Goldman Sachs Cuts Oil Price Forecast To $110 This Quarter
Goldman Sachs revised down its Brent price forecast for this quarter to $110 a barrel, down from a previous projection of $140 per barrel, but the investment bank still believes the case for higher oil prices remains strong. In recent weeks, oil prices have been driven down by low trading liquidity and “a mounting wall of worries,” Goldman said in a note on Sunday. Those worries include fears of recession, the SPR release in the U.S., the rebound in Russian crude oil production, and China’s snap COVID-related lockdowns, the bank’s strategists noted. Goldman Sachs also revised down its fourth-quarter Brent price forecast to $125 a barrel from $130 per barrel previously expected. The 2023 projection, however, was left unchanged at $125 per barrel. “We believe that the case for higher oil prices remains strong, even assuming all these negative shocks play out, with the market remaining in a larger deficit than we expected in recent months,” Goldman Sachs’s strategists wrote in the note carried by Bloomberg. The bank has been bullish on oil all year, and it continues to be bullish on crude prices despite the cut in its near-term price forecasts. In the middle of July, Goldman Sachs said that despite the ongoing market sell-off, “the skew to prices from here is squarely skewed to the upside.” With low inventories and a potential Saudi/UAE ramp-up in production in the region of 500,000 barrels per day (bpd), which will further deplete “record low spare capacity,” the risks are firmly skewed to the upside, Goldman Sachs’ analysts wrote in the note in July. In yesterday’s note, Goldman said, “We still expect that Brent prices will need to rally well above market forwards.” Oil prices were trading at multi-month lows early on Monday, with Brent below $94 per barrel and WTI Crude just below $88 per barrel.
Gas pricing formula needs a revisit
The current pricing formula does not incentivise the producers. A review is needed to up gas’ share in the energy mix. If India wants to make natural gas one of its major sources of fuel then it may need to take a relook at its existing domestic gas pricing mechanism. Today, gas price in the spot market is around $47 per mmBtu (gas is measured in million British thermal unit), long-term contracts which India has entered into is around $19/ mmBtu, Non APM (non-administered price) domestic gas is at $10/mmBtu and APM (administered) domestic $6/mmBtu. Though India sources most of its LNG (liquefied natural gas) through long-term contracts, price in such contracts is also subject to market conditions. Supply disruptions Recently at the media and analyst call of Reliance Industries Ltd’s first quarter 2022-23 results, Sanjay Roy, Senior Vice President – E&P, Reliance Industries Limited, had said, “…Just to give you a perspective on global gas markets, as you all know, the gas prices continue to remain elevated. There are two major drivers, one is European demand now shifting from Russian gas to LNG supplies, and which also impacts the Asian consumers. Also, there’s been supply destruction. As, we’ve seen the Freeport LNG terminal in the US, as well as the Nord Stream one pipeline disruptions. So, that’s a substantial amount of volume that has been impacted…” “In terms of the Indian gas market the outlook remains robust and one of the big reasons is the availability of the domestic gas. Because the domestic gas particularly like in KG-D6, where there is a price ceiling and that is much in demand as compared to the market prices that are currently prevailing at these times. “Now, in terms of price ceiling, as you all are aware and I mentioned earlier, the price must move up and we will see higher realisations. It is expected that based on higher energy prices this will go further up,” he said adding, “Now, we do see that the domestic price ceiling remains disconnected, whether the prices are elevated or when prices fall. And you know we are continuing our advocacy for removal of ceiling prices. Overall, we expect higher gas price realisations in FY23 and in the quarters to come.” Pricing problems Roy is not the only one talking on these lines. Recently at an event former Petroleum Secretary and currently Chairman of Hindustan Oil Exploration Company (HOEC), Vivek Rae, opined that the gas pricing policy in India has to be fixed and the 2014 formula has to be done away with. Rae had said that the current formula is “myopic” and does not incentivise gas producers. In India, gas penetration in its energy mix is 6 per cent as against a global average of 23 per cent. The objective is to improve this number to 15 per cent over the next few years. India’s gas price is determined at an average price of LNG imports into India and benchmark global gas rates. According to industry, India is simply underpricing a scare resource. “At current prices, you are penalising the producer and somehow the consumer trumps the producer,” he had added. “…We are benchmarking our resource price based on the price in countries where the resource is not scarce,” he explained. Market dynamics Let us look at the gas market in India. Total consumption in India is 175 million standard cubic metre a day (MMSCMD), of this 93 MMCMD is met through domestic production and 82 MMSCMD through LNG imports. Gas consumption is directly linked to supply availability. The industry fears that the world’s third largest energy consumer could see its natural gas consumption decline from the current levels if LNG (imported gas) prices in the international market continue to rule in the range of $45 an mmBtu. At a post results media interaction Petronet LNG Chief Executive Officer AK Singh, elaborating on the impact of high prices on demand, said, “India is fortunate enough to have a good portfolio of long-term contracts.” But, due to high volatility and prices, the increase in demand is not happening, though demand destruction here is not to the extent that people in other parts of the world are experiencing, he added. “With gas prices moving up in this fashion, to sustain consumption in this situation is in itself a challenge. Growth comes when prices stabilise. Considering the geopolitical situations, we do not foresee that immediately growth will start,” he had pointed out. Formula review What India needs to do to have a mature gas market is to review is its existing formula. Currently, India revises its domestically produced gas price on a half yearly basis based on a cocktail formula worked out considering the volumes and prices prevailing at major international markets such as Henry Hub, National Balancing Point, Alberta and Russia. According to the government, the formula was finalised considering the requirements/interests of producing and consuming sectors. The prices are notified after every six months in accordance with said guidelines. The argument put forth is that the formula is based on markets which are either very matured or are themselves producers and not exactly India-sepecific. If the government wants to promote the gas market then such economic transformation would be not be possible without proactive and sustained policy support from the governments and regulatory authorities in these countries. In India, Gujarat has shown how one can expand to gas economy, and other States can follow. India has set the target to raise share of natural gas in energy mix to 15 per cent by 2030, and to attain this, the entire eco-system needs to be addressed.
Petronet LNG delays plan for 1mtp LNG deal amid high prices
India’s top gas importer Petronet LNG has pushed back plans for a 1 million tonnes per annum (mtpa) liquefied natural gas (LNG) import deal after a surge in global prices, its head of finance Vinod Kumar Mishra said. “If you go for any long term contract it comes at a very high slope, so we are waiting for some time because if prices come down then we can get good price…we are waiting for right environment,” Mishra said during a call with analysts. Petronet is currently negotiation with Qatar for extension of its 7.5 mtpa long term LNG deal to beyond 2028, he said. The company has to complete renegotiation with Qatar for extension to the deal by end-2023, he said, adding Petronet could seek additional volumes from Qatar or some other player. Petronet wants a 1 mtpa deal for small industrial users. Petronet’s managing director A.K. Singh in May said the company is looking for 0.75-1 million tonne of LNG in immediate term to meet the rising demand. India’s top gas distributor GAIL (India) Ltd on Thursday said it failed to award its recent tender seeking 0.75 mtpa LNG under a 10-year deal. Mishra also said Petronet’s Singapore-based unit has not yet started spot trading of LNG as prices are too high. He said next year global LNG prices could ease after an end to Russia Ukraine crisis, a primary reason for a surge in global LNG prices. Earlier in the day, Singh said higher global prices have curbed growth in India’s gas demand, though he did not see higher gas prices affecting his company’s prospects of renewing the Qatar gas deal as the Middle Eastern nation is expanding capacity. He said the market will realign as more Russian supplies will come to Asia if European countries switch to the US and Qatar.