Lagging Demand Won’t Keep Gas Prices From Soaring Again
After peaking in early-May at $5.02 per gallon, U.S. national average gas prices have declined for 70 straight days to trade at $3.88 per gallon on Wednesday, marking the second-longest losing streak in two decades. But experts are now warning that consumers should not be lulled into a false sense of confidence thinking the cuts will last. In an interview with Yahoo Finance Live, Rebecca Babin, senior energy trader at CIBC Private Wealth, has warned that two factors could put upward pressure on gas prices: reserves and sanctions. “Even if demand dips [for gasoline], supply will dip with it, and I don’t see a significant pullback. If anything, I think that gasoline prices on the national average will probably rise from here,” Babin has said. Babin notes the giant SPR release of oil reserves by the Biden administration is set to end in November while Europe is due to implement sanctions on Russia in December. She argues that both factors could cut oil supply, pushing prices higher and rippling through to gasoline. Compounding matters is the fact that this will coincide with the heating oil season in North America, meaning refiners will be more inclined to make crude into heating oil instead of gasoline. Since the beginning of the week, crude oil prices have been paring back earlier losses after Saudi Oil Minister Prince Abdulaziz bin Salman said the current bear market may require OPEC+ to tighten production because futures prices do not reflect underlying fundamentals of supply and demand. “Extreme volatility and lack of liquidity in the futures market are moving prices in ways that do not conform to normal supply and demand factors, which may spark OPEC+ to take action,’’ the Saudi oil chief warned. Bloomberg Opinion columnist Javier Blas says $100 oil just got a lot more likely following bin Salman’s comments: “Call it a price floor, the return of the OPEC+ put or, simply, a line in the sand. Whatever its name, Riyadh’s intervention indicates a preference to keep oil near $100.”
India Cuts U.S. Crude Imports By 50% As It Buys Discounted Russian Crude
New reports have emerged that during the second quarter, India slashed its crude imports from the United States by one million metric tonnes while sharply ramping up imports of discounted Russian oil. India’s energy mix now looks dramatically different from a year ago. Last year, Russian oil in India’s crude basket amounted to a paltry 2.2%, while the U.S. was 9.2%; right now, Russia accounts for nearly 12.9% of India’s crude imports, while the U.S. share has tumbled to just 5.4%. India has never been a big buyer of Russian crude despite having to import 80% of its needs. In a typical year, India imports just 2-5% of its crude from Russia, roughly the same proportion as the United States did before it announced a 100% ban on Russian energy commodities. Indeed, India imported only 12 million barrels of Russian crude in 2021, with the majority of its oil sourced from Iraq, Saudi Arabia, the United Arab Emirates and Nigeria. But back in May, reports emerged of a “significant uptick” in Russian oil deliveries bound for India. According to a Bloomberg report, India spent a good $5.1 billion on Russian oil, gas and coal in the first three months after the invasion, more than five times the value of a year ago. However, China remains the biggest buyer of Russian energy commodities, spending $18.9 billion in the three months to the end of May, almost double the amount a year earlier. And, it’s all about the money. According to the International Energy Agency (IEA), Urals crude from Russia have been offered at record discounts. Ellen Wald, president of Transversal Consulting, has told CNBC that a couple of commodity trading firms–such as Glencore and Vitol–were offering discounts of $30 and $25 per barrel, respectively, for the Urals blend. Urals is the main blend exported by Russia. Experts say simple economics are the biggest reason why White House pressure to curb purchases of crude oil from Russia have fallen on deaf ears in Delhi. Responding to a question on India-Russia ties, U.S. state department spokesperson Ned Price has acknowledged that India shares a historical relationship with Russia, and it would be a Herculean task to change that.
Indian firms await Russian nod on bid to acquire stakes
Russia hasn’t been amenable to overtures by Indian state-run firms in acquiring the stakes of Western energy majors in Russian oil and gas assets after their exit from the sanctions-hit nation, said a top Indian government official aware of ongoing deliberations. This comes against the backdrop of the Russian government looking at taking over the stakes of withdrawing Western firms such as ExxonMobil and BP, and then selling them at a premium. Indian state-owned firms such as ONGC Videsh Ltd (OVL), Bharat Petroresources Ltd, Indian Oil Corp (IOC) and Oil India Ltd (OIL) have invested $16 billion in Russia till date, including in the Far East and East Siberia, in oil and gas assets such as Sakhalin-1, Vankor and Taas-Yuryakh. OVL owns a 20% stake in the Sakhalin-1 hydrocarbon block in which ExxonMobil is the operator. While OVL, Oil India, IOC and Bharat Petroresources own 49.9% in Rosneft’s subsidiary JSC Vankorneft, another consortium of OIL, IOC and Bharat Petroresources owns 29.9% of Taas-Yuryakh Neftegazodobycha. OVL has also acquired the Siberian deposits of the UK’s Imperial Energy Corp. A spokesperson for Russia’s Rosneft in an emailed response said, “On 15 May, the operator of Sakhalin-1 made a decision to halt production. At present, technological process is being maintained and no oil shipment is taking place at the project. Rosneft looks forward to resolving the situation legally and restoring the Sakhalin-1 project’s production activities involving all existing shareholders.” A consortium of OVL, IOC and Oil India Ltd is looking to invest jointly in Rosneft’s massive Vostok project. India has also been looking to invest in Novatek’s Arctic LNG-2 project as part of its energy security playbook. India imports 85% of its oil and 54% of gas requirements. “One of the promising areas of cooperation between the company and its Indian partners may be the Vostok oil project, which is the largest greenfield oil and gas project in the world. Rosneft is open to see new partners entering the Vostok Oil project, including those coming from India who are now taking part in relevant negotiations,” the Rosneft spokesperson said. While an Oil India Ltd spokesperson declined comment, a Novatek spokesperson asked Mint to direct queries to Indian firms. Queries mailed to the spokespersons of India’s ministry of petroleum and natural gas, the Russian Embassy in New Delhi, GAIL (India) Ltd, Petronet LNG Ltd (PLL), IOC, Bharat Petroleum Corp. Ltd (BPCL), Hindustan Petroleum Corp. Ltd (HPCL), OVL, BP and ExxonMobil on 18 August remained unanswered till press time. “India is one of Russia’s key strategic partners. Rosneft backs the efforts of both leaders of our countries, President Vladimir Putin and Prime Minister Narendra Modi, to significantly increase mutual investments ensuring the stable trade and economic cooperation between Russia and India,” the Rosneft spokesperson said.
No evidence of India diverting Russian oil to US, says Deputy Secretary of US Treasury
The US government has denied allegations of India diverting Russian crude oil to the US by circumventing the economic sanctions imposed after the Russian war on Ukraine. Visiting US Deputy Secretary of the Treasury Wally Adeyemo told media that he has not seen any evidence of Indian companies circumventing sanctions that have been placed on Russia. “Companies around the world, including those in India, the US and Europe, are taking the sanctions seriously and implementing them as well,” he said on his maiden visit to the Indian Institute of Technology Mumbai, on Wednesday. Economic sanctions The US had imposed economic sanctions on Moscow for its invasion on Ukraine and prohibited import of Russian-origin energy products including crude oil, refined fuels, distillates, coal and gas. Last month reports emerged that the US Treasury Department has told India that an Indian ship picked up oil from a Russian tanker on the high seas and brought it to a port in Gujarat on the west coast, where it was refined and shipped on, Reserve Bank of India Deputy Governor Michael Patra was quoted recently. The US-led coalition of the sanctions has broadened and the ultimate objective of the same is to reduce revenues Russia earns through oil exports while ensuring that there is a steady supply of energy, said Adeyemo. “We have to look at the Russian invasion beyond the immediate concern about the sovereignty of Ukraine getting compromised,” he said, pointing to the economic consequences of the war, especially inflation. “Indian consumers are paying a lot more for energy than they ought to,” he said and added that during his visit to New Delhi he will focus on discussing key shared priorities such as bolstering energy security, addressing food insecurity globally and combating illicit financial flows. India has 560 million internet subscribers and 1.2 billion mobile phone subscribers, a massive market that will fuel innovation for years to come. According to study by McKinsey & Company, India is digitising at a faster rate than any other country, he said. Both India and the US can reinforce the supply chains to protect against the sort of global shocks that have raised prices and idled factories in both the countries, he said. “What is clear to me is that both of our countries will play pivotal roles in the next wave of technological innovation – and how it is deployed responsibly to the benefit of all segments of society – especially when our people and companies work together,” he said.
Gas flares take a toll on finances and environment
At a time when India is forced to buy costly natural gas form from international markets after long-term liquefied natural gas imports from Russia is disrupted, some domestic producers are flaring at least 3 million standard cubic metres of gas per day — sufficient to produce about 750 MW of electricity — due to a skewed pricing policy for indigenously produced gas. The scale of flaring in local oil and gas fields is quite high, which is a waste of a scarce energy resource and also harmful for the environment. The government is aware of the matter and looking for ways to bring this gas into the supply system through incentives, as it would involve considerable investments and, at current pricing policy, does not make any commercial sense, two people aware of the development said, requesting anonymity. This matter has been frequently raised by the Comptroller and Auditor General of India (CAG), the first person working in an economic ministry said. High pressure gas valued at ₹8160.8 million was flared in Mumbai High field of state-run Oil and Natural Gas Corporation (ONGC) during 2012-20, according to a CAG report released in December 2021. The petroleum ministry did not respond to an email query on this matter. ONGC, however, accepted flaring is a technical necessity. “During the first quarter of the year 2022-23, gas flaring has been 2.32% of total gas production. ONGC makes continuous efforts to minimise gas flaring. This gas flaring is a technical necessity for processing of oil and gas at installations to maintain pilot flares for avoiding escape of unburned hydrocarbons into atmosphere… in order to ensure safety and environmental protection,” a company spokesperson said. The real reason lies somewhere between technical necessity and economic sense, experts said. “The cost of tapping this gas would be several times high and would not make any commercial sense due to the currently regulated pricing policy,” a second person mentioned above said. There are companies such as Reliance Industries that do not flare any gas. While Reliance did not respond to a query on this matter, another state-run firm Oil India Ltd, said that “flaring is required for safety reasons” as the company maintains “minor gas flaring” for safe operation of crude oil and natural gas production and processing installations as a technical and safety requirement. India regulates domestic gas pricing every six months. While gas price for April-September 2022 is $6.10 per unit, natural gas produced from deep and ultradeep water is capped at $9.92 per unit. Recently, after the Ukraine war, the supply of long-term cheaper Russian liquefied natural gas was abruptly stopped, forcing India to pay spot price of LNG, which is about 127% higher at around $50 per unit. HT reported it on August 10. “It is technically essential to flare some of the low-pressure gas,” said SC Sharma, an energy expert and former officer on special duty at the erstwhile Planning Commission. “However, there had been economic reasons as the gas flaring nations mandate low price of gas for domestic use rather than commercialise it at an opportunity cost.” India, which imports 55% of the natural gas it consumes, is not in a position to flare gas like other producing countries, he said. “It is assumed that the high volume gas flaring nations like Russia, Iran, Iraq, Venezuela and to some extent the US are flaring natural gas as the gas prices are very low in these gas producing and exporting countries for domestic consumers compared with the price of gas to exporting nations,” he said.