields, will take over Exxon’s share, they said. The Sakhalin-1 project, where the partners have so far invested USD 17 billion in developing the reserves lying below the sea that freezes during winter, is regarded as a technical marvel. It involved developing three oil and gas fields off Sakhalin — Odoptu, Chayvo and Arkutun-Dagi — by drilling record-setting wells from shore that bored down and sideways for up to seven miles to reach the reservoirs that had frustrated the Soviets when they discovered oil there in 1979. OVL joined the project in 2001 and ExxonMobil began pumping oil from the fields that were considered too deep and remote to produce, in 2005. Sources said ExxonMobil has publicly stated that it is starting a process to discontinue operations and developing steps to exit the Sakhalin-1 venture. It would no longer invest in new developments. ExxonMobil, which joined BP and Shell to announce exit from Russia over Moscow’s invasion of Ukraine, has told foreign managers to leave the project, sources said, adding a couple of wells may be on course of being shut down. The majority of the managers at the project are foreign nationals while US contractor Parker Drilling is in charge of almost all drilling operations, they said, adding ExxonMobil relies on other US and international contractors for operations. The foreign staff in all likelihood will leave the project over the next few days, sources said. Besides ExxonMobil and OVL, Japanese consortium Sodeco has a 30 per cent interest in Sakhalin-1 and Russian producer Rosneft has the remaining 20 per cent. ExxonMobil and Rosneft have been working on a plan to commercialise remaining natural gas reserves by exporting them to international markets as liquefied natural gas (LNG). Non-associated gas from the Chayvo field is planned to be sent by a new pipeline to a 6.2 million tonnes per annum liquefaction facility to be built at the port of De Kastri on the Russian mainland.
Europe Can Survive Next Winter Without Russian Gas
Russia’s invasion of Ukraine threw Europe’s dependence on Russian natural gas into sharp relief. The European Union is drafting measures to reduce its reliance on Russian energy, while various European countries, including the biggest economy, Germany, are revising their strategic energy policies, aiming to reduce their energy security vulnerability. It was this vulnerability that has stopped the EU, the U.S., and allies from slapping sanctions on Russian energy exports (for now). Europe receives some one-third of its natural gas from Russia, but the dependence varies among EU members. Germany is 50-percent reliant on Russian gas, and Italy imports 40 percent of its gas needs from Russia. Southwest European countries Spain and Portugal do not import any Russian gas, but southeast European countries and Russia’s neighbors to the west, Estonia and Finland, are 100 percent or nearly 100 percent dependent on Moscow for their natural gas supply. As the war in Ukraine threatens to cut off Russian gas supply—either in the form of sanctions or a Putin retaliation to sanctions—Europe realized that ensuring energy security would mean weaning itself off Russian deliveries in the quickest way possible, even at a high economic price. Ensuring gas for next winter should not be a problem, analysts and the European Commission say. The question is, what will Europe do for the winter after that—and all the following winters in the long term—if it wants to reduce its dependence on Russian gas and not shape its security or sanctions policy in fear of being cut off from its largest source of gas. This winter is nearly at its end, and European gas in storage is back to the five-year range. With restocking during the summer, Europe could go without Russian gas next winter, according to Wood Mackenzie. “From record lows at the start of winter, storage levels have now re-enter[ed] their five-year range, albeit on the lower side, and are on track to be in a more comfortable position by the end of March,” Kateryna Filippenko, principal analyst, Europe gas research, at WoodMac, said. “It is our current assessment that the EU can get through this winter safely. At the moment, gas flows from East to West continue, LNG deliveries to the EU have increased significantly, and the weather forecast is favourable. The use of gas from storage has slowed down and we are still around 30% of storage capacity filled,” European Energy Commissioner Kadri Simson said on Monday. EU member states need to collectively ensure a certain level of gas storage in their regions and to conclude solidarity agreements to send gas where it’s most needed, Simson said. “The war against Ukraine is not only a watershed moment for the security architecture in Europe, but for our energy system as well. It has made our vulnerability painfully clear. We cannot let any third country destabilise our energy markets or influence our energy choices,” the commissioner said. “The European Union can manage without Russian gas next winter, but must be united in taking difficult decisions, accepting that in many cases it won’t have enough time for perfect solutions,” analysts at European think tank Bruegel wrote in an analysis this week. In the wake of the Russian invasion of Ukraine, Germany announced it was changing course “in order to eliminate our dependence on imports from individual energy suppliers,” German Chancellor Olaf Scholz said on Sunday. Germany will build two LNG import facilities, at Brunsbuettel and Wilhelmshaven, and look to speed up the installation of renewable energy capacity to have 100-percent renewable power generation by 2035. For Europe, managing without Russian gas “will require improvisation and entrepreneurial spirit,” analysts at Bruegel say. “The main message is: if the EU is forced or willing to bear the cost, it should be possible to replace Russian gas already for next winter without economic activity being devastated, people freezing, or electricity supply being disrupted,” they noted. “But on the ground, dozens of regulations will have to be revised, usual procedures and operations revisited, a lot of money quickly spent and hard decisions taken. In many cases time will be too short for perfect answers.”
Italy Halts Funding For $21 Billion Arctic LNG 2 Project
Italy has halted its share of the financing for the Arctic LNG 2 project, as Western companies and countries continue to sell their stakes in Russian energy projects, even absent of energy-related sanctions. Tankers carrying Russian LNG to Europe have changed course, oil majors such as Shell, BP, and Exxon have pulled out of Russian oil projects at great expense, and now, Italy has suspended its financing for the Arctic LNG 2 project, owned by Russian gas producer Novatek. The project, estimated at $21 billion, is just one of the many projects that is losing foreign backing, even though Russia’s energy exports have thus far been exempt from sanctions. Italy, fearing more sanctions, is now rethinking its loan to the project, which some estimate at $560 million. Italy had only recently decided to help finance the project. The loan for the project had not yet been dispersed. The agreement to finance part of the project, however, remains intact. The latest move highlights just how much of a pariah Russia has become on the world stage after its invasion of Ukraine, and could put a damper on some of Russia’s energy projects. Arctic LNG 2 was destined to be up and running by 2023, reaching full capacity by 2026. Arctic LNG 2 is expected to produce 20 million tonnes of LNG annually. In addition to Russia’s Novatek, Arctic LNG 2 shareholders include TotalEnergies, CNPC, CNOOC, and Japan Arctic LNG. TotalEnergies, with a 10% stake, is one European oil major that has not decided to quit its Russian operations. The Arctic LNG 2 project was already controversial even before Russia’s invasion of Ukraine, with the European Parliament stating that it was concerned about EU members’ support of the project because it was not compatible with climate targets.