Will OPEC+ Cut Production In Early 2023?
The OPEC narrative for 2022 was largely about the realities of supply and demand against the backdrop of a post-pandemic war that sparked sanctions and a European energy crisis with the counterweight of a Chinese covid crisis. From the Saudi standpoint, OPEC’s move to cut production by 2 million barrels per day in November last year – while highly controversial in Washington – served to stabilize the market. From the U.S. standpoint, it was all about politics, at a time when the Biden administration had been doing everything in its power – begging, threatening, cajoling – to get OPEC to increase production to bring down oil prices. When OPEC+ responded not only by refusing to increase production but by actually cutting production, it was viewed in Washington as politically motivated – even a concession to Moscow. Numerous articles then began to appear in the Middle Eastern press most prolifically, with GCC officials explaining how OPEC’s moves throughout the year worked to stabilize markets. In October, Saudi Energy Minister Prince Abdulaziz bin Salman bin Abdulaziz told the Saudi state news agency, SPA: “As I have emphasized multiple times, in OPEC+ we leave politics out of our decision-making process, out of our assessments and forecasting, and we focus solely on market fundamentals. This enables us to assess situations in a more objective manner and with much more clarity and this in turn enhances our credibility.” The rationale, based on what the Saudis call “the Ukraine crisis”, which prompted predictions of major supply losses that could see some 3 million bpd taken off the market. Those predictions caused panic and led to oil price volatility. As the prince points out, “these projected losses did not materialize”. The International Monetary Fund (IMF), in a September 2022 paper, notes: “Cyclical oil price fluctuations (as opposed to persistent shifts in levels) drive OPEC’s decisions, suggesting that OPEC’s objective is to stabilize the oil price rather than countering fundamental shifts in demand and supply.” Now, with a war still raging, the million-dollar question is, what does OPEC+ want now, and will it get what it wants by pursuing its stated strategy of patient market stabilization? In its new 2023 oil market outlook, Energy Intelligence posits that OPEC+ is targeting a calmer market for 2023, and a likely price range target of around $80-$90 per barrel, and will, as such, likely move to act if oil starts rising above $100, which would be seen as too volatile and reminiscent of earlier in 2022. Likewise, Energy Intel suggests that OPEC+ will proceed with extra caution this year, noting that while there might be “some tweaks” to the 2 million bpd output cut last November, “any output increase would require a clear demand pickup or supply disruption (e.g. Russia), and is unlikely to be agreed pre-emptively”. The report also predicts that we will only see a bigger cut in output if a recession has a significant impact on demand. Again, while there is a lot of recent talk of a global recession, with an apparent two-thirds of business leaders meeting at the 2023 World Economic Forum in Davos saying it is likely this year, OPEC would not likely act preemptively on this. And in the meantime, Energy Intel predicts that strong growth from Norway, the U.S., Brazil, and others would make an OPEC+ output increase more challenging, as would any issues with the cartel’s “dwindling” spare capacity. While the still-raging war in Ukraine will continue to rock the geopolitical boat, Energy Intel sees less room for a renewal of U.S.-Saudi tensions right now, which is less likely when oil prices are at their current lows. The key aspects of the market that OPEC+ will be monitoring will be Russian oil production and how sanctions and new price caps really affect the numbers. While there have been many reports of sanctions hitting Russian revenues – and plenty suggesting the opposite – a recent account from Bloomberg said Russia’s seaborne crude exports managed to hit their highest level since April last week, which will suggest to OPEC that Moscow will ride this out. But it won’t just be geopolitics that OPEC watches closely. According to Energy Intel, there are some internal cartel issues that could surface, including the potential for the UAE to (once again) become emboldened enough to push for higher quotes, as well as what the report refers to as OPEC’s underlying problem of “unrealistic baseline quotas”. Early on Tuesday, better-than-expected data on Chinese GDP growth may give some support to oil prices, but with COVID uncertainty still putting a chokehold on demand predictions, oil was not expected to respond excessively to this news. The market was also waiting with bated breath for OPEC’s own 2023 oil market outlook later in the day.
Reliance suspends gas auction after govt altered marketing rules
Reliance Industries Ltd suspended a planned auction for the sale of natural gas. E-bidding for the sale of 6 million standard cubic meters per day of gas was originally planned for January 18 but was later pushed back first to January 19 and then to January 24. Reliance Industries Ltd and its partner bp plc on Monday suspended a planned auction for the sale of natural gas from their eastern offshore KG-D6 block after the government altered marketing rules to cap margins. In a notice, Reliance and its partner BP Exploration (Alpha) Ltd (BPEAL) said the auction has been suspended indefinitely. E-bidding for the sale of 6 million standard cubic meters per day of gas was originally planned for January 18 but was later pushed back first to January 19 and then to January 24. On January 13, the Ministry of Petroleum and Natural Gas published new rules for the sale and resale of gas produced from discoveries in deep sea, ultra-deep water and high pressure-high temperature areas with marketing and pricing freedom. It required bidders to state upfront if they were purchasing the gas through the auction for ‘own use as end consumers (including for use of their group entities) or as a trader.” While end consumers were allowed to resale any unconsumed gas, traders participating in the auction were allowed to resell subject to a maximum trading margin of Rs 200 per thousand cubic meters. “In any situation, which may require proportionate distribution of the gas offered under the bidding process, the contractor (company selling the gas) shall offer gas to bidders belonging to CNG (transport)/PNG(domestic) sector, fertilizer, LPG and power sector in that order,” the ministry said, adding any leftover gas shall be offered to other bidders. In the auction that Reliance-bp launched on December 29, 2022, the gas was intended for sale to end consumers who were not permitted to resale any unconsumed gas. Also, there was no clarity on the participation of traders.
US becomes top buyer of India’s refined petroleum goods
The United States has emerged as the top destination for refined petroleum products from India in the month of November. Notably, most of these goods were processed from Russian crude oil that the Asian country imported at a discount. The United States imported oil products worth $588 million in November, bringing imports to their highest level this fiscal year. According to experts, imports increased due to increased demand for crude ahead of the US Christmas season. There has been an increase of 23 per cent in imports of petroleum products by the US as against last year as the country purchased $3.62 billion worth of petroleum products in the eight months to 30 November, 2022. Notably, it was the highest buying by the US in the past five years. Meanwhile, Russia exported crude oil worth $3.08 billion in November to India, making it the second-largest exporter to the country after Saudi Arabia, a data by the commerce ministry stated. Not just the US, Europe’s imports of petroleum products from India in November also showed a remarkable increase with Portugal, Belgium and Italy purchases rose by 1,600, 535, and 17 times respectively. Also, the Netherlands, which is considered to be hub for oil storage, bought 45 per cent more petroleum products from India compared to October. India’s demand for crude oil rose remarkably after the international prices spiked since the beginning of Russia’s invasion of Ukraine. With Russian oil banned in the US and Europe, India has been able to purchase oil at a significant discount. The Netherlands, in November, imported petroleum products including jet fuel, worth $1.26 billion. The UAE was the second largest buyer of refined products from India, importing products worth $667 million in the same month. Also Read Oriano commissions 40 MW captive solar project in Jharkhand and Bihar The elevated road between Airoli and Katai Naka is 88% completed.
India sets hydrogen targets
As part of its aim to achieve its net zero carbon emission goal by 2070, the Indian government has released a blueprint for its National Green Hydrogen Mission which has set consumption targets for various industries, including the oil and gas and fertilizer industries. “The overarching objective of the mission is to make India the global hub for production, usage and export of green hydrogen and its derivatives,” according to a mission statement issued by the Ministry of New and Renewable Energy (MNRE) on 13 January. The green hydrogen mission was approved by the government on 4 January which aims to provide incentives worth over rupee (Rs) 197.44bn ($2.4bn) for the development of 5m tonnes/year green hydrogen production capacity and an associated renewable energy capacity addition of about 125 gigawatts (GW) by 2030. The south Asian nation is expected to have the capacity to produce 5m tonnes/year of green hydrogen by 2030, with the potential to reach 10m tonnes/year with growth of export markets, the MNRE said. India consumes around 5m tonnes/year of grey hydrogen, of which around 99% is used in the petroleum refining industry and for the production of ammonia for fertilizers. The government expects to develop its green hydrogen capacity in two phases beginning the fiscal year ending March 2023 (2022-23). In the first phase, the government plans to notify mandatory green hydrogen consumption targets for big hydrogen consumers such as the oil and gas, fertilizer, and shipping sectors. The government released its draft Green Hydrogen Mission statement in 2022 which stated that oil refineries would be required to replace 30% of their grey hydrogen use with green hydrogen by 2035, beginning with 3% in 2025. Fertilizer production should run on 70% green hydrogen by 2035, beginning with 15% in 2025 and urban gas distribution networks must replace 15% of their fuel volume by 2035, starting with 5% in 2025. The latest mission statement released on 13 January proposes to substitute all ammonia-based fertilizer imports with domestic green ammonia-based fertilizers by 2034-35. For this, the government plans to initially set up two plants each of green hydrogen-based urea and diammonium phosphate (DAP). Shipping and port operations are key sectors that are expected to drive the future green hydrogen demand and trade. State-owned Shipping Corp of India (SCI) has been asked to retrofit at least two ships to run on green hydrogen derived fuels by 2027 as part of the country’s aim to build hydrogen-powered shipping lines. SCI is India’s largest shipping line and owns and operates around one-third of the Indian tonnage, and services both national and international trades, as per the company website. State-owned oil and gas companies like Indian Oil Corp (IOC), Hindustan Petroleum Corp Ltd (HPCL), Bharat Petroleum Corp Ltd (BPCL), Oil and Natural Gas Corp (ONGC), among others, will be required to charter at least one ship each to be powered by green hydrogen or derived fuels by 2027. Currently, these companies charter about forty vessels for transport of petroleum products. The companies will be required to add at least one ship powered by green hydrogen or its derivatives for each year of the green hydrogen mission. Additionally, there are plans to develop green hydrogen-fueled vessels, and also to set up refueling hubs at Indian ports. The government expects to set up green ammonia bunkers and refueling facilities at least at one port by 2025 and plans to extend the facility to all major ports by 2035. It also plans to develop supply chains and capabilities to support future exports of green hydrogen/ammonia from India. In the initial phase, India expects to set up at least two green hydrogen hubs in the vicinity of oil and gas refineries and fertilizer plants. Other plans include retrofitting older city gas distribution networks to use green hydrogen blended gas while new gas networks will be built to be compatible with high blend ratios of hydrogen, the government document stated. The government also plans to explore the possibility of blending green hydrogen-based methanol/ethanol in auto fuels. It aims to set up necessary infrastructure and refueling stations along highways to ensure easy availability. “This will enable hydrogen-fueled buses and commercial vehicles to ply on such routes,” the MNRE statement said. The government also aims to increase the use of green hydrogen in steel production. “Upcoming steel plants should be capable of operating with green hydrogen. Greenfield projects aiming at 100% green steel will also be considered,” it said.
China’s Reopening May Not Lead To A Major Jump In Oil Prices
China has undergone three distinct phases in its reaction to COVID-19 since the Wuhan Municipal Health Commission reported the first small cluster of cases of ‘pneumonia’ in Wuhan city in Hubei Province on 31 December 2019. The first phase was the quick implementation of the ‘zero-COVID’ policy that allowed for the fast economic bounce back of China in just the second quarter of 2020. This was a time when elsewhere more than 3.9 billion people in more than 90 countries or territories having been asked or ordered to stay at home by their governments. The second phase was marked by repeated lockdowns in various areas of China, including several of its major cities, as outbreaks of COVID-19 and related strains of the virus prompted full lockdowns under the strict ‘zero-COVID’ policy. The third phase was prompted by nationwide protests against such continued all-encompassing lockdowns and comprised of the effective shelving of the policy that, in turn, has led to huge waves of infections and deaths. The next phase, which may well arrive earlier than many people expect, is likely to be the bounce back of China’s economy. To put this economic bounce back into context: the massive disparity between China’s enormous economy-driven oil and gas needs and its minimal level of domestic oil and gas reserves meant that China almost alone created the 2000-2014 commodities ‘super-cycle’, characterised by consistently rising price trends for commodities used in a booming manufacturing and infrastructure environment. As late as 2017, China’s high rate of economic growth allowed it to overtake the US as the largest annual gross crude oil importer in the world, having become the world’s largest net importer of total petroleum and other liquid fuels in 2013. More specifically on the economic side of the equation, from 1992 to 1998, China’s annual economic growth rate was basically between 10 to 15 percent; from 1998 to 2004 between 8 to 10 percent; from 2004 to 2010 between 10 to 15 percent again; from 2010 to 2016 between 6 to 10 percent, and from 2016 to 2022 between 5 to 7 percent. For much of the period from 1992 to the middle 2010s, much of this activity was focused on energy-intensive economic drivers, particularly manufacturing and the corollary build out of infrastructure attached to the sector, such as factories, housing for workers, road, railways and so on. Even after some of China’s growth began to switch into the less energy-intensive service sectors, the country’s investment in energy-intensive infrastructure build-out remained very high. It is extremely difficult to gauge the current level of infections and deaths from COVID-19 and its related strains, as China’s National Health Commission (NHC) stopped publishing daily COVID-19 case data on 25 December 2022, a practice that had been in effect since 21 January 2020. However, during a recent press conference, Kan Quancheng, a senior official in Henan – China’s third most populous province – revealed that nearly 90 percent of people there had now been infected with COVID-19 and its related strains, which equates to around 88.5 million people in just that province. Cases have risen to these levels in large part due to the zero-COVID policy and its strict implementation, as only extremely limited immunity to the virus has been allowed to develop. At the time of effectively shelving the zero-Covid policy, China still did not have an effective vaccine against the disease or any variant thereof, despite offers from all major vaccine-producing countries to make such supplies available to it. China also did not have an effective post-infection anti-viral, again despite offers from several Western countries to make such anti-virals and post-infection treatments available to it. Adding to these negative factors, as highlighted by OilPrice.com recently, is that China suffers from an extreme shortage of intensive care unit capacity in hospitals. Although this unrestrained surge of COVID infections has caused an even deeper impact on activity in the near-term – which Eugenia Victorino, head of Asia strategy for SEB in Singapore exclusively told OilPrice.com likely dampened to 2022 GDP growth of 2.8 percent – China’s annual Central Economic Work Conference (CEWC) signalled in the middle of December that boosting growth will be the priority in 2023. “Investments in research and development in high tech sectors will be accelerated, specifically in new energy, AI, biomanufacturing, and quantum computing,” she said. “Although the CEWC called for greater market access for foreign capital especially in modern services industry, the long-term policy direction of greater self-reliance in key sectors will be maintained and on fiscal policy, public spending will ‘maintain the necessary intensity’,” she added. “Therefore, there are upside risks to our 5.5 percent GDP growth forecast for 2023,” she concluded. With COVID infections having peaked on the east coast, and although a difficult time lies ahead for central and rural China, activity will begin to accelerate by March at the very latest, thinks Rory Green, chief China economist for TS Lombard, in London. “We noted in December that China was looking to kick-start consumer activity and sentiment in 2023, a message emphasised in [Premier] Xi Jinping’s New Year speech,” Green exclusively told OilPrice.com “Beijing is trying to reset domestic and international economic and political relations by toning down ‘Common Prosperity’ and ‘Wolf Warrior’ rhetoric and, more important, delivering stronger growth,” he added. “We think that China is rapidly moving from COVID coma to reopening boom and that a GDP target of ‘above 5 percent’ will be established for 2023 and that Xi will look to report GDP comfortably above that floor,” he underlined. This said, it may be that the previously near-automatic feed-through of increased China economic growth on oil prices is not as marked this time around as in previous years. “China’s central leadership is relying on reopening and the removal of negative policies – property, consumer internet, and geopolitics – rather than aggressive stimulus, to drive activity,” Green told OilPrice.com. “For the first time, a cyclical recovery in China will be led by household consumption, mainly services [as]