Russia Could Seek Compensation Over Nord Stream Sabotage
Russia could demand compensation for damages over the sabotaged Nord Stream gas pipelines in the Baltic Sea, a senior Russian diplomat told Russian news agency RIA Novosti in an interview. “We do not rule out raising the issue of compensation for damages as a result of the explosion of the Nord Stream gas pipelines,” Dmitry Birichevsky, Head of the Economic Cooperation Department at the Russian Foreign Ministry, was quoted as saying. The official did not specify with whom Russia would seek compensation. Russia will continue to insist on an investigation into the blasts that involves Russian representatives, Birichevsky said, adding that the “Western countries are actively sabotaging work” on a Russia-proposed draft UN resolution calling for an independent investigation. The Nord Stream pipelines were sabotaged in late September in still unexplained circumstances. Nord Stream 1 was carrying gas from Russia to Germany via the Baltic Sea, while Nord Stream 2 was never put into operation after Germany axed the certification process following the Russian invasion of Ukraine. Russia, for its part, shut down Nord Stream 1 indefinitely in early September, claiming an inability to repair gas turbines because of the Western sanctions. Various investigations into the Nord Stream explosions continue amid accusations from Russia that some Western intelligence services are “hiding something.” Sweden’s refusal to share information about the sabotage of Nord Stream is “puzzling,” and withholding the results of the investigation means that “Swedish authorities are hiding something,” Russia’s Foreign Ministry spokeswoman Maria Zakharova said in January. Last month, Russia called for an international investigation into the sabotage of Nord Stream after a U.S. investigative journalist wrote that the United States was behind the explosions of the gas pipelines. Russia does not expect that findings on the Nord Stream blast investigations will be made public, Russia’s Foreign Minister Sergei Lavrov said last week.
Saudi Aramco To Build $10 Billion Refinery And Petrochemical Complex In China
Saudi Aramco plans to build a $10-billion refining and petrochemical complex in China over the next three years, taking advantage of the country’s growing demand for energy. The complex will have a capacity of 300,000 barrels of crude daily, Aramco said in a news release. The Saudi major will supply 201,000 barrels per day to the facility. The project will be carried out in partnership between Aramco and two Chinese companies. Construction works should begin in the second half of this year, with the project scheduled for completion in 2026. “This important project will support China’s growing demand across fuel and chemical products. It also represents a major milestone in our ongoing downstream expansion strategy in China and the wider region, which is an increasingly significant driver of global petrochemical demand,” said Aramco’s head of downstream, Mohammed Al Qahtani. The news follows another report, from December last year, that said Aramco had struck a deal with China’s Sinopec to build a 320,000-bpd refinery and petrochemical cracker in China, highlighting the latter’s major role in global oil consumption yet again. Refining and petrochemical investments have been a priority for Aramco as it seeks to secure long-term demand for its main product, even as it expands local refining capacity as well. According to the International Energy Agency and other forecasters, a bet on petrochemicals is a good long-term bet in the oil industry amid expectations of a decline in oil demand for transport fuels. Indeed, the IEA has projected that petrochemicals will account for more than a third in oil demand growth by 2030, rising to 50% of demand by 2050 as transport electrifies. If the expected global transport electrification does not take place on the expected scale, however, this higher demand for petrochemicals will simply be added to total oil demand, including for transport fuels. China is the most obvious destination for new petrochemical projects: the country is the world’s largest crude oil importer and one of the top three consumers of the commodity.
Russia may have found buyers for its oil but aging tankers pose a new risk
The oil tanker Turba normally should have been melted down by now. The 26-year-old vessel hasn’t had a full inspection since 2017, according to a database dedicated to promoting safe shipping. It also lacks industry standard insurance and sails under the flag of country with a poor standing for the oversight of maritime safety. But rather than being steered onto a beach in Bangladesh, India or Pakistan for dismantling, the 1997-built tanker is collecting heavy fuel at the Russian port of St. Petersburg. The aftermath of European Union sanctions on Russia mean that the Turba has been enlisted into a vast shadow fleet carrying Moscow’s oil around the globe. Its continued operation is a stark reminder that Group of Seven sanctions on Moscow carry an environmental risk. The big concern is that some older vessels — the global fleet is now the oldest in almost two decades — may not be properly inspected and maintained, leading to a catastrophic accident at sea. “They’re an environmental disaster waiting to happen,” said Lars Barstad, chief executive officer of the management unit of Frontline Plc, one of the largest owners of supertankers. In normal times, owners start to consider demolishing tankers when they’re about 15 years old. By year 20, the ships’ fate — to be sold for scrap — is usually sealed. Right now, though, shipowners are squeezing a few more years out because there’s money to be made. The sanctions imposed Dec. 5 are forcing vessels to sail thousands of miles further, boosting demand and freight rates. Inspections At least 40 vessels hauling Russian oil to China and India between early December and early February lacked insurance from members of the International Group of P&I clubs or routine safety-management certificates, according to data from Equasis, the maritime safety database. Three, including the Turba, didn’t have something called classification that would demonstrate how seaworthy they are. The Turba brings up uncomfortable memories of one of the worst oil spills from a tanker in European history. The tanker Prestige broke in half and leaked thousands of tons of heavy fuel oil onto the coast of Spain in November 2002. Seabirds and fisheries were decimated, and beaches in Spain and Portugal were ruined. The Turba is the same age as the Prestige was, and it just collected the same type of cargo from the same Russian port, according to data from Kpler, a shipping analytics firm. Russia’s Ministry of Transport, the nation’s Federal Agency for Maritime and River Transport, and Rosmorport, an entity that oversees port infrastructure, didn’t respond to emailed requests for comment. Spain’s merchant navy pointed out that it cannot control activity outside its territorial waters. Good Reasons There are sound reasons for scrapping tankers by the time they’re 20. Often, it’s about the cost of trying to keep them in service as safety and maintenance requirements become more onerous. But there is also the effect of years of pounding waves, saltwater corrosion and near-constant use that place a strain on hull integrity and propulsion systems. Tankers normally receive inspections — known as special surveys — about every five years. By the fourth time around, the economics of continuing to trade diminish sharply. The surveys can cost $3 million to $4 million for big tankers, and they will then require an intermediate inspection about 2 1/2 years later. Port authorities also tend to scrutinize older ships more closely. The increased expenses, and the lack of customers, would — in normal times — encourage owners to sell them for scrap. “Everything needs looking at — steel, engine,” said Halvor Ellefsen, a shipbroker at Fearnleys Shipbrokers UK Ltd. who’s worked in the industry for almost four decades. “The older they are, the more they find.” European Cutoff The EU, for years the top buyer of Russian oil, banned almost all seaborne exports from its one-time trading partner and joined the G-7 in capping the price of Moscow’s crude at $60 a barrel. It’s still possible to transport Russian oil at prices above the threshold but not with Western services such as insurance, crewing, vessel classification, financing and transport. The net effect has been an increase in long-distance deliveries to Russia’s big remaining markets in Asia and the creation of a shadow fleet of tankers operating outside the sphere of G-7 companies. The traders and shipping firms doing these deals often have opaque ownership structures. Last year saw a surge in sales to unknown buyers, with 100-plus oil and fuel tankers changing hands. Over the same period, there also was a sharp decline in the number being scrapped, according to Clarkson Research Services Ltd., a unit of the world’s oldest shipbroker. Some of the aging ships are transferring their hazardous cargoes on the high seas, often in international waters off Greece or the Spanish exclave of Ceuta in north Africa. “This is a huge environmental risk,” said Adi Imsirovic, a veteran oil trader who’s now director of the Surrey Clean Energy consultancy. “Tankers that should have been scrapped by now are doing loads of ship-to-ship transfers of millions of barrels of oil without proper insurance.” The Turba recently transported Urals — Russia’s flagship crude grade — to India and loaded heavy fuel oil in the port of St. Petersburg, according to Kpler. If it sails to Asia, it will involve navigating the Baltic Sea and passing several European coastlines. The Aframax-class vessel’s owner is Scoot Chartering Corp., which is registered in the Seychelles, according to IHS Maritime data compiled by Bloomberg. Its last class renewal survey was in 2017. Its class was withdrawn by Bureau Veritas in 2021, the Equasis database shows. High Risk Half-a-dozen tanker brokers and owners said they didn’t have a means to contact Scoot, which doesn’t appear on a Seychelles corporate register. The tanker flies the flag of Cameroon, one of a handful of blacklisted countries under something called the Paris MOU, an international organization that promotes and coordinates safe shipping. It’s the only blacklisted nation that also has a
India considers strategic LNG reserve to avoid future shortages
India is considering building a strategic reserve of liquefied natural gas to guard against future price spikes or supply shortages after last year’s energy crisis, according to a senior executive at the nation’s top importer. The government has “proposed we should have more storage space for LNG so that when prices are lower we should store, and supply when there is crisis,” Vinod Kumar Mishra, finance director at Petronet LNG Ltd., said in an interview. “We have seen the crisis and it was difficult for the government also to ensure supply.” India curbed LNG imports last year after Russia’s invasion of Ukraine upended the market and sent prices surging. While Prime Minister Narendra Modi’s administration aims to more than double the share of gas in the country’s energy mix, high prices have proved a deterrent for some industries. More governments are looking to set up emergency stockpiles of LNG, similar to the oil industry’s strategic reserves, as the super-chilled fuel becomes a more important element of the global energy mix. Japan — one of the world’s top buyers — said last year that it is considering a similar plan. While no storage targets have yet been discussed, Petronet is adding more tanks at its LNG import terminals to store the imported fuel and is working on a floating import plant in the eastern state of Odisha, Mishra said. Long-Term Deals Last year’s crunch is also prompting Indian buyers to hunt for long-term supply deals, which ensures deliveries to customers at more stable prices, Mishra said. Some of these deals are likely to be sealed in 2023, he said. Petronet is in talks with Qatar to renegotiate its 7.5 million tons-a-year contract that expires in 2028. The New Delhi-based company is looking to expand the contract by as much as 1 million tons, according to Mishra. Still, a recent drop in spot prices — down roughly 80% from August — is reviving demand in purchases for prompt delivery, said Mishra. Prices will need to fall to about $6 to $7 per million British thermal units to accelerate purchases, he added. The Asian spot benchmark closed above $12 on Friday, according to traders. “India’s market is price-sensitive,” said Mishra. “It is not dependent on one kind of fuel. It can switch to any fuel that is cheaper.” ©2023 Bloomberg L.P.
Spain Calls On Importers Not To Sign New LNG Deals With Russia
The Spanish government has urged importers of liquefied natural gas not to sign new deals to purchase Russian LNG as the biggest buyer of Russia’s LNG in Europe looks to reduce dependence on Moscow’s gas, sources familiar with the matter told Bloomberg on Friday. The government of Spain, via Deputy Prime Minister Teresa Ribera who is responsible for the country’s energy policy, sent a letter in the middle of March to Naturgy Energy, Repsol, TotalEnergies, Pavilion Energy, Enagás, Met Energy, Enet Energy, Energias de Portugal, Compañía Española de Petroleos, and BP Gas & Power Iberia, urging them not to sign new contracts, according to the letter seen by Bloomberg News. The plea is not binding because there are no sanctions on Russian gas in Europe, but the letter anyway calls on the LNG importers to “intensify the diversification of supply of liquefied natural gas and do without those from Russia.” Earlier this month, EU Energy Commissioner Kadri Simson urged all EU member states and all companies not to sign new LNG import contracts with Russia. The European Union has managed to significantly cut its imports of Russian pipeline natural gas over the past year, but now it should stop all LNG imports from Russia, Simson said. Since September 2022, when Russia cut off deliveries via Nord Stream before the pipelines were sabotaged later that month, Russian gas has accounted for some 8% of all pipeline gas imported into the EU. Norway has replaced Russia as Europe’s top pipeline natural gas supplier. While pipeline supply from Russia has slowed to a trickle, Europe has raised imports of LNG, including LNG from Russia. Russia’s LNG supply to Europe jumped by around 20% last year from 2021, according to Refinitiv Eikon data cited by Reuters. All Russian LNG exports rose by 8.6% in 2022 to around 45 billion cubic meters, more than half of which went to Europe, per Refinitiv Eikon’s data.
Banking Crisis Has Triggered Capital Flight From Oil To Gold
The sudden collapse of Silicon Valley Bank has sent shockwaves through the entire financial sector and marked the biggest bank failure since the 2008 financial crisis. Being the only publicly traded bank focused on Silicon Valley and startups for four decades, the swift collapse has particularly rattled the venture capital community and left climate tech startups in a crisis. But the energy markets have not been spared, with oil prices crashing to multi-year lows following the ensuing banking crisis. Oil prices crashed spectacularly, with WTI crude falling from $80.46 per barrel just 10 days prior to the $67 range, while Brent declined from $86.18 per barrel to the $73 range, levels they last touched in December 2021. Commodity analysts at Standard Chartered warned that the oil price crash had been exacerbated by hedging activity–specifically, due to gamma hedging effects, with banks selling oil to manage their side of options as prices fell through the strike prices of oil producers put options and volatility increases. The negative price effect has been exacerbated because the main cliff-face of producer puts currently occupies a narrow price range. And now the latest Commitment of Traders (CoT) report published by the Commodity Futures Trading Commission (CFTC) has revealed where that oil money flowed to. Commodity analysts at Standard Chartered have combined the CoT data with the equivalent Intercontinental Exchange (ICE) data and found that there was heavy selling of crude oil and gasoline, combined with a rapid move by funds into precious metals four days after the collapse of Silicon Valley Bank but six days before Brent hit a 14-month low of USD 70.12 per barrel. Indeed, silver and gold saw a net increase in long positions while all other classes of crude and crude products apart from heating oil and natural gas saw a net increase in short positions. During that period, money-manager net selling across the four main Brent and WTI Contracts hit a staggering 128.1 million barrels (mb) in the week to 14 March. Meanwhile, StanChart’s crude oil positioning index fell 41.6 w/w to -67.0, the largest single-week decline in six years, while its gasoline positioning index fell by 36.4 to -6.6, marking the first time it had turned negative in 20 months. Not surprisingly, gold prices have jumped nearly 9% since March 10, and now sit at $1,995/Oz, not far from the all-time high while silver prices have rocketed over 16% to trade at $23.35/Oz. Banking Fears Linger Previously, StanChart analysts had said that the unwinding of speculative length appears to be complete at this juncture, thus lowering selling pressure, but had warned that prices might retest the lows if the FOMC hikes its policy rate by more than the widely expected margin of 25bps. The markets have successfully scaled that wall of worry after the Fed’s hike on Wednesday came in-line with expectations. The Fed also indicated that the current rate hike cycle is nearing an end. StanChart expects last week’s gamma effects to reverse course with banks buying back positions thus reinforcing the short-term rebound. Beyond that, StanChart says oil prices will largely be dictated by OPEC’s and consuming countries’ strategic inventory policy shifts. The commodity experts are bullish that the path of least resistance for oil prices at this point is higher, not lower. Yet oil prices, after a brief rebound, continue to face significant selling pressure, with both WTI and Brent crude down 2.5% on Friday’s intraday session. Apparently, banking fears are far from over and this situation could linger for a while. The market appears to be reacting to some other unfolding banking drama whereby shares of Germany’s Deutsche Bank have plunged 11% on Friday after its credit default swaps started pushing higher. Credit swaps are used for insuring the bank’s debt against the risk of default, and rising rates means the market thinks the risk of DB defaulting is rising. DB’s woes have put the European banking sector in reverse gear, taking down with them shares of Barclays, BNP Paribas, UBS and Societe Generale. “Underlying sentiment is still cautious and in this environment no one wants to go into the weekend risk-on,” Nordea chief analyst Jan von Gerich has told Reuters. This comes despite European Central Bank President Christine Lagarde reassuring EU leaders that the euro area banking sector was resilient due to strong liquidity positions, ample capital and post-2008 reforms. She also said the ECB toolkit was ready to provide liquidity to the financial system if the need arises. The bigger question here is whether the recent spate of bank failures and crises, including the sudden collapse of Silicon Valley Bank and liquidity crisis at banking giant Credit Suisse, can be written off as “idiosyncratic” events or mark the unfolding of another global financial crisis. Right now the markets remain jittery and don’t appear to know what to make of the entire saga. But as UBS Wealth chief investment officer Mark Haefele has said, the swift action by the FDIC to guarantee deposits and by the Fed to lend to banks that require funds will solve liquidity-related risks for U.S. banks and also for the U.S. branches of foreign banks.A week ago, we witnessed another rout for mid-cap regional banks stocks, before reports emerged that big banks would come to their aid. The SPDR® S&P Regional Banking ETF (NYSE:KRE) has crashed more than 25% since the SVB snafu, but appears to have stabilized lately. That suggests that energy markets could also quickly recover after the dust settles.
Natural Gas Prices See Yet Another Weekly Decline
Natural gas prices are up on the day, but they are once again down on the week—the third week running—as unseasonably warm weather dampened prospects for one more demand push in the United States. Natural gas prices were trading up on the day to $2.191 (+1.81%), but prices week to week are down. Natural gas started the week at $2.365 per mmBtu, but prices have been falling since the first few days of March, and this week marks the third straight week of weekly declines. Both April and May gas contracts were down on the week. The natural gas prices are a shell of what they were last August when they were trading at around $10 per mmBtu. While the prices eased closer to the end of the year, the high prices stuck around for all of 2022, before sinking this month into $2 territory. U.S. working gas in storage levels are high—36.1% above the year-ago levels, according to the EIA’s latest Weekly Natural Gas Storage Report for the week ending March 17, and 22.7% above the five-year average. The biggest jumps in natural gas inventories were seen in the South Central and Midwest regions. “Looking ahead to April, the latest forecasts indicate around 370 total degree days for the month,” analysts from Tudor Pickering and Holt analysts said. This is 17% below the five-year average. The “focus continues to shift gears to the latest in power burn, with demand continuing to outpace norms this week (plus-3.7 Bcf/d versus the five-year average), but moderating relative to month-to-date results (plus-4.3 Bcf/d versus the five-year average),” TPH said, according to naturalgasintel. Last year at this time, natural gas prices were trading at $5.611 per mmBtu.
India stands to benefit with softening of oil prices
World oil prices have been moderating in recent weeks, thereby deepening the softening trend that began in mid-2022. After reaching a peak of 124 dollars per barrel last June, prices have slowed down gradually to around 100 dollars in the second half of the year. For the past few months, however, crude oil had been ruling at 85 to 90 dollars per barrel. It has dipped even further in recent weeks with the benchmark Brent crude being brought down to less than 75 dollars per barrel. This is a rare bit of good news on the hydrocarbons front for the Indian economy which relies for 85 per cent of its fuel needs from abroad. It is bound to ease worries as the exchequer has been faced with a rising oil import bill over the past two years. After the sharp fall in demand during 2020 due to Covid, prices began to harden in 2021. The oil cartel OPEC, which joined hands with other major oil producers like Russia to become OPEC Plus, also ensured that supplies were curtailed leading to oil prices ruling at around 70 to 80 dollars per barrel. As a result, the cost of oil imports nearly doubled in fiscal 2022 to 119 billion dollars compared to 62 billion dollars in fiscal 2021. The situation altered suddenly, however, last February following the Ukraine war. Oil prices skyrocketed to 130 dollars but then moderated to around 110 dollars per barrel. This has become a heavy burden for a country so greatly reliant on imported fuel supplies. Latest estimates are that oil imports for the first six months of fiscal 2023 will cost as much as 90 billion dollars. Had prices remained at such high levels for the rest of the year, the bill could have potentially risen to 180 billion dollars. The moderation in prices in the second half of 2022-23 was largely due to the stringent zero-Covid policy in China that created an economic slowdown and consequent fall in demand from the world’s biggest crude oil importer. In addition, fears of recession due to aggressive monetary tightening by central banks globally roiled markets. For India, the situation would have worsened last year but for the availability of Russian oil that was purchased at a considerable discount to global prices. When supplies began to be sourced from Russia, it was offering crude oil 16 dollars cheaper than the then average price of 110 dollars per barrel. The discounts continued since then ranging from eight dollars to 12 dollars per barrel. India is also reported to have bought Russian crude at prices lower than the 60 dollars per barrel cap set by western countries. The net result is that the country has saved over three billion dollars by buying more Russian oil. As for the continuing fall of oil prices in recent weeks, it is mainly due to worries over bank failures creating a ripple effect after the collapse of Silicon Valley Bank. It was followed by crash in stocks of the flagship Swiss bank Credit Suisse, which has since been taken over by another Swiss bank, UBS. Even so, contagion fears persist and they are creating ripples in oil markets. The big question now for consumers is whether cuts can be expected in retail prices of petroleum products like petrol, diesel and cooking gas. It looks as if they may wait in vain as oil marketing companies that purchase imported crude did not hike rates last year when world prices shot up. Instead, they absorbed the losses and continued to supply products at the same rate. There was an effort to moderate retail prices and contain inflationary pressures by cutting excise duties on products in May. But now that oil prices have fallen and oil companies are making some profits, these will be used to recoup past losses. These losses are sizable, judging by latest reports of companies like Indian Oil Corporation, HPCL and BPCL. They incurred losses is estimated at Rs. 212.01 billion from April to December 2022. There will also be other economic benefits to the decline in international prices, including easing of inflationary pressures and strengthening of the rupee. In addition, a lower oil import bill will reduce pressure on the exchequer and enable the Finance Minister to keep the fiscal deficit within the budgetary target of 6.4 per cent for fiscal 2023. Going forward, dire predictions have been made by several investment banks about oil prices climbing to 100 dollars per barrel by the end of the year. These are, at best, informed guesses about the state of international oil markets. Even Goldman Sachs has just revised its projections downwards to 94 dollars. Given what has happened over the past year, forecasting oil price movements is an extremely risky venture. Few would have anticipated the outbreak of a war in Europe that pushed up prices to stratospheric levels. Neither would the sudden slowdown in China have been a possibility considered by any forecaster for the latter half of the year. For the time being, Indian policymakers can rest easy in the expectation that lower global oil prices are a reality at least for the near and medium term.
Cabinet to consider price caps on gas to stave off rates rising to USD 10.7 per mm
The Union Cabinet is likely to soon consider imposing caps or a ceiling on price for majority of natural gas produced in the country to keep input costs for users ranging from CNG to fertilizer companies in check, sources said. The government bi-annually fixes prices of locally produced natural gas — which is converted into CNG for use in automobiles, piped to household kitchens for cooking and used to generate electricity and make fertilisers. Two different formulas govern rates paid for gas produced from legacy or old fields of national oil companies like Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL), and that for newer fields lying in difficult to tap areas such as deepsea. The global spurt in energy prices post Russia’s invasion of Ukraine have led to rates of locally produced gas climbing to record levels – USD 8.57 per million British thermal unit for gas from legacy or old fields and USD 12.46 per mmBtu for gas from difficult fields. April 1. Going by the current formula, prices of gas from legacy fields are slated to climb to USD 10.7 per mmBtu with minor changes in rates for gas from difficult fields, two sources with knowledge of the matter said.