Oil Prices On Track For A Fourth Consecutive Weekly Gain
Crude oil prices are about to record their fourth consecutive week of gains after OPEC said in its monthly report that supply is about to tighten further. The latest Monthly Oil Market Report showed OPEC’s combined daily average output at 28.8 million barrels for March, which was 86,000 bpd less than the average for February. Yet OPEC also said in its latest report that the oil market was in for a substantial supply deficit later in the year that would only worsen with time. Further contributing to higher prices, the head of the International Energy Agency, Fatih Birol also warned of a tighter oil market in the second half of the year. Traders are anticipating the IEA’s own monthly oil market update, due out later today. An additional bullish factor for prices came from Russia, where there are signs of lower production, according to analysts. “Russian exports are showing signs of weakening as production is reported to have been curtailed by 700,000 barrels per day (bpd),” ANZ analysts said in a note, quoted by Reuters. According to the news agency, if the IEA reports a revised demand outlook and the revision is downward, this could put a lid on oil prices for a while. On the other hand, the latest oil import data from China showed a 22.5-percent annual increase for March, suggesting that even if there were still signs of an economic slowdown it was not in China when oil demand was concerned. On top of all this, the dollar has been sliding for five weeks now, boosting the attractiveness of crude oil since the commodity is overwhelmingly traded in the greenback. The slide itself reflects expectations that the Fed could soon announce the end of its rate hike program, even though inflation remains above the central bank’s target.
Asia Spot LNG Prices Hit 21-Month Low
South and Southeast Asia are tentatively returning to the spot LNG market as prices have dipped from record highs in August to the lowest in nearly two years. India, Pakistan, Bangladesh, and Thailand were more active on the market last month than in February, looking to import cheaper LNG. Chinese demand also ticked up in March despite a still uncertain full-year LNG import trend for 2023, according to tanker-tracking data and industry players. China And South Asia Drive LNG Demand China, India, Bangladesh, Pakistan, and Thailand saw March LNG imports rise compared to February, per data from Kpler cited by Reuters’ Asia Commodities and Energy Columnist Clyde Russell. However, overall Asian imports were only slightly higher in March as the developed economies in north Asia – Japan and South Korea – reduced LNG imports at the end of the winter, as usual. South and Southeast Asian customers were tempted by the lowest spot LNG prices in 21 months. In the week to April 6, spot LNG prices for May delivery averaged $12.50 per million British thermal units (MMBtu), flat compared to the prior week, per industry sources estimates quoted by Reuters. The price has slumped by 67% since December 2022 and by 82% from a record high of $70.50 per MMBtu seen in August 2022, when natural gas prices spiked globally as Russia cut pipeline supply to Europe and the EU went on a buying spree to procure LNG for the winter. The lower LNG spot prices attracted Indian buyers. Kpler estimated that India’s imports in March had risen to 1.84 million tons, up from 1.27 million tons in February, which was the lowest monthly total since January 2017. China also raised LNG imports, to 5.55 million tons in March, compared to 4.95 million tons in February and 4.77 million tons in March 2022. Prices To Determine Pace of LNG Imports Going forward, prices will determine whether south Asia will continue buying spot LNG. Intensified competition between Asia and Europe will drive prices higher, which in turn will reduce the purchasing power of price-sensitive LNG importers such as India, Bangladesh, and Pakistan. “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 in February. China, after a historic drop in LNG imports in 2022, is likely to see a recovery this year, but the rebound will depend not only on the economy after the reopening but also on prices. Unless natural gas prices globally remain bearish for a sustained period of time, Chinese LNG imports could stay weak this year, the biggest natural gas supplier, China National Petroleum Corporation (CNPC), says, as carried by Energy Intelligence. Booming domestic production and Russian pipeline imports would limit China’s LNG import growth, Wood Mackenzie said in an analysis last month. In the consultancy’s base-case scenario, China’s LNG imports would be 71 Mt (97 bcm) this year, just 7.4 Mt (10 bcm) more than in 2022 and still far lower than the 80 Mt imported in 2021. European Competition Spot LNG pricing will depend to a large extent on Europe’s demand for the fuel. Europe continues to attract the majority of the rising U.S. LNG exports and will look to stock up on gas for next winter as it cannot rely on the weather and a second consecutive warmer-than-usual winter for lower gas withdrawals. Warmer winter weather and subdued LNG demand from Asia helped Europe fill storage sites to adequate levels before the heating season 2022/2023 and exit that season with inventories well above historical averages. More than 50% full gas storage sites in April is good news for Europe’s efforts to fill up the storage ahead of the 2023/2024 winter. This will be the second winter without much of the Russian pipeline gas, but Europe hasn’t seen a truly long cold winter period without that gas yet. So the race will be to attract as much LNG as possible now that more LNG import terminals in Europe have started operations. “The EU will have to match whatever Asia is willing to pay plus a premium in a bidding war to keep LNG imports flowing to the EU,” SEB analysts wrote in a note last week. U.S. LNG exports hit a record high in March, with Europe attracting more than 70% of all U.S. cargoes, per Refinitiv Eikon data cited by Reuters. So far in April, more than 75% of the U.S. LNG cargoes have headed to Europe, according to energy data analysts at RBN Energy. “Exports to Europe remain at ultra-peak levels,” RBN Energy noted. Historically, the U.S. exports more LNG to Latin America in the spring as the southern hemisphere prepares for peak winter demand, while Europe and Asia have just seen winter end. “Last spring and summer, U.S. LNG exports to Latin America did rise somewhat, but to a much lesser extent compared to the prior years as Europe’s demand to refill storage and replace Russian gas surged. This spring is off to a similar start, with exports to Latin America creeping up, at the expense of exports to Asia,” RBN Energy said.
Urja Ganga pipeline takes cheaper gas to hinterland
The ‘Urja Ganga’ pipeline, India’s most ambitious project taking environment-friendly gas to so-far untouched areas, has taken the benefit of lower natural gas prices to the hinterland, helping expand adoption of the cleaner fuel, official sources said. Traditionally, natural gas was available for use as fuel to generate electricity, make fertilizer or turn into CNG and cooking gas was available only in the Western and Northern parts of the country, as pipelines taking the fuel from source to users were limited to these parts. In October 2016, work on laying a 2,655-km pipeline from Jagdishpur in Uttar Pradesh to Haldia in West Bengal, Bokaro in Jharkhand and Dhamra in Odisha began. The line was extended to Guwahati in Assam from Barauni in Bihar, a length of 726 km, to take the fuel to hereto-unconnected states in the East. The Jagdishpur-Haldia-Bokaro-Dhamra Pipeline (JHBDPL), popularly called the Pradhan Mantri Urja Ganga pipeline, is now ready to supply gas to the eastern states of Bihar, Jharkhand, Odisha and West Bengal, official sources said. This has helped pass on the benefit of reduction in CNG and piped cooking gas prices to consumers in these regions following the government decision to cut input natural gas prices. About Rs 5-7 reduction in rates has now reached consumers in 20 towns and cities in the hinterland. Gas pipeline is the cheapest mode of transportation of gas. Sources said to carry gas to the eastern states of India, state-owned gas utility GAIL (India) Ltd was authorized to lay JHBDPL. The government provided 40 per cent viability gap funding amounting to Rs 51.76 billion for execution of JHBDPL. Further, as a part of JHBDPL, GAIL is also laying Barauni-Guwahati pipeline which shall act as a source for North East Gas Grid pipeline being executed with 60 per cent viability gap funding amounting to Rs 55.59 billion to connect all the North Eastern states to natural gas source and supply gas to all parts of the country. The Pradhan Mantri Urja Ganga pipeline will connect all the geographical areas (more than 90) spread over the states of Uttar Pradesh, Bihar, Orissa, West Bengal and further to the North Eastern Region of India. With the completion of this project, the North Eastern/ Eastern part of India becomes an integral part of the gas-based economy with twin benefits of cheapest transportation of gas through Urja Ganga and gas pricing reforms, they said. Under the unified tariff regulations recently notified by sector regulator Petroleum and Natural Gas Regulatory Board (PNGRB), transportation tariff has been cut by about 50 per cent to Rs 99.90 per million British thermal units for the eastern parts, helping make the clean fuel more affordable. Last week, the Cabinet Committee on Economic Affairs approved the revised domestic natural gas pricing guidelines for gas produced from nomination fields of state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd. The price of such natural gas shall be 10 per cent of the monthly average of Indian crude basket and shall be notified on a monthly basis. The price for gas produced from nomination fields of ONGC/OIL shall have a floor and a ceiling. This has resulted in reduction of gas price from USD 8.57 per mmBtu to USD 6.5 per mmBtu. The reforms will lead to significant decrease in prices of piped cooking gas for households and compressed natural gas (CNG) for transport, they said adding the reduced prices shall also lower the fertilizer subsidy burden and help the domestic power sector.
GAIL seeks LNG cargo for May delivery to Dhamra terminal
Adani Total, in which French oil and gas major TotalEnergies has a 50% stake, has a 20-year take-or-pay contract to provide regasification services to state-run Indian Oil Corp (IOC) for 3 million tonnes of LNG per year at the Dhamra terminal. GAIL has a similar deal for 1.5 million tonnes per year.