China Is Importing Less Iranian Crude As It Buys More Russian Barrels
Russian crude oil imports into China have reduced the country’s intake of Iranian crude, Hellenic Shipping News reported, citing data from shipbroker Xclusiv. According to the data, increased Chinese appetite for discount Russian crude has led to a sharp increase in Russian imports but these have increased at the expense of Iranian oil cargos. Xclusive noted that this month demand for all crude from Chinese refineries might decline due to some of them entering scheduled maintenance. Reuters meanwhile reported earlier that Chinese refiners are now competing with Indian peers for Russian ESPO crude—a blend that’s more expensive than the flagship Urals. The report cited unnamed sources as saying India and China were eager to buy as much ESPO for next month as possible, pushing its price higher. India refiners Reliance Industries and Nayara Energy had already managed to book at least five cargos of a total of 33 offered for delivery in April, attracted by the low price. This is a break from normal when Chinese refiners have been the only buyers of ESPO, which Russia ships from its Pacific coast. Reuters goes on to note that most Russian crude is being traded below the price cap set by G7 and the European Union, yet the price chart for ESPO shows that the crude has not traded at $60 or below for at least a year. Its latest price, as of Wednesday, was $71.61 per barrel. In an earlier report this month, Reuters cited cargo-tracking data as suggesting Chinese imports of Russian crude could hit a record this month before potentially declining as Russian tightens production. Data from tanker trackers Vortexa and Kpler, Reuters reported, suggests that Chinese refiners are set to import some 43 million barrels of Russian crude this month, of which 20 million barrels of ESPO.
India’s efforts to avoid a power crisis set to boost LNG imports
India will boost fuel imports after gas-fired power stations were asked to increase output to meet soaring demand during the summer months. Gail India Ltd. will tap the seaborne market to supply state-run power producer NTPC Ltd., which has been asked by the government to run 5 gigawatts of plants to meet peak demand during April and May, according to people familiar with the matter, who asked not to be named as the details are private. NTPC estimates it will require 250 million metric standard cubic meters of the fuel during the two-month period, according to some of the people. An additional 4 gigawatts of capacity run by other companies will also be kept ready to operate if needed. NTPC and a Gail spokesman didn’t immediately reply to emails seeking a comment. India’s government is taking action as harsher-than-expected weather threatens to create a surge in electricity demand. An early onset of hot weather has already pushed power demand to near-record levels, stoking fears of a repeat of the intense heat wave last year. India has already invoked an emergency rule forcing some plants running on imported coal to run at capacity. Nearly 25 gigawatts of India’s gas-fired capacity has been lying underutilized for years, as the electricity is too costly for the competitive market dominated by coal. Bringing these units back shows the extent of the challenge, as the nation is forced to ditch concerns over high prices to meet supply shortfalls. Indian Energy Exchange, the nation’s biggest trading platform,has opened a new window that will allow trade of high-cost electricity produced from gas, imported coal and batteries. NTPC will procure the gas from state-run peer Gail through a long-term purchase contract, the people said. Gail will likely tap the spot LNG markets for meeting NTPC’s demand, one of the people said. India relies on imports for nearly half its gas needs, with fertilizer, transport and industries being the biggest users of the fuel. The nation’s LNG imports declined 14% from a year earlier during the 10 months ended in January due to high prices. Now, with prices softening in the spot market and increased demand from power stations, imports are likely to rise, according to Rajesh Mediratta, chief executive officer at Indian Gas Exchange.
Libya Eyes First Oil And Gas Licensing Round In Two Decades
Libya will be ready to hold an oil and gas licensing round next year, Libya’s state-run oil company chief said at CERAWeek, according to Argus. If Libya does manage to hold a licensing round next year, it would be its first in nearly two decades, and would help Libya reach its production goal of 2 million barrels per day within the next three years. Libya’s crude oil production in January fell to 1.148 million bpd, after averaging 1.153 million bpd in the fourth quarter of last year, OPEC data showed in its latest Monthly Oil Market Report. A report by the African Energy Chamber last month said that Libya’s crude oil production capacity could reach a maximum of 1.8 million bpd by 2024. And that’s even if Libya sees political stability and dual government clashes come to an end. Still, the Libyan Government of National Unity insists that the country could produce as much as 3 million bpd within two to three years. Libya has made some progress in paving the way for boosting gas production, including signing an $8 billion offshore gas deal with Eni, and Eni’s and BP’s exploration drilling plans in the Ghadames and Sirte basins—with offshore drilling planned for next year. Libya’s NOC chief Ben Guadara is adamant that the Eni deal is “just the first step in a long way for more and more investment.” Guadara also spoke of a possible LNG liquefaction plant and a gas pipeline to Egypt with tie-ins to the Idku facility and Damietta terminals, Argus said. Libya’s gas output is currently at 1.3 billion cubic feet per day, with just 250 million cubic feet per day of it able to be exported through the 775 million cubic feet per day Greenstream pipeline, as much of the gas must go to fulfill Libya’s own domestic gas needs.
U.S. Recession Fears Put Oil Prices On Course For Significant Weekly Drop
Fears of a slowdown in the U.S. economy have pressured crude oil prices, setting them for what could end up being their worst weekly performance in five weeks. The slide began on Wednesday and accelerated on Thursday, after Federal Reserve chairman Jerome Powell said the U.S. central bank would continue with its rate hikes as a means of controlling inflation, signaling these hikes will be large and possibly more frequent than the ones deployed so far. “If – and I stress that no decision has been made on this – but if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell told the House Financial Services Committee. That statement had unpleasant implications for the oil market. First, the suggestion that the Fed plans to hike interest rates means the economy is not doing as well as many hoped and might do even worse if faster rate hikes become necessary. Then there is the problem with the hikes themselves, which many fear would make matters worse instead of better, increasing the risk of an actual recession, since the hikes make borrowing more expensive, prompting people and companies to reduce their spending on everything from mortgages to production expansion and consumer goods. A recession would also mean lower demand for oil, so it is no wonder that traders reacted with a selloff after Powell’s statement to Congress, with West Texas Intermediate diving below $80 per barrel and Brent crude sliding to less than $82 per barrel. At the time of writing, Brent was trading at $80.94 per barrel and WTI was trading at $74.92 per barrel. The direction oil prices have taken may yet change later today when the weekly U.S. jobs report comes out, but it looks like whatever bullish news the day might produce would be hard-pressed to reverse the overall weekly decline that the prospect of a U.S. slowdown has spurred.
Europe Set To Raise LNG Imports As Regasification Capacity Jumps
The EU is boosting its LNG import capacity and is ready to welcome even more LNG cargoes this year and in the coming years, Maros Sefcovic, European Commission Vice President for Interinstitutional Relations and Foresight, said on Thursday. The EU will soon have 35 LNG regasification terminals, up from 27 currently, and the regasification capacity is set to increase to 227 bcm from 178 bcm, Sefcovic tweeted today after holding what he described as a “productive” virtual meeting with international gas suppliers. The EU is getting ready for more LNG by reinforcing its import capacity infrastructure, Sefcovic said. Over the past year, Europe has attracted a lot of LNG supply due to the sky-high prices and lackluster demand in Asia, including in China. Europe continues to attract more than half of all U.S. LNG exports, for example, despite the fact that gas prices in Europe have recently slumped to an 18-month low. Europe’s biggest economy, Germany, plans to have as much as 70.7 million tons per year of LNG import capacity by 2030, which will make it the fourth-largest LNG import capacity holder in the world, Argus reported last month, citing plans by the German economy ministry and RWE. Germany may end up using less LNG import capacity than it has planned to roll out this decade, but better safe than sorry, the chief executive of the top German utility, RWE, said in an interview with German business magazines Der Stern and Capital. “It may be the case that the LNG terminals are not fully utilized. But you need them as an insurance premium,” RWE’s CEO Markus Krebber said in the interview published on Wednesday. However, 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, analysts say.
Adani & Reliance Commit 25 Gigawatts Of Renewable Power In India’s Andhra Pradesh
Two of the leading industrial conglomerates in India have committed to set up large scale renewable energy projects in the southern state of Andhra Pradesh. Reliance Industries and the Adani Group have reportedly announced plans to set up a total of 25 gigawatts in the state of Andhra Pradesh over the next few years. Neither shared any details regarding timeline or investment required for this plan. The announcement comes amidst commitments by these and several other industrial groups to expand renewable power capacity across different states. Such commitments are typically made during investor summits organized by state governments. Actual execution of these projects depends greatly on the concessions offered by the state governments. Andhra Pradesh announced a unique policy in 2020 inviting project developers to set up large scale renewable energy projects and export the power to other states. The state government set a target to have 120 gigawatts of solar, wind, and solar-wind hybrid capacity under this policy. The policy was seen as a major shift in the hawkish stance the state government had taken towards renewable energy projects a few years earlier. Following general elections and a change in government, an investigation was launched into power purchase agreements signed by the previous government. The new administration had challenged supposedly high tariffs being paid to project developers. The government had claimed that since solar and wind energy tariffs had fallen sharply over a short period of time it was unreasonable to continue with existing power purchase agreements at older, higher tariffs.
How Russian Oil Bulked Up India’s Exports
India-Russia bilateral trade hit a high of $35 billion in April-December 2022, with $32.8 billion contributed by imports, a 400% jump from $6.5 billion in same period of the previous year. Within imports, petroleum-related products accounted for as much as $27.7 billion, a 700% increase from $3.4 billion a year ago. If foreign trade data of first nine months of FY23 is any indication, Russia is set to become India’s fifth-biggest merchandise trade partner, up from 25th last year. The reason is surge in imports, especially oil, from Russia. In the past 10 years, Russia has been among India’s top 25 trade partners only thrice. The first was in FY18 when it was 23rd with trade of $10.7 billion. In FY20 and FY22, it was 25th, with trade of $10 billion and $13 billion, respectively. In comparison, FY23 is going to be spectacular. The surge is directly linked to Russia’s ongoing war with Ukraine. Russia’s decision to offer crude oil at special rates to bypass economic sanctions of Western governments, and India’s readiness to accept it, have made all the difference. It is the surge in imports of a specific product category, Harmonized System (HS) Code 27, which covers mineral fuels, mineral oils and production of their distillation, bituminous substances and mineral waxes, that has catapulted Russia to the list of India’s top five trading partners. But is Russian impact only limited to imports? “Of the 30 key product sectors, 17 exhibited positive export growth during April-January FY23, which is impressive looking at the current scenario,” says A. Shaktivel, president, Federation of Indian Export Organisations. An analysis of sectors that reported most growth in exports throws light on whether cheaper crude oil from Russia helped India’s value-added petroleum product exports. The latest foreign trade data released by the commerce ministry (detailed country-specific data is available only till December 2022) on February 15, 2023, shows that during April-January FY23, the largest exported commodity was petroleum products at $78.6 billion, up 54.78% from $50.8 billion a year ago. A look at country-specific data for April-December 2022 illustrates this further. India’s exports to Brazil rose 65.7% from $4.7 billion to $7.9 billion. The Contribution of HS Code 27, or petroleum products, rose 339% from 0.86 billion to $3.7 billion. Israel saw 75.9% rise from $3.6 billion to $6.3 billion with petroleum products accounting for $4 billion, a 230% jump from $1.2 billion in same period of the previous year. In case of The Netherlands, Indian exports grew 74.24 % from $8.1 billion to $14.1 billion; petroleum product exports rose 126% from $3.3 billion to $7.4 billion. Similarly, if Indian exports to South Africa rose 47% from $4.6 billion to $6.7 billion, the primary driver was a 191% jump in supply of Indian petroleum products (worth $3.2 billion as against $1.1 billion a year ago). Even a traditional supplier of crude oil to India, the U.A.E. saw India’s exports rise 16.45% from $20 billion to $23 billion, on the back of a 66% jump in value-added petroleum product exports from $3.9 billion in April-December 2021 to $6.5 billion in April-December 2022. The numbers clearly show that value-added petroleum product exports contributed significantly in India’s export performance in an otherwise gloomy global trade scenario during the year. If India has registered an 8.5% growth in exports in FY23 so far, this cannot be attributed to general resilience of its economy but contribution of products classified under HS Code 27. India may keep sourcing more oil from Russia but any upward price revision, including of Russian crude oil, can impact India’s Russian oil advantage both in imports and exports. India’s foreign trade will have a Russian signature in FY23 but that may not be an indication of the country’s larger capability to push exports in a slowing global economy.
OPEC Is Back In Control Of The Oil Market
OPEC is once again the most influential force in global oil supply – and will be so for the foreseeable future – now that U.S. shale production growth is slowing, American industry executives say. The days of exponential growth in U.S. oil supply from before the pandemic are over, as capital discipline, returns to shareholders, supply-chain bottlenecks, cost inflation, and lower well production combine to hold back production increases. During the 2010s, the shale industry boomed as companies drilled all they could – often beyond their means – to boost production. U.S. oil supply was growing so quickly that America was often referred to as the new swing producer on the market, capable of ramping up output quickly when global oil prices and demand were rising. The post-Covid reality is quite different—U.S. shale production is recovering, but at a slow pace, and output hasn’t reached the record levels from late 2019 and early 2020. “The plateau is on the horizon” The U.S. Energy Information Administration estimates in its latest Short-Term Energy Outlook (STEO) from this week that U.S. crude oil production would rise from 11.88 million barrels per day (bpd) in 2022 to 12.44 million bpd this year. The expected growth of 560,000 bpd year over year is half the pre-pandemic growth pace. For several years, U.S. oil production rose by more than 1 million bpd every year to 2019. U.S. oil executives also expect just 500,000 bpd growth this year, some said at the CERAWeek energy conference in Houston this week. Growth is set to further slow in 2024, with production seen to average 12.63 million bpd next year, per EIA estimates. That’s less than 200,000-bpd growth from the estimated average level for 2023. “The plateau is on the horizon,” ConocoPhillips’ CEO Ryan Lance said at CERAWeek, as carried by the Financial Times. The U.S. oil industry is now prioritizing shareholder returns, despite criticism from the White House. Faster depletion rates at many wells combine with labor and supply chain hurdles to hold back growth. Related: Exploding SUV Market Is Another Big Boost For Oil Demand Chevron, for example, flagged at its investor day last week that it fell short of its performance targets in the Delaware basin in the Permian “primarily due to higher-than-expected depletion after completing long-sitting DUCs.” OPEC Market Share To Surge As U.S. production growth stalls, OPEC’s market share and clout over global oil supply will only rise. The cartel, led by its biggest Arab Gulf producers, is in control of the markets now, shale executives say. “The world is going back to what we had in the ‘70s and the ‘80s unless we do something to change that trajectory,” ConocoPhillips’ Lance told delegates at CERAWeek. According to the executive, OPEC’s market share will jump from around 30% now to close to 50% in the future, in which additional supply comes from OPEC and U.S. shale growth plateaus. Scott Sheffield, CEO at the largest pure-play shale producer, Pioneer Natural Resources, told FT on the sidelines of CERAWeek, “I think the people that are in charge now are three countries — and they’ll be in charge the next 25 years.” “Saudi first, UAE second, Kuwait third.” Saudi Arabia, the United Arab Emirates, and Kuwait all plan to raise their oil production capacity this decade. And they are set to meet a growing share of global oil demand now that U.S. shale cannot and does not want to respond with higher production. “The shale model definitely is no longer a swing producer,” Sheffield told FT earlier this year. The market is now back in the hands of OPEC, but the cartel alone cannot meet all the expected growth in demand. OPEC Warns Underinvestment Will Lead To Supply Crunch Sure, the biggest OPEC producers in the Middle East are investing to boost capacity, but production elsewhere is either shrinking or stalled, while investment in supply has been underwhelming for years, OPEC officials say. Increasing capacity and supply is “a global responsibility that OPEC cannot shoulder on [its] own,” OPEC Secretary General Haitham Al Ghais said in Houston. The oil industry needs a lot more investments just to keep supply at current levels. OPEC may be doing its part, also in view of raising its market share and influence over the oil market. But few other producers are doing anything, as firms other than the national oil companies (NOCs) of OPEC are put off by continued mixed messages from policymakers about the future of the oil industry in a world chasing net-zero emissions. Investment in oil and gas needs to rise significantly if the world wants to avoid sleepwalking into a supply crisis, OPEC officials have been warning for years. Unless investments rise, “I am afraid we will have issues for energy security and affordability,” OPEC’s Secretary General Al Ghais said this week. Al Ghais also met in Houston with top U.S. shale executives to discuss global oil supply and the tight global spare capacity. Suhail Al Mazrouei, the UAE’s Energy Minister, told Bloomberg TV last month, “I’m not worried about demand — what worries us is whether we are going to have enough supplies in the future.”
India needs to cut green hydrogen production cost to one-third to be able to meet Green Hydrogen goal by 2030
The Indian government must help cut the cost of Green Hydrogen production to as low as one-third of the current costs, in order to make the industry competitive with other energy sources. It is important that the government take measures to bring down the cost of production from $3-6 per kg currently to less than $2 per kg, Crisil said in a note today. Further, India will need a combination of technological advancements and regulatory support to boost cost competitiveness in order to compete with other energy sources and to accelerate the government’s National Green Hydrogen Mission, the report said, adding that the industry has the potential to transform India from being a net importer of energy to a net exporter in the long run. While it’s not easy to be able to replace other energy sources with green hydrogen, oil refineries and fertiliser companies could be early adopters of green hydrogen. Oil refineries already use grey hydrogen to cut sulphur in fuel, and fertiliser companies use it to make ammonia. Oil refineries are the best bet since hydrogen constitutes less than 10 per cent of the total cost and so, moving to green hydrogen will not affect the production cost drastically. However, for use in fertiliser companies, it will require a bit more adjustments. “Considering the historical long-term average price of natural gas, the cost of grey hydrogen could average $2-2.5 per kg, significantly below $3-6 per kg for green hydrogen. Thus, in the absence of demand mandates, prospective customers may think twice before signing long-term contracts for offtake of green hydrogen,” said Naveen Vaidyanathan, Director, CRISIL Ratings. Since the adoption of green hydrogen is not much or a problem than the cost associated with it and the cost it will add to overall production, CRISIL report said, bridging the cost differential by reducing the cost of renewable power generation and electrolysers will prove to be key to its faster adoption. Renewable energy prices in India account for 50-65 per cent of the total cost of green hydrogen and it may have to decline from Rs 2.6-3 per unit at present to below Rs 2 per unit, the report said. Further, in addition to the already announced waiver on inter-state transmission charges, a waiver of energy banking as well as transmission and distribution charges will help in cost reduction.
A year after the Ukraine invasion, oil market much changed
A year after Russia’s invasion of Ukraine, the oil market has become more fragmented and uncertain, a dynamic expected to boost crude prices over the long term. Condemnation of Russia by Western governments has essentially severed Europe from Russian supplies, leaving it more reliant on the Middle East and the United States. That shift means cheaper Russian energy imports for China and India, while countries that refuse to buy Russian crude must pay a premium to import from other suppliers. The oil market “is radically different in some ways than it was before the invasion of Ukraine,” said Jim Burkhard, head of research for oil markets, energy and mobility at S&P Global Commodity Insights. A “true global market” with open competition “doesn’t exist anymore,” said Burkhard, who calls the current state of the market “partitioned.” With the addition of Russia to the list of sanctioned countries alongside crude exporters Iran and Venezuela, almost 20 percent of global supply is cut off from major markets, including the United States. “Oil is priced based on its origin, as opposed to its quality,” Burkhard said. The balkanization of the market also affects crude tanker routes. The ban on Russian oil by Europe forces Moscow’s exports to travel further to reach buyers. “That means more miles traveling in the water,” Torbjorn Tornqvist, co-founder of the Gunvor Group, a trading company, said at the CERAWeek energy conference in Houston. “Ship rates have been very elevated and have stayed elevated.” Since the invasion, “we have seen a fundamental shift that is unlikely to revert anytime soon,” said Jose Fernandez, undersecretary for economic growth, energy and the environment at the State Department. Many expect lasting changes. “What I think will last very long is the fundamental distrust and the fundamental decision to not depend on Russian energy for a very long time in Europe,” said Eirik Waerness, chief economist at Equinor. “That will have long-term implications.” A ‘tight’ market – The flux in the wake of the Russian invasion has also strengthened the position of the Organization of the Petroleum Exporting Countries. Burkhard said Saudi Arabia’s spare capacity continues to give the exporters group unique clout. But the situation has changed significantly compared with late 2016 when the Vienna-based cartel began coordinating policy with Russia. “Russia today cannot really manage its production because it faces sanctions,” leading to production below Russia’s quota under the “OPEC+” policy, Burkhard said. “OPEC is still very important, but OPEC+ right now is not what it was before the war,” he said. The United States’ role on international markets has also been reinforced. The world’s biggest oil producer, the United States last week set a new record for crude exports of 5.6 million barrels per day, almost twice the level in 2021. Still, US production has not returned to its pre-pandemic level. Key factors that have weighed on output include the strategy of US shale producers to use excess cash to bolster balance sheets rather than increase capital spending; and shortages of key oilfield materials and personnel. “The volumes continue to increase, but they could probably have increased even more,” Waerness said of the United States.