Saudis Could Hike Prices For Their Oil To Highest Spreads On Record
Saudi Arabia, the world’s largest oil exporter, could raise its official selling prices for Asia for April to the highest differentials to benchmarks on record, as buyers scramble to secure additional crude from the Middle East amid toxic Russian cargoes after Putin’s invasion of Ukraine. The Saudis are expected to raise significantly their official selling prices (OSPs), and Arab Light—the Kingdom’s flagship grade—could see its price for Asia next month at as much as $4.50 per barrel over the Oman/Dubai average, which would be a record high differential, three of five refining sources in Asia said in a Reuters poll on Wednesday. The expected Arab Light price would be $1.70 per barrel more than the price at which the grade is selling to Asia in March. Saudi Arabia generally sets the pricing trends of the other major Middle Eastern oil producers, and it usually sets the OSPs of its crude for the following month around the fifth of each month, typically after the monthly OPEC+ meeting. This month’s meeting on March 2 didn’t result in any surprises and the OPEC+ group rubberstamped another modest 400,000 barrels per day (bpd) increase in its collective oil production for April, despite soaring oil prices after a key member of the pact, non-OPEC producer Russia, invaded Ukraine. The expectation of a sharp increase in Saudi oil prices reflect the rallying Dubai/Oman prices, off which Middle East’s crude for Asia is priced, and the exceptionally tight market for Asian buyers, many of which are now seeking extra volumes from the Middle East – despite oil’s rally to over a decade-high – as they are wary of touching barrels from Russia. Crude from Russia, the key Saudi ally in the OPEC+ pact, has become increasingly toxic for buyers globally after Russia’s invasion of Ukraine was met with harsh banking sanctions for Russian banks.
Hydrogen On Track To Become A $1 Trillion Per Year Industry
New reports suggest that the hydrogen market could be worth $1 trillion per year by 2050 as it becomes viewed as a vital energy source in the transition from fossil fuels to greener alternatives. With greater numbers of energy companies and governments investing in hydrogen projects, it could form a major part of the energy mix in the coming years. Hydrogen is expected to be worth a fortune in the future if investment trends in the energy source continue. Several countries around the world are producing hydrogen, but the type of production varies significantly. Many oil and gas firms produce grey or blue hydrogen, transforming waste carbon from fossil fuel into hydrogen, which still relies on gas operations. But now, following two years of pandemic and the COP26 climate summit, several countries are looking to invest in green hydrogen, creating the energy source using water electrolysis. Michele DellaVigna, commodity equity business unit leader for the EMEA region at Goldman Sachs, explained, “If we want to go to net-zero we can’t do it just through renewable power.” And “we need something that takes today’s role of natural gas, especially to manage seasonality and intermittency, and that is hydrogen.” He also highlighted the plethora of potential uses for hydrogen, “We can use it for heavy transport, we can use it for heating, and we can use it for heavy industry.” To reach this $1 trillion a year estimate, hydrogen would have to occupy around 15 percent of the global energy market. With oil companies seeing hydrogen as a way to reduce their carbon footprint by using carbon capture and storage (CCS) technology to transform carbon waste into usable energy, hydrogen production is likely to increase substantially over the next decade. This will be further supported by government and energy company investment in green hydrogen projects, which are cropping up across Europe and Asia. The International Energy Agency (IEA) predicted the growth of the hydrogen market long ago in its 2019 report on the Future of Hydrogen. Hydrogen demand has increased threefold since 1975, with 6 percent of the world’s natural gas and 2 percent of coal going towards hydrogen production in 2019. Although it criticised the high level of carbon emissions created by the industry. And now, it’s not just European and Middle Eastern countries developing their hydrogen economies, Namibia has big plans for a new green hydrogen plant. At an estimated cost of $18 million, the hydrogen plant will be situated in the Erongo region, with construction commencing this year to be operational in 2023. The project will be carried out as a joint venture between the Ohlthaver & List (O&L) Group and CMB.TECH. The executive chairperson for O&L, Sven Thieme, explained of the plan “While the move away from fossil fuels may take several paths, green hydrogen is one that shows tremendous potential in getting us there.” He suggested that Namibia is the perfect location for a green hydrogen project thanks to its existing solar, wind or hydroelectric power operations. India is another country looking to increase its hydrogen production by introducing new policies to welcome hydrogen into the energy mix. The government’s new Green Hydrogen Policy responds to India’s National Hydrogen Mission, which aims to establish the country as a green hydrogen hub and reduce the quantity of carbon emissions being released. India aims to produce five million metric tonnes of green hydrogen per year by 2030. The new policy allows green hydrogen producers to access renewable energy or set up their own projects more easily, waiving several related charges and facilitating related licensing processes. And now Japan is trialling its first hydrogen train, putting the energy source into action. In February, the train company JR East debuted its first hydrogen-powered hybrid train, a zero-emissions means of transportation developed by Hitachi and Toyota at a cost of $34.8 million. The first phase of testing will begin in March, with plans to launch a commercial service by 2030. The train, Hybari, is powered by hydrogen fuel cells and batteries, with tanks supplying hydrogen to the fuel cells and electricity generated through a chemical reaction with oxygen in the air. Energy is stored by the batteries each time the train brakes. The combination of energy sources allows the train to reach a greater range than if it ran on batteries alone. It is expected to reach a top speed of 100kph and a range of 140km on a single filling of high-pressure hydrogen. However, the cost of a hydrogen-powered train will likely remain higher than traditional diesel-fuelled trains. So, will hydrogen be the energy of the future, forming a large proportion of the green energy mix of the next decade? Many countries and energy companies seem to be betting big on hydrogen, both the kind derived from fossil fuels and the green type. As hydrogen projects appear across many countries, it’s likely that the energy source is here to stay in one form or another.
The disconnect in the Indian gas sector
nion Budget 2022 did not mention of any gas-related schemes or infrastructure — not even the city gas distribution (CGD) network — despite the recent conclusion of the 11th round of CGD bidding. Yet, state gas utility GAIL (India) announced pre-Budget that it had commenced India’s first-of-its-kind project of mixing hydrogen into the gas system in Indore, Madhya Pradesh. This hydrogen-blended gas — known as grey hydrogen — will be supplied to a joint venture for retailing of compressed natural gas (CNG) to automobiles and piped natural gas (PNG) to households for cooking. The pilot project is using ‘grey’ hydrogen with a view to subsequently use green hydrogen. Green hydrogen is the only clean form of hydrogen as it is produced without harmful greenhouse gas emissions by separating hydrogen from water using electrolysis with renewable energy. Grey hydrogen, on the other hand, is produced by separating hydrogen from the fossil fuel gas (which is one part carbon and four parts hydrogen). The details of GAIL’s proposed pilot have yet to be published, but proponents would need to be looking very closely at the investment risk of such a project due to recent global gas volatility and record high prices, making gas a very expensive resource. Rising prices Gas-using States such as Maharashtra, Gujarat and Delhi saw repeated upward revision in CNG and PNG prices last year, especially after the bi-annual October revision of gas well-head prices, which saw prices rise to 62 per cent for regular fields and 69 per cent for difficult fields. For instance, CNG and PNG prices were revised more than five times in 2021 by a gas utility in Mumbai leading to 34 per cent and 31 per cent increases, respectively. Indian spot LNG imports also increased last year, from $8.21/MMBtu (million metric British thermal unit) in January 2021 to $30.66/MMBtu in December 2021 — an increase of 270 per cent. The upcoming April 2022 revision in producer gas prices, to be calculated using the volume-weighted average price (VWAP) of four international benchmarks with data from January-December 2021, is expected to be much higher given recent peaks in international gas prices. It is being estimated that domestic gas prices from regular fields will double in April 2022 (from the $2.9/MMBtu increase in October 2021) to $6/MMBtu, and would further increase to $8/MMBtu in October 2022. This increase in producer gas prices would translate into increased prices for gas consumers in household, commercial and industrial sectors, making gas use extremely unaffordable, and dampening existing demand. Further increases in gas prices would also make the production of grey hydrogen, which needs to use this expensive gas, an infeasible proposition. The disconnect between government policy and GAIL’s pilot illustrates an uncertainty in India’s gas sector, which has been suffering from extreme price fluctuations having reached record highs and lows over the past two years. Stranded infrastructure As IEEFA noted in a recent report, gas price volatility is an abiding issue with the risk of stranded infrastructure assets. It is also however an opportunity for utilities such as GAIL and the gas sector to switch to cleaner, non-fossil fuel alternatives. Gas price volatility dampens demand, as do high prices. With the onset of Covid-19, LNG demand fell, and prices tumbled. In April 2020, the Japan Korea Marker (JKM), considered a benchmark for Asian LNG spot prices, reached its lowest point at $2/MMBtu. However, once the economic recovery began, gas supply couldn’t keep pace and prices started rising with the JKM peaking at $35/MMBtu on October 5, 2021. In the last few months, the Indian import spot LNG price, on average, has been in the range of $30/MMBtu. Given the unprecedented and unexpected sharp rises in gas prices last year, there can be little certainty that prices will stabilise at around $19-20/MMBtu in 2022, as predicted at the start of December. The futures for February indicate prices will remain above $25 till at least March 2023. In October last year, prices were expected to settle at $14-15 by May 2022 — an indication of the increasing unpredictability in gas markets. This itself is way beyond India’s affordability threshold of $10/MMBtu. Such price volatility can have major implications for demand, capital and infrastructure, especially in price-sensitive emerging economies such as India — raising the operating costs of downstream projects in the industrial, power and CGD sectors, and harming product competitiveness, utilisation rates and returns on investment. India is planning a massive expansion of LNG import infrastructure to spur gas demand. However, skyrocketing LNG prices and increased attention on the global warming potential of methane (the major component of ‘natural’ gas) will more than likely lead to a major risk of under-utilisation of this infrastructure with billions of dollars’ worth of investment becoming stranded, again demonstrating the policy disconnect. As IEEFA has previously noted, global gas supply/price volatility will likely continue to increase due to reduced drilling activity, financial instability in the oil and gas industry, and lower industry investment. An industry analysis shows that between 2016 and 2020, while Asia LNG spot prices averaged 27.2 per cent lower than Brent-linked prices, the volatility of LNG prices was much higher at 51 per cent compared to the Brent-based contract prices. Peak gas prices are challenging for producers and consumers and highlights a major problem with relying on gas as a “bridge fuel” to a lower carbon economy. Further, it adversely affects India’s import bill and current account deficit (CAD) — already deeply impacted by the pandemic — and puts the nation’s energy security at risk, making it a matter of urgency for the government to explore cleaner alternatives to gas. Biogas and biomethane As consumers contemplate substituting polluting fuels, the focus should be on developing renewable energy alternatives that would not only be more affordable but also help India transition to a low-carbon economy. Biogas and biomethane, options approved by the US Renewable Fuel Standard programme, are equivalent in quality to gas for cooking and transport and industrial use, respectively. For the
Indian Oil Corp to supply fuels to Sri Lanka in 4-5 month deal
Indian Oil Corp (IOC), the country’s top refiner and fuel retailer, will supply 12-13 fuel cargoes to Sri Lanka to help the island nation facing an energy crisis, the Indian company said in a statement to Reuters. IOC said it will supply gasoil, gasoline and jet fuel to Sri Lanka over the next 4-5 months. “The supplies shall be made under a $500 million line of credit extended by the government of India to Sri Lanka for purchase of fuels,” it said.
South Asia switches to expensive diesel on LNG crunch
Pakistan and Bangladesh are turning to expensive and dirty diesel fuel to generate electricity as the nations struggle to secure shipments of liquefied natural gas amid a supply crunch intensified by Russia’s invasion of Ukraine, Bloomberg reported on Wednesday. Pakistan’s diesel-fired power generation rose to the highest level in at least seven years in January, while LNG-based output dipped to the lowest in almost two years, according to government data compiled by Arif Habib Ltd. The two fuels each generated about 7 percent of the South Asian country’s electricity in January. That’s bound to continue as Pakistan has failed to find replacement LNG cargoes after long-term supplies were forced to cancel deliveries. “LNG supply looks tight at the moment and LNG prices were expected to remain elevated even before the invasion of Ukraine,” said Simon Nicholas, an analyst at the Institute for Energy Economics and Financial Analysis. “It’s likely Bangladesh and Pakistan will need to continue to use more diesel and oil in power generation.” Energy prices — already elevated amid a supply-demand imbalance as the w world recovers from the pandemic — have surged following the invasion and sanctions on Russia in response. Higher costs pose a particular burden for developing economies, such as Pakistan and Bangladesh, in their fight against climate change. The issue also highlights a growing problem with depending too much on LNG, which has suffered from a shortage as demand has largely outstripped supply over the last few years. It threatens to boost power costs across South Asia, increase government subsidies to support power payments and hurt the economic recovery in Pakistan and Bangladesh. Pakistan’s fuel costs doubled in January, compared with the same period a year ago, data from Arif Habib show. Diesel is the most expensive fuel for power generation in Pakistan, costing 14 percent more than fuel oil and 55 percent more than LNG-based generation, according to January data by the National Electric Power Regulatory Authority. Diesel use also comes as the nation’s refineries have been filled with fuel oil, meaning that there are other options for power, said Tahir Abbas, Arif Habib’s head of research. LNG Imports Liquefied natural gas imports into India, Pakistan and Bangladesh are set to hit a low point in February due to unaffordable spot LNG prices, according to BloombergNEF. A total of 39 cargoes arrived in January, the lowest since February 2019. BloombergNEF estimates the share of spot volume in South Asia’s total LNG imports fell to just 18 percent of January supply, down from 25 percent in the previous month. Bangladesh’s LNG supply crunch started after a mooring line at Summit Group’s floating storage and regasification unit broke down in November, said Mohammad Hossain, director general of Power Cell, a unit of Bangladesh’s Ministry of Power, Energy and Mineral Resources. Bangladesh extended downtime for compressed natural gas stations. Pakistan’s growing gas shortage this winter forced residents to turn to cylinders in Karachi and authorities offered discounts to make users switch from gas to electricity for heating. The nation’s domestic gas production has fallen by about a fifth over the past two years, making LNG supply even more crucial. Diesel is used only when there are constraints and largely for system stability and reestoration in instances of blackouts and outages, Pakistan’s energy ministry said in a response to questions. There is no requirement for diesel fuel for power generation until June, it said.
High crude prices may spur blending of fuels with ethanol
With a view to enhance ethanol production capacity in the country, the central government has notified two interest subvention schemes in 2018 and 2019 for molasses-based distilleries, under which interest subvention at the rate of 6% per annum or 50% of the rate of interest charged. With the price of Brent crude surging past $113 per barrel on Wednesday amid concerns over supply disruptions after Russia’s invasion of Ukraine, and a steep hike in domestic fuel prices looking imminent, the Centre’s ambitious ethanol blending programme (EBP) may get a shot in the arm. The country is dependent on oil imports to meet more than 80% of its oil demands. In 2020-21, state-run oil marketing companies sold 36.72 billion litres of ethanol-blended fuel, representing a foreign exchange saving of Rs 95.80 billion ($1.3 billion). According to the Indian Sugar Mills Association (ISMA), the country has a capacity to make 7.22 billion litres a year of ethanol currently, which will reach 15 billion litres a year by 2025. India’s ethanol blending has seen a sharp rise in the last five years, from 2.07% in 2016-17 to 8.10% in 2020-21. To help reduce its dependence on costly oil imports and provide farmers with an additional source of income, the Union government last year brought forward the target to achieve 20% ethanol blending with petrol from 2030 to 2025. “In 2020-21, the OMCs were supplied 3.02 billion litres of ethanol, from which the country achieved an average blending of 8.10%. We hope to see the country achieving 10% blending target by the end of FY2022 and 20% by 2025,” ISMA DG Abinash Verma said, adding that to meet the target, both the production and demand sides need to work in tandem. According to the Niti Aayog’s roadmap for ethanol blending, India’s net import of petroleum in 2020-21 was 185 million tonnes at a cost of $55 billion. “A successful E20 programme can save the country $4 billion per annum (Rs 300 billion),” it said. With a view to enhance ethanol production capacity in the country, the central government has notified two interest subvention schemes in 2018 and 2019 for molasses-based distilleries, under which interest subvention at the rate of 6% per annum or 50% of the rate of interest charged. As per the Niti’s ethanol production projections, India will have 10.16 billion litres for 20% ethanol blending by 2025-26, out of which 4.66 billion litres would be grain-based ethanol, while 5.50 billion litres would be molasses based. “We are confident of having enough production capacity to supply the required estimated 10.20 billion litres by 2025. The industry has shown a lot of interest in scaling up production, but what needs to be worked on now is to augment the demand said too, which includes getting augmenting the storage capacity in the depots for offtake of capacity and dispensing at retail pumps, which will can provide both E10 as well as E20 fuel. We also need the auto companies to come up with the right kind of cars and two-wheelers that are E20 compatible for the programme to be successful,” he said. When asked whether the E20 deadline will be preponed, especially in view of the heightened crude oil prices, the ISMA DG said that while production of ethanol can be preponed, the demand cannot be preponed as the auto manufacturers would need time to start rolling out vehicles that are E20 compatible. “From April 2023 onwards, E20 compatible vehicles will start rolling out and we expect that by 2025, as many as 25% to 30% of the vehicles on the streets would be E20 compatible. But to make 100% vehicles E20 compatible, we would need more time,” he said.
ONGC and its partners to decide operating Russia’s Sakhalin 1 project
India’s ONGC Videsh said it and its partners will decide on how to keep operating the Sakhalin 1 project over next few weeks, after Exxon Mobil’s decision to exit Russia’s oil and gas sector over Moscow’s invasion of Ukraine. Exxon, with a 30% stake, has operated the project in Russia’s Far East since production began in 2005. ONGC Videsh, and Japan’s SODECO own 20% while the remainder is held by Rosneft. ONGC Videsh, the overseas investment arm of India’s top explorer Oil and Natural Gas Corp., did not see “any immediate impact,” on the operation of the project due to Exxon’s decision, it said in an emailed statement.