Oil Prices Fall On Fears Of Further Interest Rate Hikes From The Fed
Despite rising earlier this week, crude oil prices are set to end the week with a loss, largely driven by concern that the Federal Reserve is not done with aggressive rate hikes. Both Brent crude and West Texas Intermediate were down in Asian pre-noon trade today, Reuters noted, although the decline was minor, at 0.75 percent. It also quoted economic data from the United States, namely the latest producer price index report, which gained 0.7 percent in January after declining 0.2 percent in December. The PPI report followed the latest consumer price data, which showed that inflation had risen by 0.5 percent on a monthly basis in January and by 6.4 percent on an annual basis—more cause for concern that the Fed will continue with its aggressive approach to inflation control. “Strong U.S. data bolstered concerns over rate hikes and prompted a rise in U.S. Treasury yields, which weighed on oil and other commodity prices,” Fujitomi Securities chief analyst Kazuhiko Saito told Reuters. “Inflation is easing but the path to lower inflation will not likely be smooth,” Jeffrey Roach, chief economist at LPL Financial, told CNBC earlier this week in comments on the latest CPI release. “The Fed will not make decisions based on just one report but clearly the risks are rising that inflation will not cool fast enough for the Fed’s liking.” Another analyst noted to Reuters the recent increase in U.S. crude oil inventories, which, according to him suggested demand was on the wane. Others, however, have pointed out the massive inventory increase the EIA reported in its latest weekly update was the result of a data adjustment. Meanwhile, prices received some support from the IEA, which forecast oil demand will reach a record high this year, driven by China, which will account for 50 percent of the expected demand growth.
Canada’s Largest Gas Producer Finds Way To Sell Its Gas At 10x Its Usual Price
The energy industry in Canada has long lamented the fact that the country is missing out on the global surge in LNG demand, first as a replacement for coal, and now, for Europe, as a replacement for Russian pipeline gas. That Canada, which has 1,373 trillion cubic feet of gas, is late to the LNG party has been mostly the result of federal government policies and environmentalist opposition. Yet despite the multiple challenges, the country’s first LNG terminal is expected to start operating in about two years. Until then, however, one producer has found another way to get its gas to international markets. Tourmaline Oil Corp., the largest natural gas producer in Canada, is sending its natural gas from northeastern British Columbia to the Gulf Coast in Texas by way of Chicago, where Cheniere Energy liquefies it and ships it overseas. It’s a 3,000-mile journey to the Gulf Coast alone—and there are more miles to travel. According to Bloomberg, this is “a record-setting path.” Tourmaline has a 15-year contract with Cheniere Energy for 140 million cu ft of gas daily, which is equal to about one LNG cargo a month, per Bloomberg. And it’s getting paid ten times what gas sells for on the local market. At the AECO hub in Alberta, natural gas trades at around $2 per gigajoule, which is about 1,000 cu ft. Under the deal with Cheniere, Tourmaline is getting $20 per 1,000 cu ft, according to the Bloomberg report. That’s gross, and there are expenses related to the pipeline transportation of the gas across the U.S. and the liquefaction and shipping. However, the bottom line appears to be still substantially above the AECO benchmark. Yet what Tourmaline is sending to Cheniere’s terminal in Louisiana is a small part of what it exports to the U.S. in total on a daily basis. That amounts to 754 million cu ft daily but could grow to above 850 million cu ft this year, according to a recent quarterly conference call. This could rise further to 926 million cu ft by the end of 2024. Recently, there have been warnings that U.S. gas producers are retreating in the production growth department after European—and U.S. gas prices—slumped amid the predominantly warm winter that lowered demand for the commodity. These warnings, combined with signals to the same tune from the industry itself, have suggested the possibility of a gas shortage. While not an immediate danger, it is not unthinkable even as demand remains robust. Yet if Canadian producers can step in and close the supply gap, the risk of a shortage may get well delayed or entirely eliminated. Natural gas in the United States is trading at much lower prices than last year, but natural gas in Canada is trading at even lower prices. And there appears to be a healthy appetite for Canadian gas south of the border if the Tourmaline deal with Cheniere is any indication. It might not be the only but the first one to close such as deal with an LNG exporter, at least until LNG Canada, which is about 70 percent built, is completed. Some in the industry would probably laugh and shake their heads sadly at the fact that Canadian gas has to go all the way to the bottom end of the continent to get exported to international markets instead of this happening at home. Yet the Tourmaline-Cheniere deal proves one important fact about the energy market. This fact is that even with all the opposition that a government could mount against an industry, it’s still supply and demand that have the last word. Right now, this word, or rather words, are “More Canadian gas, please.”
South Asia Returns To The Spot LNG Market As Prices Dip
South Asia is back on the spot market for liquefied natural gas (LNG) as prices have dipped to the lowest in a year and a half, prompting the price-sensitive buyers in the region to buy the fuel which was prohibitively expensive six months ago. South Asian economies India, Pakistan, and Bangladesh have shown signs of activity on the spot LNG market in recent weeks, encouraged by the more than 70% slump in prices since the record highs seen in August 2022. The return of South Asia to LNG purchases could at least partially curb the region’s high coal consumption and imports this year, according to Reuters’ Global Energy Transition Columnist Gavin Maguire. Yet, more gas demand in South Asia – coupled with an expected rebound in demand in China – could also tighten the LNG market and intensify the competition with Europe for spot LNG supply in the summer. This, in turn, will lead to a return of higher spot LNG prices, which the cash-strapped governments of Pakistan and Bangladesh will not be able to afford—again. Asia Spot LNG Drops To Lowest Since August 2021 Last week, Asia’s spot LNG prices dipped – for yet another week – by 8.1% to around $17 per million British thermal units (MMBtu) for March delivery, while LNG for April delivery was even lower, at $16.50 per MMBtu, according to estimates from industry sources cited by Reuters. The price decline, to the lowest level since August 2021, has incentivized price-sensitive LNG customers in south Asia, such as Bangladesh, Thailand, and India, to return to the spot market they abandoned last year amid surging prices. “We are back in the comfort zone of many price-sensitive South and Southeast Asian buyers. Accordingly, we have seen Thailand and Bangladesh most recently,” Kaushal Ramesh, senior LNG analyst at Rystad Energy, told Reuters earlier this month. Related: Oil Falls After EIA Confirms Massive Crude Inventory Build So far this year, Asian spot LNG prices have slid by around 40% and are more than 70% lower from the record $70 per MMBtu in August 2022. South Asia Back To Buying Spot LNG… The markedly lower spot LNG prices have prompted India, Bangladesh, and Thailand to seek to buy LNG cargoes by the middle of this year. Bangladesh is returning to the spot market after halting tenders to buy the fuel in July 2022 as prices soared amid Europe’s rush to procure LNG for this winter without much of the previous supply of Russian pipeline gas. Petrobangla, the state-owned firm arranging LNG imports for Bangladesh, plans to buy between 10 and 12 cargoes on the spot market by June, a senior official at the company told Reuters earlier this month. Spot prices are still higher than contracted supply, and Bangladesh is seeking long-term deals. “We are also trying to secure LNG from long-term partners, but it looks like they are unable to provide this year,” the official said. Global long-term LNG contracts are sold out until 2026, a survey of Japanese companies conducted by the local trade ministry showed at the end of last year. India also expects to boost its LNG imports this year as prices have eased, the biggest gas importer in the country, Petronet, said last month. In India, LNG imports fell by 15.2% in 2022, but the total cost increased by 44.5% due to high LNG prices, the Institute for Energy Economics & Financial Analysis said in a report this week. Bangladesh’s LNG imports fell by 16% last year, while Pakistan’s LNG consumption slumped by 18.9% in 2022 due to high prices and the unavailability of fuel, IEEFA said. “Similar to Bangladesh, Pakistan’s foreign currency reserves are depleting rapidly due to the country’s high dependence on imported fossil fuels and skyrocketing commodity prices,” IEEFA noted. …For How Long? Going forward, rising concerns over fuel supply security and affordability of LNG have downgraded the prospects for LNG demand growth in the region, according to the institute. “In Asia, LNG has now earned a reputation as an expensive and unreliable fuel source, clouding future demand,” said IEEFA. LNG demand in Asia this year is set to increase, thanks to the Chinese reopening and the return of South Asia to the spot market. However, South Asia’s price-sensitive buyers could face another challenge in procuring spot supply later this year as the Europe-Asia competition for attracting LNG cargoes is set to intensify, leading to higher prices. The race to ensure supply for next winter hasn’t even started in earnest yet. Prices are set to hold higher than before the Russian invasion of Ukraine through the summer as Europe will face stiffer competition from Asia for LNG supply. Europe’s natural gas futures point to structurally higher prices for the rest of the year, as Europe will soon have to start filling inventories for the 2023/2024 winter. “Going forward, it will be a tug of war for the marginal cargo. We do see more shift of flow into Asia and of course the prices of the LNG in Europe and Asia will, to some extent decide where the cargoes will be flowing,” Oystein Kalleklev, the chief executive of shipping firm Flex LNG, said on the company’s earnings call this week.
India’s fuel sales recovering in Feb as cold wave ebbs
Indian state refiners’ gasoline and gasoil sales rose in the first two weeks of February from the same period last month, preliminary sales data shows, as transport of goods picked up and people drove out more drawn by slightly warmer weather. Sales of gasoil rose to 3.3 million tonnes in the first half of February, a growth of 10.3% from the same period last month, the data showed. Gasoil accounts for about two-fifths of refined fuel consumption in India and is directly linked to industrial activity.
ONGC sees fastest oil output growth in 20 years
India’s largest oil producer ONGC is expecting crude oil output to grow by 4-5pc in the April 2023–March 2024 fiscal year, which if achieved will be its fastest growth in two decades. ONGC told investors on 15 February that following its October-December — the third quarter of India’s 2022-23 financial year — earnings, it sees production of crude oil rising by 1pc in 2022-23, reversing a six-year long streak of declining output. In April-December, production at ONGC’s self-owned fields grew by 0.5pc to 374,000 b/d but total crude oil output, including from joint ventures, fell by 0.4pc in the same period. ONGC, which produces 71pc of India’s oil output, has seen its crude production decline over the past decade as most of its fields are old and ageing, and its new discoveries faced cost escalations and technical delays. The Indian government has over the past few years mulled selling some of ONGC’s biggest fields to private sector entities to boost output but such measures have faced resistance from the state-controlled company. “We have arrested the decline. FY24 (2023-24) is going to be the year we will see the gains of our effort,” ONGC told analysts on the post-earnings conference call. The major gains in oil production will come from KG 98/2 block on the eastern offshore at Kakinada, the largest subsea project in India, where the new floating production storage and offloading (FPSO) unit will start production from May-June 2023, ONGC said. The Kakinada FPSO will see production of 38,000 b/d in 2023-24 and 44,000 b/d in 2024-25, ONGC said. According to earlier projections, peak oil production at the KG-DWN 98/2 block is likely to be around 80,000 b/d, equivalent to 14pc of India’s total output of 570,000 b/d in 2021-22. ONGC is also counting on production at the western offshore blocks to rise by 10,000 b/d in 2023-24 following the deployment of the mobile offshore production unit Sagar Samrat last month. Import dependence The growth in crude output by ONGC will boost India’s efforts at enhancing domestic oil and gas production to reduce dependence on imports. Prime minister Narendra Modi told international delegates at the India Energy Week earlier this month to invest in India’s oil exploration effortsas the country seeks to boost domestic productivity. India imports over 80pc of its crude oil requirements, making its economy vulnerable to shocks such as the one witnessed in March 2022 following Russia’s invasion of Ukraine.