India demonstrated great resilience in face of global energy crisis: Hardeep Puri
Union Minister for Petroleum and Natural Gas, Hardeep Singh Puri has said that India has demonstrated great resilience in the face of global energy crisis & has taken several measures to minimize & mitigate the volatility of global crude oil & gas prices. On 9 September, the Union Minister attended a Contract Exchange event to witness signing of contracts for 31 Discovered Small Fields (DSF) blocks under DSF bid round-III and 4 Coal Bed Methane (CBM) blocks under CBM bid round-V awarded to 14 Exploration & Production domestic companies. He also unveiled the logo for India Energy Week (IEW) 2023, the Ministry’s flagship event taking place from 6th-8th February 2023 in Bengaluru, India. Following the Contract Exchange event, the Minister said that, “India has demonstrated great resilience in the face of global energy crisis.” He further added, “…the Government of India has taken several measures to minimise and mitigate the volatility of global crude oil and gas prices. This enabled us to protect interests of Indian consumers.” He pointed out that, “Most of the developed nations have witnessed significant inflation rise in Gasoline price by almost 40% during July 21 to Aug’22, while in India, gasoline price has reduced by 2.12%.” Puri also spoke about the issue of inflation in LPG mentioning that in last 24 months the Saudi benchmark price has increased by 303%, although during the same period, LPG price in India (Delhi) increased by less than a tenth of that figure i.e 28%. The Union Minister also talked about India’s move towards a ‘gas based economy’. He spoke about the targets of connecting Indian consumers through the City Gas Distribution, enhancing regasification capacities, expanding pipeline networks and setting up CNG stations. Government has been looking for greener alternatives and has taken many steps towards energy transition. Puri remarked, “Achievement of 10% blending of ethanol in petrol in May 2022, ahead of the November 2022 deadline, setting up of 2G refineries to make ethanol, and a host of other initiatives, is a symbol of Government’s resolve towards just energy transitions.” “The Green Hydrogen Mission, under which the Ministry is facilitating setting-up pilot scale and commercial scale green hydrogen manufacturing plants by refineries is a part of this commitment,” he added. On the domestic fuel front, the minister praised the Ujjwala Yojna by saying that the significance of the scheme its role in ending energy poverty, ensuring social upliftment and as a catalyst of social change cannot be emphasised enough.
Gasoline Prices Could Spike This Winter
Gasoline prices in the United States could spike this winter as an embargo on Russian oil imports comes into effect in the European Union, Treasury Secretary Janet Yellen has warned. Speaking to CNN, Yellen said that “Well, it’s a risk. And it’s a risk that we’re working on the price cap to try to address.” Yellen was the first official to propose a price cap on Russian oil exports as a means of reducing Russia’s revenues from energy exports that, according to Washington and other western capitals, fund what Moscow calls its special military operation in Ukraine. Earlier this month, the G7 agreed to impose a price cap on Russian oil exports by banning cargo services such as transport, insurance, and financing for cargos sold above a certain price that has yet to be set by the group. The European Union agreed on an embargo earlier this year on Russian oil and fuels, to come into effect in December. This means that Europe would need to source its oil from elsewhere, meaning greater demand for a smaller pool of available oil. Russia has said it will not export either oil or gas to countries that participate in any price cap agreements. “This winter, the European Union will cease, for the most part, buying Russian oil. And, in addition, they will ban the provision of services that enable Russia to ship oil by tanker. And it is possible that that could cause a spike in oil prices,” the U.S. Treasury Secretary told CNN. “Our price cap proposal is designed to both lower Russian revenues that they use to support their economy and fight this illegal war, while also maintaining Russian oil supplies that will help to hold down global oil prices. So I believe this is something that can be essential, and it’s something that we’re trying to put in place to avoid a future spike in oil prices.”
Buyers Are Stocking Up On Floating LNG Ahead Of The Winter
Utilities and natural gas traders have been keeping the highest volumes of liquefied natural gas (LNG) at sea in two years as onshore gas terminals are full, and traders look to profit from an expected additional spike in gas prices in Europe and Asia when winter comes. While it’s common for crude traders to hoard vessels waiting to profit by selling the oil later, stocking up on LNG is not a common practice because the fuel evaporates over time. However, desperate times call for desperate measures: the energy crisis and gas crunch in Europe are so acute that traders are even willing to take the chance of storing LNG on ships and seeing some of the fuel evaporate. As of early September, the volume of LNG stored on carriers at sea was around 1.4 million tons – the highest such floating storage in two years – according to data from energy intelligence provider Kpler cited by Bloomberg. To put this into perspective, the current amount of floating LNG stocks is almost equivalent to the LNG volumes Spain imported in August. Spain has the highest number of import regasification terminals in Europe -six. After posting records earlier this year, natural gas prices in Europe and Asia have room for further upside as winter approaches, and Russia continues to choke pipeline supply to Europe. This would make handsome profits for traders who are now hoarding LNG in floating storage. Still, floating storage may not have much capacity to rise, considering that the LNG carrier market is very tight with the rush to LNG after Russia weaponized pipeline gas supply. There is another reason why LNG volumes at sea are rising—import terminals in Europe are maxed out as governments rush to replace as much Russian pipeline gas as possible in order to fill storage sites and possibly avoid rationing. The EU hit its 80% full gas storage target in early September, earlier than planned. As of September 8, the EU gas storage was nearly 83% full, according to data from Gas Infrastructure Europe. However, storage alone would not be enough to see Europe through the end of the coming winter. “The overshoot signals potential relief for prices in the short term, but storage alone is not enough to meet winter demand. The threat of shortages remains – an unexpected cold snap could quickly drain inventories if imports do not keep pace,” Aurora Energy Research said last week. Europe cannot rely on storage only, it needs continuous flows of gas. Since Russia isn’t supplying much and even threatens to stop supplying all energy products if the West introduces price caps, the additional volumes should come via pipelines from Norway and Africa, and LNG from the U.S. and anywhere else that’s not Russia. Even China is reportedly reselling LNG to Europe as prices surge. “The gas market will be tight through this winter come what may, with the weaponisation of Nord Stream just one of the innumerable variables in play,” Simon Flowers, Chairman and Chief Analyst at Wood Mackenzie, said last week. Meager Russian flows or a cold winter – or both – “will test the energy system’s flexibility and resilience to the absolute limits and push prices higher still,” Flowers added. “Every lever is having to be pulled to draw gas into the system at whatever the cost. Power systems will have to bring on rarely used coal and oil plants held as strategic reserves, regardless of carbon intensity. Even then, governments may have to ration gas and power selectively to dampen demand,” WoodMac’s chief analyst said, days before Russia’s gas giant Gazprom announced Nord Stream is out indefinitely.
Oil Prices Under Pressure As Demand Concerns Mount
Oil prices fell early on Monday morning as bearish sentiment continued to weigh on markets amid expectations of further interest rate hikes and concerns about Chinese oil demand. Brent started the week more than a dollar down at $91.80 a barrel at the time of writing. West Texas Intermediate was trading at $85.64 a barrel, also down by more than a dollar per barrel. The main downward pressure on oil prices in the past few days has been a report that China could see its annual oil demand shrink for the first time since 2002 because of Covid restrictions under Beijing’s zero-Covid policy. Oil imports over the first eight months of the year were down for the first time since 2004, Reuters reported earlier this month, noting that there were now expectations for a drop in fuel demand during the upcoming holiday season. Energy Aspects predicted that China’s fuel demand could go down by 380,000 bpd for the whole of this year due to the restrictions. “The lingering presence of headwinds from China’s renewed virus restrictions and further moderation in global economic activities could still draw some reservations over a more sustained upside,” said IG market analyst Jun Rong Yeap, as quoted by Reuters. Worrying forecasts about Chinese demand have coincided with a more interventionist policy from central banks, with both the European Central Bank and the Federal Reserve planning further rate hikes in their attempts to tame runaway inflation. “Demand concerns centred on the impact of rising interest rates to combat inflation and China’s COVID-zero policy,” Reuters quoted a Commonwealth of Australia Bank analyst as saying. Prices could rise in a few months, however, as an EU embargo on Russian oil and fuel imports comes into effect. Meanwhile, the G7 is considering sanctions on oil importers that do not comply with the oil price cap the group agreed upon earlier this week. Russia has warned it will not sell oil to price cap participants.
Rs 5 billion insurance pool helps India withstand G7 cap on Russian oil
Pool has already insured over 25 voyages, since it was formed in June under national reinsurer GIC Re, says top official India has been able to push back against the G7 decision of a cap on Russian oil lately because of the success of the Rs 5 billion insurance pool to underwrite imports to India, a government official told Business Standard last week. It has taken away the concerns in New Delhi about the fallout of the imminent risk that the global insurance industry will throw at Russia from this winter. No consignment of oil and gas contracted at prices above the cap from Russian ports will get a cover from the global insurance industry.
Quad 2.0’ in offing? India, Saudi embark on ‘partnership’ voyage
As India’s Minister of External Affairs S Jaishankar starts his visit to Saudi Arabia, the focus is back on the growing India-Saudi relationship. Both countries have begun to view each other as strategic and economic partners. Saudi Arabia is India’s fourth largest trading, partner and bilateral trade stood at $42.68 billion in 2021. With strong economic and strategic ties geopolitics could facilitate the formation of a new grouping like the Quad. “Saudi Investments in India are to the tune of $3.13 billion. With the strengthening of relationship betweeen the two countries, which improved after PM Modi went to Riyadh in 2019, there could be a possibility of another grouping with Saudi Arabia. India already has a trilateral grouping with UAE and Israel and the I2U2 which includes the US,’’ say sources. Major Saudi investment groups include Aramco, Sabic, Zamil, E-Holidays and Al Batterjee Group. Additonally, Soft Bank’s ‘Vision Fund’ has invested in Indian start-ups like Delhivery, FirstCry, Grofers, Ola, Paytm and PolicyBazaar. India’s ties with Saudi Arabia began to improve when Crown Prince Mohammad bin Salman visited Delhi in February 2019 and in October the same year Prime Minister Narendra Modi visited Riyadh at the invitation of King Salman. This led to the formation of a Strategic Partnership Council (SPC) which focussed on four areas — political, security, socio-cultural relations and defence cooperation. Meanwhile, Jaishankar, has flown directly from Tokyo (where he had gone to attend the second 2+2 with Japan) to Riyadh today to have a comprehensive review of bilateral relationship with Saudi Arabia. “Dr Jaishankar will co-chair a ministerial meeting of the Committee on Political, Security, Social and Cultural Cooperation (PSSC) under the SPC. His counterpart from Saudi Arabia Prince Faisal bin Farhan Al Saud will be present in the meeting. Cooperation in defence, UN, G20 and GCC will also be discussed,’’ according to the Ministry of External Affairs. Jaishankar on Saturday met the Indian diaspora. There are close to 3.5 million Indians living in Riyadh. Traditionally, India and Saudi Arabia have been contributing to each other’s economies. India imports between 18 to 20 per cent of its crude from there and 30 per cent of its LPG requirement. Indian workforce constitutes nearly 2.6 million of the ex-pats living there and over $8 billion flows in as remittances. Meanwhile, the Saudi sovereign Public Investment Fund (PIF) has made investments worth $1.5 billion in Reliance’s Jio and $1.3 billion in Reliance Retail Ventures Limited in 2020. Reliance Industries has appointed Aramco’s Chairman (and PIF Governor), Yasir Al-Rumayyan, to its board.