India’s Oil Refiners Using Dirhams For Payment In UAE
India’s oil refiners are making payments in United Arab Emirates Dirhams instead of Dollars, according to a report by the news agency Reuters. The report cites four sources with knowledge of the matter saying that the State Bank of India (SBI), is now clearing these dirham payments. Following the Russian Invasion of Ukraine, Western countries have put multiple sanctions on Russia, including a price cap on oil purchases. India has resisted the sanctions and has subsequently increased its Russian crude oil imports. However, Banks and financial institutions are cautious about clearing payments so as not to unintentionally violate the numerous sanctions imposed against Russia even though India does not recognise Western sanctions against Moscow, the report said. In particular, if the price of Russian crude increases above the price cap imposed by the Group of Seven nations (G7) and Australia in December last year, Indian refiners and dealers are concerned they may not be able to continue to settle trades in dollars. The G7 price cap forbids any Western business from engaging in the trading of Russian oil if the purchase price is greater than $60 per barrel at the loading point in Russia. According to the report, due to this, traders are looking for alternate payment methods, which may also help Russia in its efforts to de-dollarize its economy in reaction to Western sanctions. Indian refiners had previously tried to pay traders for Russian crude in dirhams through Dubai banks, but those attempts had failed, forcing them to return to using dollars, the report added. SBI has asked the refiners to provide a breakdown of the costs of the oil, freight, and insurance, allowing it to vet trade and avoid violating the cap, the report said. “The SBI is very conservative in its approach,” one of the sources told Reuters adding that even though India does not follow the price cap mechanism and Western insurance and shipping are not used for delivery. Indian refiners are buying Russian crude from traders at a price that includes delivery to India as well.
Government increases windfall gains tax on crude, diesel and ATF
The government changed the windfall profits tax on Saturday, increasing the Special Additional Excise Duty (SAED) on crude oil by Rs. 3,150 per tonne and the SAED on diesel and air turbine fuel (ATF) by Rs. 2.5 per litre. The new figures indicate that the levy on crude oil will rise from the previous Rs 1,900 per tonne to Rs 5,050 per tonne. The tax on diesel will rise from Rs. 5 per litre to Rs. 7.5 per litre. According to the data, the tax on ATF will rise from Rs 3.5 per litre to Rs 6 per litre. In the interim, there will be no additional taxes on gasoline. According to top government officials, the seven-month-old windfall profit tax on domestically produced crude oil and fuel exports is expected to generate about Rs 250 billion in the current fiscal year, which ends on March 31. The levy will continue for the time being because global oil prices are once again on the rise. “As of now, crude prices are again on the rise. So, for time being windfall tax will continue,” PTI quoted CBIC chairman Vivek Johri. Separately, Revenue Secretary Sanjay Malhotra had stated that the budget had forecast the current fiscal year’s windfall tax collection at Rs 250 billion. Johri had stated that it would be “impossible to anticipate how long the windfall taxes will last” because of how unstable the geopolitical environment remained. On July 1, India introduced its first windfall profit tax, joining an increasing number of countries that tax energy companies’ higher-than-average profits. At the time, export taxes on gasoline, ATF, and diesel were each charged at the rate of Rs 6 per litre (USD 12 per barrel), and Rs 13 per litre (USD 26 per barrel). Additionally, a windfall profit tax of Rs 23,250 per tonne (USD 40 per barrel) was imposed on domestic crude production. Every two weeks, the levy is reviewed, and rates are adjusted by market oil prices. The current windfall tax on crude oil generated by businesses like Oil and Natural Gas Corporation (ONGC) is Rs 1,900 per tonne. Crude oil extracted from the ground and beneath the seabed is refined and transformed into fuels such as gasoline, diesel, and aircraft turbine fuel (ATF).
Analysts Predict 42% Decline In Russian Oil Production By 2035
Last year, against all odds, Russia managed to grow its oil output despite being hit with tough sanctions, a plethora of oilfield service companies exiting the country as well as the refusal by western countries to buy its crude for the most part. Indeed, Energy Intelligence reports that in 2022, Russia’s crude and condensate production increased 2%, with oil production clocking in at 10.73 million b/d, above Russia’s ministry for economic development forecast of 10.33 million b/d. Russia managed to pull off this feat mainly by offering huge discounts to buyers like China and India, with Bloomberg’s oil strategist Julian Lee reporting that the two were receiving discounts of $33.28 per barrel, or about 40% to international Brent crude prices oil at the time. But Moscow cannot continue defying the odds indefinitely. BP Plc (NYSE: BP) has predicted that the country’s output is likely to take a big hit over the long-term, with production declining 25%-42% by 2035. BP says that Russia’s oil output could decrease from 12 million barrels per day in 2019 to 7-9 million bpd in 2035 thanks to the curtailment of new promising projects, limited access to foreign technologies as well as a high rate of reduction in existing operating assets. In contrast, BP says that OPEC will become even more dominant as the years roll on, with the cartel’s share in global production increasing to 45%-65% by 2050 from just over 30% currently. Bad news for the bulls: BP remains bearish about the long-term prospects for oil, saying demand for oil is likely to plateau over the next 10 years and then decline to 70-80 million bpd by 2050. Bleak Future For Russia That said, Russia might still be able to avoid a sharp decline in production because many of the assets of oil companies that exited the country were abandoned or sold to local management teams who retained critical expertise. Bloomberg had earlier reported that Russia sharply increased its diesel exports before the European Union sanctions on crude oil kicked off in February. Fuel shipments from Russia’s ports in the Baltic and Black Sea were set to increase to 2.68 million tonnes in January, good for 8% month-on-month increase from December’s volume and the highest export rate since January 2020. The European Union will ban Russian oil product imports by Feb. 5. This follows a ban on Russian crude that took effect in December. Exports of Russia’s flagship Urals crude blend from the Baltic Sea ports are, however, expected to fall to around 5 million tonnes from 6 million tonnes in November, thanks to an EU embargo on Russian oil and a Western price cap, according to Reuters calculations. Some estimates have predicted it could fall as low as 4.7 million tonnes. The $60 per barrel price cap introduced by the European Union, G7 nations and Australia allows non-EU countries to import seaborne Russian crude oil, but prohibits shipping, insurance and reinsurance companies from handling cargoes of Russian crude unless it is sold for under $60. Traders have reported to Reuters that Russia is struggling to fully redirect Urals exports from Europe to other markets such as China and India India and is also having a hard time finding enough suitable vessels. Russia’s problems have been compounded by a shortage of non-western tonnage, moderate demand for the grade in Asia, especially in China and a weak export economy. Indeed, Reuters has reported that Russia’s pipeline monopoly Transneft has been unable to fill some of the available loading slots due to a lack of bids from producers while other slots were postponed or canceled. Only China, India, Bulgaria and Turkey are currently willing to buy Urals with the blend now being sold to export markets at below overall production cost including local levies. Widening Budget Deficit Back in December, Russia’s Finance Minister Anton Siluanov said that the country’s budget deficit in 2023 might exceed the expected 2% of GDP as the oil price cap takes a hit on export income. That marked the first time a Russian official has acknowledged that the $60 per barrel price cap imposed on Russia by Europe and G7 nations will negatively impact its economy. Siluanov said that the country will be forced to tap debt markets to bridge the deficit. Russia is projected to have used over 2 trillion roubles ($29 billion) from the National Wealth Fund (NWF) in 2022 as total spending exceeded 30 trillion roubles above the initial budget. Russia’s economy is expected to contract in the current year, with Central Bank governor Elvira Nabiullina citing “worsening trade conditions” as a key reason. Russia’s cash flows are expected to weaken considerably in 2023 as oil and gas sales to Europe plunge. Ukraine’s Ministry of Economy says it expects that the EU embargo on Russian oil and petroleum products should cut Russia’s profits by at least 50%. “We expect the collapse of profits from oil and gas exports to be at more than 50%, precisely because of the introduction of the EU embargo on oil and petroleum products and the introduction of price restrictions. Oil and gas account for 60% and 40% of federal budget revenues. We expect that Russia’s revenues will fall below the critical level of $40 billion per quarter,” Yuliya Svyrydenko, First Deputy Prime Minister and Minister of Economy of Ukraine has said. She has expressed hope that plunging profits will make it more difficult for Russia to continue waging an expansive war. Meanwhile, the Russian rouble has finally caved in, slumping past 70 per U.S. dollar to a more than seven-month low courtesy of plunging crude prices as well as fears that sanctions on Russian oil could hit the country’s export revenue, Reuters reports. Russian equities have also taken a hit, with the dollar-denominated RTS index finishing in the red last year.
India’s green energy focus in sync with ongoing G20 Presidency
Keeping pace with the green energy focus of the world and reducing its carbon intensity, India has planned big for the green energy sector in its financial budget. The government announced a slew of measures for the initiatives related to green fuel, green farming, green mobility, green buildings, and green equipment. Also since India has an ongoing G20 Presidency, its focus on green energy will have a better impact. The government announced an outlay of Rs 197 billion for the recently launched National Green Hydrogen Mission, which it said will facilitate the transition of the economy to low carbon intensity, reduce dependence on fossil fuel imports and make the country “assume technology and market leadership in this sunrise sector”. It has a target of the annual production of 500 MMT (million metric tonnes) of green hydrogen by 2030, reported The Hindu. “The Union Budget presents a positive outlook for the renewable energy sector in India. The allocation of Rs 350 billion towards the green energy transition is a step in the right direction and demonstrates the nation’s will for a sustainable future,” commented Girish R Tanti, Vice Chairman, Suzlon Energy. “The government’s commitment to increasing the use of renewable energy in the country is commendable and will play a crucial role in reducing carbon emissions and mitigating the impact of climate change. The National Green Hydrogen Mission will complement our efforts towards net zero,” he said. The budget provides Rs 350 billion for priority capital investment toward energy transition, net zero objectives, and energy security the Union Ministry of Petroleum and Natural Gas. Industry body ASSOCHAM’s Secretary General Deepak Sood said, “Boost to transition through definite programmes for financing green energy with the help of flagship programmes like National Green Hydrogen Mission, grid integration of the renewable energy and promoting electrification of the automobile industry are the ‘stand out features of the Budget’”. India’s energy demand is expected to increase more than that of any other country in the coming decades due to its sheer size and enormous potential for growth and development. Therefore, it is imperative that most of this new energy demand is met by low-carbon, renewable sources. India’s announcement India that it intends to achieve net zero carbon emissions by 2070 and to meet 50 per cent of its electricity needs from renewable sources by 2030 marks a historic point in the global effort to combat climate change. The Indian renewable energy sector is the fourth most attractive renewable energy market in the world. India was ranked fourth in wind power, fifth in solar power and fourth in renewable power installed capacity, as of 2020. Installed renewable power generation capacity has gained pace over the past few years, posting a CAGR of 15.92 per cent between FY16-22. India is the market with the fastest growth in renewable electricity, and by 2026, new capacity additions are expected to double, according to India Brand Equity Foundation. “With India holding the Presidency of the G20 till Nov 2023, the focus on adopting green energy, and efforts to enhance BioCNG bodes well. We are pleased with the focus that the Budget has had for our industry, in particular, esp. from the point of view of scrapping old/polluting vehicles, stressing the need to segregate waste and more importantly make and prep the cities to raise funds from the Municipal Bond market. The main theme reiterates the Country’s focus on adopting sustainable technologies, and higher focus on generating green energy,” said Jose Jacob Managing Director of Antony Waste Handling Cell. As of October 2022, India’s installed renewable energy capacity (including hydro) stood at 165.94 GW, representing 40.6 per cent of the overall installed power capacity. The country is targeting about 450 Gigawatt (GW) of installed renewable energy capacity by 2030 – about 280 GW (over 60 per cent) is expected from solar.
EU, G7 partners agree on price cap on Russian petroleum products amid Ukraine war; Will it affect India
EU price cap on Russian petroleum: In a major development, the European Union, the international G7, and Price Cap Coalition on Saturday adopted further price caps for seaborne Russian petroleum products including diesel and fuel oil. Notably, the Price Cap Coalition is composed of Australia, Canada, the EU, Japan, the UK, and the US. According to the statement released by the 27-nation bloc, the latest action came in line with a series of sanctions taken by Russia against its neighboring nation, Ukraine. As per the statement, the decision will hit Russia’s revenues even harder and reduce its ability to wage war in the war-torn nation. Also, it underscored the measure will help stabilize global energy markets, benefitting countries across the world. Notably, the European Union and the West have imposed several sanctions against Moscow ever since it started a relentless war against Kyiv last year. Meanwhile, President of the European Commission, Ursula von der Leyen, while announcing the latest measures said: “We are making Putin pay for his atrocious war. Russia is paying a heavy price, as our sanctions are eroding its economy, throwing it back by a generation.”