The IEA Warns Of A Potential Natural Gas Shortage Next Winter
Tight production capacity for liquefied natural gas could lead to shortages next winter, the head of the International Energy Agency, Fatih Birol, has warned. As gas demand from China begins to recover, competition for LNG supply will increase, creating the risk of shortages, Birol told Reuters on the sidelines of the Munich Security Conference. The head of the IEA praised European governments for making “many correct decisions” last year to secure supply, including the construction of more LNG import terminals. He noted, however, that the mild winter had been a stroke of luck for Europe, combined with the demand drop in China amid last year’s lockdowns. “For this winter it is right to say that we are off the hook. If there are no last minute surprises, we should get through…maybe with some bruises here and there,” Birol told Reuters. “But the question is…what happens next winter?” The official noted that some 23 billion cubic meters of natural gas are expected to be added to the global LNG supply this year, which would be equal to some 16.8 million tons. Yet even a moderate recovery in China’s economic activity would absorb 80 percent of that additional supply. Birol then went on to say that this meant Europe may end up short of gas for next winter, saying “Even though we have enough LNG import terminals, there may not be enough gas to import and therefore it will not be easy this coming winter for Europe,” adding that “It is not right to be relaxed, it is not right now to celebrate”. Europe is about to end winter 2022/23 with record high levels of gas in storage, which theoretically means it would need to buy less for the next heating season. Still, last year’s refill purchases featured a solid amount of Russian gas that will not be available this year and will need to be replaced.
Europe’s Thirst for U.S. Crude To Stay High In 2023
Europe’s thirst for U.S. crude oil is expected to remain elevated, VP of Midstream for Chevron Corp said today on the sidelines of the Argus Americas Crude summit. “A key change in flow is U.S. crude going to Europe. For this year, I’m pretty confident Europe is short of Russian oil, and we’ll see more U.S. crude there,” Colin Parfitt told Reuters. After a fairly steady rise from April 2021 onward, U.S. crude oil exports to Europe hit 1.69 million bpd in December, according to Kpler data cited by Reuters. It is the highest level in two years. Overall in 2022, U.S. crude oil shipments to Europe were 70% higher than in 2021, CME Group said earlier this month. For February, U.S. crude exports to Europe eased up to 1.42 million bpd. The flows have given more prominence to the WTI benchmark. In June, WTI will be used as one of the streams in the Dated Brent pricing mechanism, and the shifting flows brought on by Russia’s invasion of Ukraine and the resulting sanctions and price caps have helped catapult its importance in the global market. The United States has increased its crude oil exports to Europe as the latter looks to non-Russian supply after banning seaborne imports as of December 5 last year. Prior to the December 5 deadline, Russian crude oil satiated about 20% of Europe’s crude oil appetite. But even before that, Europe began winding down its Russian crude oil purchases as refiners began to self-sanction against Ukraine’s aggressor, with flows curbing 700,000 bpd lower than before the invasion. Since then, Europe has looked to Saudi Arabia, Iraq, Nigeria, Norway, and the United States, to fulfill its crude oil needs.
Rising energy prices fuel economic growth in Middle East and North Africa
The global oil and gas market has remained resilient in the face of increased uncertainty due to the ongoing Russia-Ukraine conflict, rising interest rates and a host of other factor. For oil-producing countries in the Middle East and North Africa, the rise in oil and gas prices is helping fuel economic growth. Although oil revenues have shaped these countries’ economies for the past seventy years, financial markets’ experts and analysts agree that, this time, the recent rise in oil prices will impact local economies in a more sustainable way, as GCC countries will be using their revenues in financing their economic diversification efforts, leading to more self-sufficient nations. “Middle East producers, and specifically those in the Gulf region, have embarked on ambitious plans to diversify their economies away from oil” says Ritu Singh, Regional Director of Stone X Group Inc. She adds: “These countries are using the windfalls of the currently high oil prices to reshape their economies, and with it, the region.” According to an International Energy Agency (IEA) report earlier this month, global oil demand is set to rise by 2 million barrels per (bpd) this year to 101.9 bpd. The Asia-Pacific region, with a projected growth in demand of 1.6 million bpd, fuelled by a resurgent China, dominates the growth outlook. A report by Deloitte showed that the global upstream industry is projected to generate its highest-ever free cash flows of $1.4 trillion by the end of 2022. The International Monetary Fund (IMF) had earlier projected that Gulf economies will receive up to $1.4 trillion in additional revenues in the next four to five years, as oil prices remain high. The Economist Intelligenc Unit predicted that GCC states and Iraq will benefit the most from international energy market developments in 2023, with GCC states seeing high oil and gas revenue spill over and help to drive business activity in non-energy sectors — especially through state-backed investment in economic diversification projects. “Inflation will be contained across the GCC in 2023 by exchange-rate pegs to the US dollar and fuel subsidy regimes,” the EIU said in a report. Singh said: “Increased demand and persisting geopolitical tensions are changing the landscape of the energy supply chain. Oil and gas prices are likely to remain high, and oil and natural gas producers and exporters in the MENA region stand to be the biggest winners.” In addition to economic diversification, oil-rich Mena countries are raising the profile of their financial markets by launching more regional crude oil benchmarks, such as the Abu Dhabi Murban Crude contract. They’re also taking many of the state-owned companies public in their own stock markets, leading to deeper liquidity and higher appeal for foreign investors. Moreover, oil-producing countries have started to develop mega projects, including NEOM in Saudi Arabia, while seeking to gain more global weight through international investments such as Mubadala’s investment in US Dental Care Alliance which aims at exploring clean fuel projects in Pakistan, and Qatar Investment Authority’s €2.4 billion investment in German power company RWE and $1.5 billion investment in Bodhi, James Murdoch’s media venture in India.
India Garners Pricing Benefits of Crude Oil Imports From Russia
ndia till now is on a firm track of sourcing oil cheaply from Russia since the latters invasion on Ukraine. This is against the wishes of the western powers who want to being down the Russian economy by curbing its oil revenue. Nevertheless, the Indian Government has categorically said that it would source what it needs from where the price is advantageous. The Government also said its three oil marketing companies are not buying crude from Russia. However, the private companies are the only ones who are buying, refining and shipping out. According to media reports, India’s exports of petroleum products shot up to USD 78.58 billion time period April 2022 to January 2023. This went from USD 50.77 billion shipped out during the previous year’s corresponding period. Stoked up by the imports of crude oil India’s imports from Russia went up about 384 percent to USD 37.31 billion during April 2022-January 2023. As a consequence, Russia became India’s fourth largest import partner up from 18th position in 2021-22. The increasing oil imports from Russia has made it easy for India by preventing it from paying for the products in Rupees. Shweta Patodia, AVP, Analyst, Moody’s Investors Service said, “Crude oil and international fuel prices have surged following the Russia-Ukraine war. Net realized prices for the oil marketing companies in India, however, have not increased at the same pace which has resulted in significant marketing losses for them. While the marketing losses were steep in the first half of the fiscal year, it has narrowed since then.” After the Russian announced about cutting down oil production following the price cap, Patodia said, “Reduction in oil production from Russia, if not met by a corresponding increase in production from other producers or demand moderation, will reduce the overall supply relative to demand and may strengthen the crude oil prices.” According to a recent credit rating report by ICRA on Oil and Natural Gas Corporation Limited (ONGC), the latter’s subsidiary OVL’s assets in Russia were impacted due to geopolitical issues and normal operations in these are expected to resume shortly.
GAIL imitates Reliance with US ethane plans
India’s largest gas firm GAIL is imitating billionaire Mukesh Ambani-led Reliance Industries Ltd in planning to import ethane from the US to replace natural gas and naphtha as feedstock at its petrochemical plants “In a bid towards diversification of the feedstock, GAIL is looking to import ethane from ethane-surplus countries with matured export terminal infrastructure through water borne transportation to India and transport it further through GAIL’s pipeline systems to demand centres,” the company said in a tender document. It sought quotes to hire a very large ethane carrier (VLEC) for 20 years starting mid-2026 for importing ethane from the US. The ship with capacity of 80,000 to 99,000 cubic metres is targeted to take deliveries from US ports of Marcus Hook, Nederland, Morgan’s Point or Beaumont and deliver ethane at Dahej or Hazira in Gujarat or Dabhol in Maharashtra. GAIL has a petrochemical plant at Pata, near Kanpur in Uttar Pradesh, and is also looking to set up another unit at Usar in Maharashtra. The company had to cut down on run rate at Pata after the government diverted gas supplies from the plant to city gas suppliers. This led to its profitability being impacted and so now the company is looking to supplement the feedstock with ethane. Reliance had in 2014 announced ethane plans in 2014 and started importing the feedstock from the US in 2017. It is importing 1.6 million tonnes per annum of ethane and is using six VLECs for transporting it to India. With ethane replacing propane and naphtha used in ethylene production, Reliance is estimated to have saved about USD 450 million annually. Ethane is expected to be produced in large volumes in North America due to the shale gas revolution, which has generated an abundance of liquefied natural gas (LNG) and liquefied petroleum gas (LPG). It is primarily used as petrochemical feedstock to produce ethylene by steam cracking. Ethylene is the starting material for making a wide range of products — from packaging films, wire coatings, and squeeze bottles as well as plastics and synthetic rubber.