Russia’s Rosneft signs deal to boost oil supplies to India
Russia’s largest oil producer Rosneft and India’s top refiner Indian Oil Corp have signed a term agreement to substantially increase oil supplies and diversify oil grades delivered to India, Rosneft said on Wednesday. The deal was signed during a working trip to India by Rosneft CEO Igor Sechin, the company said. Igor Sechin, Chief Executive Officer of Rosneft Oil Company, during his India visit met with officials from the Indian government, as well as with the heads of some of the country’s largest oil and gas companies. During the trip, Rosneft Oil Company and Indian Oil Company signed a term agreement to substantially increase oil supplies as well diversify the grades to India. Igor Sechin, CEO of Rosneft Oil Company, and Shrikant Madhav Vaidya, Chairman of Indian Oil Corporation Ltd., signed the agreement. They also discussed ways of expanding cooperation between Rosneft Oil Company and Indian companies in the entire value chain of the energy sector, including possibilities of making payments in national currencies. Rosneft CEO also discussed ongoing implementation of joint projects between Rosneft and its Indian partners, including Sakhalin-1, Taas-Yuryakh and Vankorneft. Driven largely by a surge in oil imports, Russia has emerged as one of the top 5 trading partners of India. Indian companies (ONGC Videsh Ltd., Oil India Limited, Indian Oil Corporation, and Bharat Petroresources) have been owners of 49.9% of the Rosneft’s subsidiary JSC Vankorneft since 2016. This company is located in Krasnoyarsk Territory and develops the Vankorskoye oil and gas condensate field, one of the biggest fields discovered and brought on stream over the last 25 years in Russia. A consortium of Indian companies (Oil India Limited, Indian Oil Corporation and Bharat Petroresources) also owns 29.9% of Taas-Yuryakh Neftegazodobycha, which develops the Central Block and the Kurungsky license block of the Srednebotuobinskoye field which is among Rosneft’s largest assets in Eastern Siberia.
Cheap Oil Is Fueling Economic Development In Asia
The collapse of Silicon Valley Bank and Signature Bank shook up the U.S. banking system, possibly more strongly than news reports and government officials made it sound. A run on banks was barely avoided, and far from everyone believed Treasury Secretary Janet Yellen when she said the system was safe and sound. And oil prices took a dive. Fears of more trouble in the U.S. banking sector—and in the European one, after UBS had to take over Credit Suisse to save it—are still gripping markets. Reinforcing expectations of an economic slowdown, these fears have served to lower oil prices despite fundamentals that suggest prices should be higher. And when oil prices are lower, poorer economies benefit. The Wall Street Journal reported this week that while the Fed, the European Central Bank, and the Bank of England are all still in rate-hiking mode, central banks in Southeast Asia have either stopped monetary tightening or are preparing to wrap it up. The report cited India, Malaysia, Indonesia, and the Philippines as examples and went on to note that in the past three months, oil prices have shed some 10 percent and are also down by about 38 percent since last year’s peak. With the economies of Southeast Asia largely insulated from any potential fallout in case of a banking crisis in the West, they are likely to outperform developed ones, the report suggested, even though the most export-oriented among them would likely suffer adverse effects in case of a greater slowdown in Western growth. Asian developing economies, in other words, are about to outperform the developed ones—because they have access to cheaper oil, partly because of the West’s sanctions on Russia and partly because of that same West’s banking troubles. In the West, meanwhile, governments are focusing on reducing the demand for oil and gas by planning massive buildouts of wind and solar power. These buildouts will cost billions, and building the supply chains for them will also cost billions because both Europe and the United States are starting more or less from scratch since China dominates current supply chains. Speaking of China, the Asian powerhouse is set to be one of the biggest winners from the current situation. It is the world’s largest oil importer, and any downward trend in prices is good for it. China also has a 5-percent growth target for this year, and while analysts have called that disappointing, it is only disappointing compared to Chinese growth in previous years. Compared to growth rates expected in the EU this year, for example, China’s target is huge. Brent crude is currently trading at less than $78 per barrel as of the time of writing. West Texas Intermediate is close to $70 a barrel. While fears of a banking meltdown seem to have started to subside, it will be a while before this affects prices. In confirmation of that, Reuters; John Kemp reported earlier this week that hedge funds are dumping oil futures and other contracts at the fastest rate in six years in anticipation of a credit crunch and a consequent recession. It is these fears of a recession in the West that will be harder to shake off. Some analysts argue that the recession is already here. Others prefer to debate definitions and whether a recession is indeed such a bad thing. While this goes on, however, fears and economic growth trends will continue pressuring oil prices until supply tightens palpably, which most analysts seem to expect to happen in the second half of the year. Because of the tightening oil supply, prices will inevitably start rising at some point, and they may well rise considerably. Until then, however, the developing nations of Asia could stock up on more affordable crude to help power their economies.
Gas retailing in Indian cities needs fewer but bigger players
Natural gas retailers in India, the world’s fourth-biggest LNG buyer, need consolidation to bring economies of scale, according to a top official of a gas supplier. “There is a lot of global interest,” Hardip Singh Rai, chief executive officer of Think Gas, told Bloomberg Television in an interview. “When any upstream player looks at where do we go to really benefit from growth in the gas market, India is the place where everyone is looking,” Rai told Bloomberg’s Haslinda Amin and Yvonne Man Wednesday. The city gas distribution sector has been expanding at a fast pace. There have been some new initiatives, including the government’s priority to supply cheaper gas to households, fuel stations and industries in cities to meet Prime Minister Narendra Modi’s goal of raising the share of gas in India’s energy mix to 15% by 2030 from 6%. There are some four dozen players, against just half a dozen operators supplying diesel and gasoline to retail outlets. India is one of the largest potential market for gas across the globe, Rai said. The sector consolidation will ultimately happen, but regulatory restrictions could limit the momentum, he said. Established by private equity firm I Squared in 2018, Think Gas operates across 13 districts in India, spread over five states. I squared Capital is planning to sell about 30% in the gas distributor, which may value the firm at more than $1 billion, people familiar with the matter said earlier this month. India’s gas demand is likely to get a boost this year on the back of planned expansions in gas pipeline infrastructure, regulatory changes and a decline in gas prices, Rai said.
The centrality of CGD in India’s natural gas story: A perspective
India is on track to become the world’s third-largest economy by 2030 with a projected annual average growth rate of 6-7 percent. Energy sector will be central to this trajectory. In this context, India’s gas story has been one of tremendous — and yet untapped — potential. On the heels of a rapid increase in 2011 and 2012, when the country used 160 million metric standard cubic meters per day (MMSCMD), gas consumption slowed quite a bit to a low of 124 MMSCMD in 2015 amid a decrease in domestic production and unaffordability of regasified liquefied natural gas (RLNG). But over the past seven years, the trend reversed and is once again on an upward trajectory, reaching about 150+ MMSCMD in 2021 thanks to better affordability in global markets and a rapid rise in city gas distribution (CGD). In 2011, CGD accounted for only 10 percent of consumption — an amount that has since doubled to 20 percent. In the 2021 United Nations Climate Change Conference (COP26) summit, Prime Minister Narendra Modicommitted India to an ambitious five-part “Panchamrit” pledge, a vital foundation for the global pathway to the ambitious 1.5 ̊C global warming target. For that to happen, natural gas will need to play a central role as a bridge fuel over the next few decades. With the dual objective of meeting India’s net zero aspirations and reducing dependencies on imports, the government’s target to more than double the share of natural gas in the energy mix from today’s 6 percent to 15 percent by 2030 aims to cement this role. With the combination of the role of energy and the potential of natural gas to be a bridge fuel, India’s demand for natural gas could reach 360 MMSCMD by 2050 (see figure). However, there will be a paradigm shift in the consumption patterns of individual sectors. Demand from traditional consumers such as power, fertilizers, and refineries is expected to contribute less to this growth story because of the proliferation of economical options such as renewable energy, green hydrogen, and green ammonia, but CGD’s estimated growth from 30 MMSCMD to 210 MMSCMD by 2050 could fuel India’s growing demand for natural gas. This accelerated growth trajectory of the CGD segment, particularly until 2040, is unique to India. The successful completion of the 11th bidding round by the Petroleum and Natural Gas Regulatory Board (PNGRB), resulting in coverage for about 98 percent of the population and 88 percent of the territory, and the aggressive minimum work program (MWP) commitments from most players will spur the growth of CGD. Within CGD, the segments set to disproportionately drive demand will be compressed natural gas (CNG) and the industrial segment, albeit at different times. Considering the growing support from original equipment manufacturers transitioning from diesel vehicles, higher levels of vehicle ownership, and favorable economics, CNG demand is on track to grow at 10 percent CAGR until 2040. In the industrial segment, the growth story of micro, small, and medium enterprises along with better access to natural gas, regulations on heavy-polluting fuels, and limited penetration of green alternatives and electrification because of the cost economics will drive momentum after 2040. In addition, tailwinds from structural factors such as a regulatory push, infrastructure investments, the ecosystem’s maturity, and customer awareness have positioned CGD as a compelling clean-energy investment option with one of the lowest capex requirements per ton of CO2 reduction among other comparable options. Although the long-term story is robust, navigating the shifting CGD landscape in the short and medium term is crucial. On the supply side, declining reserves of price-controlled administered price mechanism (APM) gas, record-high RLNG prices due to global networks being in flux, and reforms such as open access will pose a threat. In addition, the growing adoption of electric vehicles and other green alternatives could chip away at demand from key sectors, and the expiration of marketing exclusivity in GAs will have a detrimental effect on supplier power. CGD players will need to address these developments to be resilient and agile. Moving from today’s supply-led focus to a customer-led focus will be essential for immediate and sustained development. In light of the sector’s paradigm shift, the winners—either incumbents or new entrants — will need to do seven fundamental things differently to create a sustainable advantage: Set your sights on market expansion. Market expansion powered by targeted sales acceleration programs and developing unique propositions suitable for different segments based on affordability and reach will be a crucial element for success. Source smartly. With more supply-side challenges, curating an optimum sourcing portfolio will dampen the effects of the volatile gas supply market, which is particularly relevant considering the black-swan events in recent years. With limited APM reserves and a significant price differential between APM, non-APM domestic gas, and term and spot LNG gas purchases, strategic sourcing will be essential to gaining a competitive advantage. Adopt differentiated go-to-market models. Traditionally, this sector has been a supply-led space. Adopting a customer-centric sales and marketing setup will be vital for success—differentiated by customer segments, accelerated sales through hyperlocal marketing, contract restructuring, a feet-on-the-street channel, social media, and above-the-line, below-the-line, and digital marketing strategies. Activate your inorganic muscle. Identifying options for strategic acquisitions can provide terrific growth opportunities to penetrate this space. Keeping a pulse of the market in terms of available options and leveraging an agile inorganic engine will also be vital. Partner, partner, partner. Forward-thinking CGD players will need to move away from a traditional commodity sales mindset and toward a solution provider mindset. Leveraging strategic partnerships along the supply chain to co-develop the natural gas ecosystem and improve the end-to-end customer experience will be imperative. Deploy digital-first models. A powerful customer engagement platform supported by an intelligent service network, deeper data analytics, and more flexible data management is a no-regret move for all players. Tighten capex management practices. Given the high capex and complexity of CGD projects, project management can be complicated. Most projects end up above budget or behind schedule or both.
Sri Lanka in talks with India on oil pipeline to Trinco
Sri Lanka is in talks with India to build an oil pipeline to transport fuel to the Eastern Port of Trincomalee, President Ranil Wickremesinghe had told energy investors, according to a statement from his media office. There were on-going discussions on “bringing an oil pipeline from India to Trincomalee,” the President had said.Trincomalee has a World War II-era 99 tank farm. A part of the tank farm is under the control of Lanka India Oil Corporation. The rest is under joint control of IOC and Ceylon Petroleum Corporation. LIOC Managing Director Manoj Gupta said high level discussions and studies were underway for a finished product pipeline. Trincomalee has been identified as a potential port for green hydrogen due to the availability of renewable energy in Northern Sri Lanka, President Wikremesinghe had said