U.S. Sanctions Can’t Keep China From Buying Russian Oil
China has proven with Iran that it has much practice and great skill in working around sanctions, and the U.S. has made it even easier to do so in the case of Russia in several ways, including leaving gaping loopholes in its sanctions that China and Russia can exploit. The current ambiguity surrounding these mechanisms suits China perfectly, as until it believes that it is militarily, technologically, and economically able to directly challenge the U.S. as the world’s number one superpower its strategy will remain to gradually build up its economic power through the multi-generational power-grab project, ‘One Belt One Road’ (OBOR), as analysed in depth in in my new book on the global oil markets. This project contains within it a corollary colonialist element by dint of its land and sea routes secured through chequebook diplomacy. Given this, China cannot afford at this stage of its strategy to be seen to back Russia fully in President Vladimir Putin’s apparently ill-considered invasion of Ukraine and this was clearly evidenced in China’s abstentions – unwanted and unexpected by the Kremlin – in the United Nations Security Council’s votes last Friday firstly to condemn the war and secondly on whether to open the special emergency session of the General Assembly the next day. One basic factor that has worked in China’s favour in circumventing sanctions on continuing to do business, especially oil and gas business, with Iran – and will equally apply to its doing the same with Russia – is the lack of exposure of China’s firms to the U.S. financial infrastructure – particularly to the U.S. dollar – and the ease with which companies can set up new special purpose vehicles to handle ring-fenced areas of their businesses to allow for special situations, such as sanctions. As a corollary of this operational independence, China made no secret at the time of the pre-2016 sanctions against Iran or the post-2018 sanctions against it that it was going to use its Bank of Kunlun as the main funding and clearing vehicle for its dealings with Iran. The Bank of Kunlun has considerable operational experience in this regard, as it was used to settle tens of billions of dollars’ worth of oil imports during the U.N. sanctions against Tehran between 2012 and 2015. Most of the bank’s settlements during that time were in Euros and Chinese renminbi and in 2012 it was sanctioned by the U.S. Treasury for conducting business with Iran. Rather like Iran – whose Foreign Minister, Mohammad Zarif, infamously stated back in December 2018 at the Doha Forum, that: ‘If there is an art that we have perfected in Iran, [that] we can teach to others for a price, it is the art of evading sanctions’ – China has always regarded any U.S. sanctions as a fun puzzle to solve. Washington learned early on – when it sanctioned Zhuhai Zhenrong Corp, the massive state-owned oil trading firm founded by the man who started oil trading between Beijing and Tehran in 1995 as a means by which Iran could pay for arms supplied by China to be used in the Iran-Iraq War – that Beijing would not be playing the sanctions game according to anyone’s rules but its own. Indeed, at a time when according to the U.S. ‘there is clear evidence that China did not import any crude oil from Iran in June [2020] for the first time since January 2007’, OilPrice.com showed that over a period of only 51 days just before the U.S. statement, China imported at least 8.1 million barrels of crude oil (158,823 barrels per day) from Iran. In the case of Russian oil and gas exports, though, there is no need for China to go through all the trouble it took to circumvent the sanctions on Iran, for three key reasons. Firstly, there are currently no direct sanctions in place from either the U.S. or the E.U. on Russian oil or gas energy exports. A statement was released over the weekend that both are discussing a ban on Russian oil imports but this has not been approved yet and can still be worked around by China in the same way it did for Iran. In fact, despite several announcements last week of various types of sanctions being placed on a slew of Russian banks, one bank that was notably absent from all of the U.S.’s lists was Russia’s third biggest lender, Gazprombank, which serves Russian state gas giant (with huge oil interests as well) Gazprom. Indeed, Gazprombank and Russian state-owned banking giant, Sberbank, are also not on the list of the seven institutions that the E.U. wants banned from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging and payments system. The second reason why Russia and China are untroubled that their oil and gas trade will be affected is that, in addition to the de facto exemptions so far granted to the aforementioned institutions, the U.S. issued on 24 February the ‘General License 8A’ waiver. Although this sounds as sexy to many as a cold haddock, to would-be sanctions evaders it is the waiver equivalent of Scarlett Johansson or Brad Pitt. Just in case any potential sanctions evaders may have missed the signal being given by the U.S., the U.S. Treasury Department went to great trouble to explain the nub of the point: “Treasury is reiterating … that energy payments can and should continue.” In its further detailed guidance, just in case any would-be sanctions evader thought that they would have to engage in any tricky manoeuvring to circumvent the wrath of the U.S., the Treasury explained how to use the waiver to continue to deal with a Russian oil or gas company: “For example, a company purchasing oil from a Russian company would be able to route the payment through a non-sanctioned third-country financial institution as an intermediary for credit to a sanctioned financial institution’s customer in settlement of the transaction.” The Treasury concluded: “Treasury remains committed to permitting energy-related payments –
Russia Says Energy Embargo Could Send Oil Prices Over $300
With the US reportedly said to vote as soon as Tuesday on a proposal to ditch trade relations with Russia and Belarus, including suspending oil imports despite repeated objections from Germany which has stated that a collapse in supply threatens “social cohesion”, Russian Deputy PM Novak said that a ban on Russian oil would result in catastrophic consequences for global market according to Interfax, warning that Europe is pushing Russia towards an embargo on gas deliveries through Nord Stream 1, which is currently filled to maximum capacity, although Moscow has not taken this decision yet. Warning that “no one would benefit from an embargo on gas deliveries through Nord Stream 1”, Novak said that replacing Russian oil deliveries to Europe would take longer than a year. he also warned that a global embargo on Russian oil could push prices over USD 300/bbl, although he said that Russia knows where it would re-direct oil to if Europe and US refuse it. Addressing a potential ban on Russian oil, Goldman’s commodities team wrote overnight that Europe’s dependence on Russian oil imports, of c. 4.3 mb/d of which 0.8 mb/d comes from pipeline, suggests that such a coordinated response will likely take time, leaving the possibility for only a US ban in short order. While the headline of potential further US sanctions are likely to support prices, such a move would likely have negligible impacts on global crude and products markets. The US only imports a little over 400 kb/d from Russia at present (Dec-Feb average), already down from a peak of 770 kb/d in May-Jun 2021. As such, volumes this small are well within the market’s ability to redirect flows and as such Goldman expects minimal overall impact on crude fundamentals. Such statements will nonetheless likely continue to severely curtail Russian seaborne oil exports, due to the threat of additional sanctions or of public censure. Case in point, the sole purchase of a cargo on Friday was immediately followed by public reprobration, strongly disincentivizing further Western acquisition, with so far no sign of Chinese purchases either. This, Goldman concludes, “leaves risk to our $115/bbl short-term oil forecast clearly skewed strongly to the upside.”
India’s First 2G Ethanol production plant from Bio Mass of Bamboo in Assam
India will soon get its first Bio-Refinery to produce Bio Ethanol from BioMass of Bamboo in Assam, North East. Engineers India Limited is poised to assist the industry’s Energy Transition journey to achieve carbon neutrality Biofuel Energy. The government of India has been pushing for self-sufficiency in petroleum products by replacing fossil fuels with renewable resources and one of the major thrust areas has been to promote technology for the production of ethanol from non-food feedstock and roll out of 20% ethanol blending in petrol by 2025. The Implementation of India’s first 2G Ethanol production plant from bamboo-based feedstock is in full swing at the ABRPL facility in Assam. With its core engineering strength and technology scale-up capabilities. The need and use of energy are rapidly increasing which change the way of energy production. It is necessary to produce more renewable energy, to replace fossil fuels.
How Sanjeev Kumar made Gujarat Gas India’s Largest City Gas Distributor
To anyone meeting him for the first time, Sanjeev Kumar, Managing Director, Gujarat Gas Ltd (GGL), may come across as a soft-spoken academic. But this demeanour can be highly misleading. The impressive numbers clocked by the country’s largest city gas distribution (CGD) company tell an altogether different story. Under Kumar’s leadership, GGL reported Rs 100.4228 billion revenue from operations, with profit after tax of Rs 12.755 billion (three-year CAGR of 63.58 per cent) in FY21. It is this that has made the 1998 batch IAS officer of the Gujarat cadre the winner in the Emerging Companies category of the BT-PwC India’s Best CEOs ranking. The performance becomes even more credible once you realise that the company has successfully met several challenges since the March 2020 nationwide lockdown. “Gas demand fell by over 80 per cent within days due to disruption in economic activity. However, we believed that the effects of the pandemic were but a pause and the country would bounce back. As a result, we invested 40 per cent higher growth capex during the period,” says Kumar. Consequently, GGL was able to unveil a record 150 CNG stations in the previous fiscal, the highest by any CGD entity in India. Further, the company added more than 100,000 households to its customer base, and also fast-tracked the laying of more than 3,000 km of pipelines. The period witnessed commissioning a record number of new markets, with its CGD network getting rolled out in Rajasthan, Madhya Pradesh, Haryana and Punjab. With the help of the LNG trading arm of Gujarat State Petroleum Corp. (GSPC), GGL strengthened its natural gas supplies by changing the portfolio mix through longterm deals at reasonably attractive prices to offset the increase in spot LNG prices. This helped them in providing natural gas to customers at competitive tariffs. BITING THE BULLET But that’s not the end of the story. “When the LNG prices spiked, GGL increased the tariff for industrial consumers by 55 per cent. Nobody had thought that they would be able to push through such a steep increase. But they surprised everyone by doing that, putting to rest a lot of concerns around their pricing power,” says Harshvardhan Dole, Energy Analyst at financial services firm IIFL Securities. On being asked how they were able to achieve that, Kumar smilingly remarks: “Our close engagement with large industrial consumers helped convince them of the necessity for a hike. We also managed to persuade them to draw lower quantities of gas to ensure a regular supply to small customers, which helped us in purchasing slightly lesser quantities of expensive LNG.” This ability to move quickly on pricing-related decisions provides stability to the company’s margin profile. By the time the first wave of the Covid-19 pandemic ebbed, GGL became the first CGD in India to cross 10 million metric standard cubic metres per day (MMSCMD) gas sales volume to touch the record high volume of 12 MMSCMD. Similarly, CNG sales not only recovered sharply but jumped more than 25 per cent over the pre-pandemic level. AGGRESSIVE EXPANSION STRATEGY The company has charted out an aggressive expansion strategy as more regions are opened for CGD operations. It has set its sights on Ahmedabad district, which holds high growth potential due to the presence of a large number of industrial clusters. It recently commissioned 17 new markets, which were won through competitive bidding. It is also looking at expanding its CNG infrastructure at the same pace. It now plans to double capex to Rs 10 billion from an average of Rs 5 billion a year. Gujarat Gas is a successful example of reverse privatisation (it was earlier a private company owned by British Gas). All our processes are aligned with global best practices. In the recent past, we have introduced periodic review for all key performance indicators, which are now helping us periodically monitor business progress,” says Kumar. In the past few years, the central government’s efforts at extending the gas grid to more cities have resulted in the entry of a large number of public and private sector entities into the CGD business. So, will enhanced competition impact GGL’s future growth? “There is no direct impact of this on us as a company since India is a huge market, with enough space for everyone to grow. Moreover, only a fraction of the country has been covered with CGD networks so far. The way the business is expanding, I am confident that we will continue to thrive,” asserts Kumar.