Russia Looks To Charm India With Cheap Oil Supplies
Shunned by the West, Russia is looking to the East for partners in its oil and gas sector and for willing buyers of its crude. The closest partner east of Moscow is China, the world’s top oil importer, which is reportedly already taking advantage of the exodus of western companies from oil, gas, and metals projects in Russia. Now Russia is setting its sights on forging closer energy ties with another major economy, India. India, the third-largest oil importer in the world, has abstained in several United Nations votes condemning Russia’s invasion of Ukraine—a sign that the Indian government is keeping its ties to Moscow intact, although it has also warmed up to the United States in recent years. India has been largely adhering to the U.S. sanctions on Iran’s oil exports, for example, regardless of the price discounts which Iran offers to those willing to risk buying it. But India has looked to Russia in recent years to diversify its oil imports, which make up 85 percent of India’s consumption, and most of them come from the Middle East. Both India and Russia have interest in continuing, and even strengthening, their energy and oil ties. India will get crude at discount prices—seaborne crude that is not selling very well (if at all) west of St Petersburg – while Russia will continue to have a large and expanding market for its oil in one of the fastest-growing demand markets. So, it’s no surprise then that Russia’s Deputy Prime Minister Alexander Novak and India’s Minister of Petroleum and Natural Gas, Hardeep Singh Puri, discussed last week strengthening bilateral cooperation in fuel and energy, as the Russian government said in a statement last Thursday. “What we have is a particularly privileged strategic partnership; the leaders of our countries maintain regular contact. Mutually beneficial cooperation is actively promoted, including the Arctic LNG 2 and Sakhalin 1 projects. Gazprom supplies LNG to India, and Rosneft continues its systematic work with its Indian partners. We are interested in further attracting Indian investment to the Russian oil and gas sector and expanding Russian companies’ sales networks in India,” Novak said. “Russia’s oil and petroleum product exports to India have approached $1 billion, and there are clear opportunities to increase this figure,” the Russian official said. There is apparent willingness from both India and Russia to deepen their energy ties, but they have to find ways how to continue oil trade without the SWIFT banking system and how to get bank guarantees and insurance for cargoes. “There was an open offer over the last two-three days that Russia was giving it (crude oil) at some sort of a discounted price but we don’t know how it can be of effect because a whole lot of factors will have to be weighed in and we will have to get it from some port to ship it and then whether it can come to India, and whether it is workable,” a senior Indian government official told The Times of India last week. “Do they get the insurance or not? The nitty-gritty, if at all it can be worked out, needs to be worked out,” the official added, referring to cargoes from Russia. India is also considering ways to keep trade with Russia, not only in crude oil, by setting up an alternative payments system with an account at a bank, an Indian official told Hindustan Times this weekend. This could prove tricky to do because neither the Russian ruble nor the Indian rupee are widely used in international trade, analysts say. India could offer some additional outlet for Russia’s oil unwanted in the West, but it will not be unable to offset all the volumes which Western importers are shunning. Russia will have to shut in some of its oil production as it will be unable to sell all the volumes displaced from European markets to other regions, with Russian crude production falling and staying depressed for at least the next three years, Standard Chartered said last week. Even before the U.S. ban on energy imports from Russia, trade in Russian commodities had become toxic for many global players.
Europe Could Plunge Into Recession If Russia Cuts Its Gas Supply
Last week, Moscow made good on its threat to weaponize its energy exports in retaliation against Western sanctions by imposing wide-ranging export bans. Alexander Novak, Russia’s deputy prime minister, said his government has the “full right” to “impose an embargo” on gas supplies by halting gas supplies through the Nord Stream 1 pipeline. Facing one of the harshest sanction campaigns against any nation in modern history, Russia is in for a world of hurt. StanChart says continuing consumer reluctance to buy from Russia and shortages of capital, equipment, and technology will continue to depress Russian output over, at least, the next three years. The commodity experts have predicted that Russia’s output will fall by 1.612 million barrels per day (mb/d) y/y in 2022 and a further 0.217mb/d in 2023, with the y/y decline peaking at 2.306mb/d in Q2-2022. Russia also risks getting booted from the World Trade Organization or the IMF. To save the Russian currency from total collapse and to combat inflation, Russia’s central bank has raised its key interest rate to a staggering 20%–an all-time high. But that won’t be enough to prevent Russia from descending into a calamitous recession. Yet, Russia can take some comfort in the knowledge that it’s in good company. The rise in oil and gas prices triggered by the Ukraine conflict has raised the threat of the worst stagflationary shock to hit Europe since the 1970s. Amid heavy reliance on fossil fuels, energy prices in Europe have spiraled out of control, with European natural gas trading at ~$62/mmbtu, translating to $360 per barrel oil on an energy equivalent basis. But it could get much worse. A cross-section of experts is now warning that Europe will be plunged into a deep recession if Russia follows through with its threat to halt gas supplies into Europe. The EU has laid out plans to lower its dependence on Russian gas by two-thirds before the end of this year and end imports completely by 2030. Moscow, however, says it will retaliate against energy sanctions by cutting off vital supplies more quickly. The euro area generates a quarter of its energy from natural gas, with Russia accounting for around one-third of the bloc’s imports. Goldman Sachs has warned that any further gas import disruptions could therefore have significant knock-on effects for eurozone economic output and inflation. Eurozone Recession In a research note, Goldman’s Chief European Economist Sven Jari Stehn and his team has laid out several scenarios and assessed how they might impact the European economy. “By mapping physical gas supply constraints and upwards price pressures into GVA (gross value added) effects in the Euro area and the U.K., we estimate that for 2022 as a whole high gas prices could weigh on Euro area GDP growth by 0.6pp (percentage points) and the U.K. by 0.1pp relative to our baseline forecast if we assume no further gas supply disruptions,” Stehn said. The impact in Germany is likely to be even greater (-0.9pp), Stehn added, due to its high reliance on Russian gas. In a worst-case scenario in which Russia stops all pipeline exports, Sven and team says Euro area GDP growth is likely to fall by 2.2pp in 2022, with sizable impacts in Germany (-3.4pp) and Italy (-2.6pp). On a brighter note, a complete stoppage is seen as being unlikely given Russia’s reliance on exports to Europe as well as its ever-shrinking sources of revenue elsewhere. “Although Moscow forged a new deal with Beijing last month to supply China’s CNPC with an additional 10 billion cubic meters of gas a year, the new planned pipeline to carry these supplies will take two to three years to complete. In the meantime, Russia will have to rely on its sales to Europe to fund its military incursion in Ukraine and ensure domestic stability,” Mathieu Savary, chief European strategist at BCA Research, has told CNBC. Savary suggested, however, that Novak’s threat still highlights the risk of disruption to European energy supplies, which will continue to exert upward pressure on natural gas prices in the near term. “Until the risk premium in oil and natgas prices dissipates, high energy costs will lead to a period of stagflation in the Eurozone,” Savary has added.
Work on ambitious Mysuru natural gas pipeline takes off
Work has started on a pipeline that will bring natural gas to Mysuru city. In phase one, over 3,75,000 houses will get piped gas in the city. Within the Mysuru city limits, a 500-km pipeline will be laid, connecting 13 residential areas, initially. Mysuru MP Pratap Simha said natural gas will be supplied to the city from Bidadi in Bengaluru through a 103-km pipeline. Between the Columbia Asia Hospital (Manipal Hospital) signal and the Hinkal signal, the pipeline will cover 28 km through Bogadi and Srirampura. From the Hinkal signal, the pipeline will be laid up till Yelwal, he said. Madikeri city and Nanjangud in Mysuru will also get piped natural gas soon, he said. “My aim is to reduce cooking fuel expenses for a family by Rs 300 to Rs 350 per month in my constituency. The Mysuru City Corporation (MCC) will give permission for the laying of the pipes in the next meeting. It will be part of the meeting agenda,” he said. The project ran into trouble when two BJP MLAs in the city — SA Ramadas and L Nagendra — objected to the project as it involves the digging of roads. They also questioned the amount set aside for repairing the damaged roads after the pipeline work is over. It had led to a war of words between the BJP MP and the MLAs. Later, Ramadas, who had written to the MCC asking it not to give permission, altered his stance, saying he will discuss the pipeline with Simha. Nagendra declined to comment. According to Bhamy V Shenoy, an energy expert from the city who has worked as an energy consultant for US companies, in comparison to LPG, natural gas is a preferred fuel for several reasons. Regarding safety and energy security, natural gas is preferred, Shenoy, who is associated with the Mysuru Grahakara Parishat, said. The supply chain of LPG is far more complex than the natural gas supply chain. Natural gas burns better and cleaner than LPG as it produces fewer greenhouse gases, he said.
Reliance on Imported Liquified Natural Gas as a Fertiliser Feedstock
The latest Tweet by IANS India states, ‘#India’s heavy reliance on imported Liquified Natural Gas as a fertiliser feedstock exposes the nation’s balance sheet to ongoing global gas price hikes, increasing the government’s fertiliser subsidy bill, a new report by the @ieefa_institute said.’ #India’s heavy reliance on imported Liquified Natural Gas (LNG) as a fertiliser feedstock exposes the nation’s balance sheet to ongoing global gas price hikes, increasing the government’s fertiliser subsidy bill, a new report by the @ieefa_institute said.