The EU’s Energy Partnership With Gulf Countries Makes “More Sense Than Ever”
Cooperation between the European Union and the Gulf Cooperation Council is more important than ever, the head of EU foreign policy Josep Borrell said, as quoted by The National, during a visit to the United Arab Emirates. “Your security is our security,” Borrell said, adding that “This has changed the energy landscape of Europe. [This] energy partnership makes more sense than ever.” Borrell noted that while until this year the EU had relied on Russia for 40 percent of its energy supply, now this had dropped to just 8 percent. The current state of affairs was likely to continue for years, the EU’s top diplomat also said. “We need to reduce our consumption of gas,” Borrell said. “We need other suppliers and we need to continue fighting against climate change at the moment.” Borrell pointed out that the UAE was a major supplier of oil and gas but added that “hydrocarbon will not be the energy forever.” He then went on to note that “You have sun. You are investing a lot in new renewables. It is also an important partnership.” Despite the current gas squeeze, Europe is not giving up on its transition efforts and planning significant increases in wind and solar capacity additions, despite rising raw material prices there. Meanwhile, media have reported that despite the decline in Russian pipeline gas imports and oil imports as well as the drop in coal purchases after an embargo on those kicked in three months ago, Europe appears to still be buying Russian LNG, at a rate that reached 1.2 million tons over the 12 months to September. This has probably added a sense of urgency in finding new supply partners and securing table commitments with them, including with the UAE. “They [Gulf states] have always been very important for us. Not only because they are supplying energy, but the Gulf is becoming a strategic part of the world in the middle of the way between Europe, and South and East Asia,” Borrell said during his visit.
High LNG Prices Have Sparked Demand Destruction In India
India’s industrial gas customers have been buying less LNG from storage sites due to high spot prices, which has sent LNG storage levels at import terminals to near capacity, traders familiar with the situation told Bloomberg on Thursday. The very high spot gas prices have resulted in demand destruction for India’s industrial customers who have resorted to alternative fuels such as oil products and domestic supplies of gas, according to the traders. The lower demand for LNG has created a glut of the imported fuel with some storage tanks full and potentially delaying additional LNG imports into India, Bloomberg’s sources said. Lower demand from India could be a relief for global LNG prices just as the winter in Europe approaches. This year, Europe has been outbidding Asian customers as it has scrambled to secure gas supply with very low pipeline imports from Russia. High spot rates for LNG have discouraged many buyers and users of the super-chilled fuel in Asia, including in India. India could be forced to boost coal production in the face of high LNG import costs, officials told Hindustan Times earlier this week. India’s LNG import costs surged by 70% to reach $13.4 billion in 2021-22, compared to $7.9 billion in 2020-21, despite the fact that import volumes declined by around 7%. Between January and August this year, Indian LNG imports plunged by 18%, according to Wood Mackenzie. “India has reduced LNG usage by 30 to 40% year-on-year in refineries and petrochemical plants. Large-scale industries have replaced LNG with domestic gas, produced in India’s eastern offshore. And other small industries are switching to fuel oil and liquefied petroleum gas (LPG) for heating,” Lucy Cullen, Principal Analyst, APAC Gas & LNG Research at WoodMac, said in September. India and China saw the largest reductions in LNG consumption as consumers switch to coal and fuel oil in power and non-power sectors, Cullen noted.
Parekh committee may opt for differential gas price plan
The Kirit Parekh committee, which has been asked to suggest a fair price for natural gas supplies to end consumers, is expected to break away from the existing formulaic pricing methodology as it seeks to balance the interests of gas producers and consumers. Natural gas prices have been going through the roof, sparking dismay at homes that rely on piped cooking gas, pumps dispensing CNG for vehicles and a wide swathe of user industries. Sources said the committee, which is expected to submit its report later this month, could take a radical stand by suggesting a differential pricing mechanism — one set for fertiliser and power industries and a completely different one for piped natural gas for homes and CNG for vehicles. PNG prices in Delhi have risen 52 per cent in just over a year to Rs 53.59 per standard cubic metres (SCM) in October 2022 from Rs 35.11 per standard cubic metres (SCM) in September 2021. CNG prices have shot up 57.9 per cent during this period to Rs 78.61 per kg from Rs 49.76, according to data available in PPAC. Gas pricing in India has always posed a problem — and has been revised every six months based on a formulaic mish-mash derived from the weighted average prices of four global benchmarks: the US-based Henry Hub, Canada-based Alberta gas, the UK based NBP and Russian gas. There has been a massive increase in the price of gas at all the major trading hubs between July 2021 and August 2022. The Henry Hub price in the US has shot up 140 per cent during this period. The JKM Marker — which represents the Northeast Asian spot price index for LNG delivered ex-ship to Japan and Korea and is determined by S&P Global Platts — registered an increase of almost 257 per cent. The NBP in the UK has increased by 281 per cent. In comparison, prices of CNG and PNG in India went up only 50-60 per cent, largely shielded from spot price volatility because of their longterm supply contracts. In its latest World Energy Outlook 2022, the International Energy Agency said: “Spot natural gas prices in Europe have regularly been above $50 per million British thermal units, more than double the crude oil price on an energy-equivalent basis.” The Parekh panel includes the representatives of a gas producers association as also state-owned producers ONGC and OIL, a member from private city gas operators, state gas utility GAIL, a representative of Indian Oil Corporation (IOC) and a member from the fertiliser ministry. While the producers insisted on complete marketing freedom, guaranteed in their production agreements, consumers wanted a “fair price”, sources said. The government sets the price of gas every six months — on April 1 and October 1 — based on rates in gas surplus nations such as the US, Canada and Russia in one year with a lag of one quarter. So, the price for October 1 to March 31 is based on the average price from July 2021 to June 2022. This is the period when global rates shot through the roof. Rates according to this formula stayed below the breakeven price of $3-3.5 per million British thermal units for six years starting October 2015 but have jumped 5x in the last year to $8.57 for old fields (APM gas) and $12.46 for difficult fields. User industries, forced to pay more, have lobbied the government against the hike — following which the ministry set up a panel to suggest an affordable rate for the users. The gas consumers are seeking “some kind of cap” particularly in government-regulated gas.
Adani Ports picks 49.38% stake in Indian Oiltanking for Rs 10.50 billion
India’s largest transport utility, Adani Ports on Wednesday has entered into a definitive agreement for the acquisition of Oiltanking India GmbH’s 49.38% equity stake in Indian Oiltanking and Oiltanking GmbH’s 10% equity stake in IOT Utkal Energy Services. This agreement also includes acquisition of an additional 10% equity stake in IOT Utkal Energy Services Ltd, a 71.57% subsidiary of IOTL. With this, Adani Ports and Special Economic Zone (APSEZ) becomes India’s largest third-party liquid tank storage player, Adani Ports and Logistics said in a press release. Over the last 26 years, IOTL has built a network of six terminals across five states with a total capacity of 2.4 Mn KL (owned capacity of 0.5 Mn KL and BOOT capacity of 1.9 Mn KL) for storage of crude and finished petroleum products. The owned facilities include Navghar terminal in Maharashtra, Raipur terminal in Chhattisgarh and Goa terminal. The BOOT terminal with Indian Oil Corporation Ltd (IOCL) is at Paradip (Odisha) and O&M contracts with IOCL are at JNPT (Maharashtra) and Dumad (Gujarat). The company also has a biogas plant of 15 TPD capacity in Namakkal (Tamil Nadu). “With this acquisition, APSEZ’s oil storage capacity jumps 200% to 3.6 Mn KL, making it India’s largest third-party liquid storage company. This ties well with our ambition to become the largest transport utility globally,” said Karan Adani, CEO and Whole Time Director of APSEZ. “This stake purchase is also well aligned with our strategy of diversifying the cargo mix with focus on products and services having higher realisation and margins. The deal will further strengthen our strategic partnership with IOCL, a key stakeholder and India’s largest refiner and customer of oil storage tanks.” IOTL is on a growth spree given the increasing demand for oil products in the country. The company recently signed a 25-year BOOT contract with Numaligarh Refinery Ltd for the construction, operation, and maintenance of 0.6 Mn KL crude storage tanks at the Paradip Port. Besides, the company is also negotiating/bidding on various other large projects, both at existing facilities and new locations.
Asian LNG prices on a downtrend as winter approaches
Prices for spot LNG deliveries to northeast Asia in December have remained lower this year compared to past years, as buying interest has become uncharacteristically limited. This is the first time that LNG spot prices have not rebounded in the immediate run-up to winter. The average of the ANEA, the Argus assessment for spot LNG deliveries to northeast Asia, for both first and second-half December deliveries fell throughout October in both 2021 and 2022. But there was a price rebound in November 2021 which does not seem likely to surface this year. Spot activity in November 2021 picked up as winter neared, with buyers from all over Asia surfacing to make December purchases. This included Thai state-owned power producer Egat, Japanese utilities Tohoku Electric and Kansai Electric, Japanese gas company Saibu Gas, as well as Indian buyers Indian Oil (IOC), Gujarat State Petroleum (GSPC) and Gail, and major South Korean importer Kogas. In contrast, Asian buyers have mostly refrained from making spot purchases in 2022, mainly because of relatively higher temperatures at this time of the year, which has resulted in lower inventory drawdowns. The December-January intermonth contango structure has also widened significantly compared to previous years. This is likely as buyers have shown much less interest in winter deliveries this year. As a result, sellers have held back offers until later into the winter season on expectations that more buying interest will eventually emerge for January deliveries, hence lifting January delivery prices more. The January ANEA remained at around a $1-1.80/mn Btu premium to the December ANEA across 1-4 November. This was significantly higher than the contango of $0.26-1/mn Btu over the same period a year earlier. A lack of buying interest from major LNG demand centers China and India has been the main reason for the absence of a rebound in December prices this year. Buyers in both countries have refrained from making spot purchases because of a combination of factors, including unsustainably high LNG spot prices, and a relentless zero-Covid-19 policy in China, which has in turn resulted in the switching out of LNG for relatively lower-priced and more readily available alternative fuels such as coal, fuel oil, and LPG. Japanese and South Korean buyers, which make up another significant proportion of spot LNG demand in the run up to winter, have also mostly stayed out of the spot market and instead left procurement in the hands of their major state-owned importers.