Big Oil Continues To Be Pushed Toward Greener Endeavors
Last year, Big Oil made record profits that got stuck in the throats of governments, activist organizations, and international bodies such as the UN and the IEA. Yet those same governments practically encouraged these profits by subsidizing fuels to avoid even higher inflation and all the problems that such a development would have produced. In 2022, with demand for energy roaring back after the pandemic and Russia’s invasion of Ukraine, the consequent gas supply squeeze, and fears of a similar oil squeeze, the target that Big Oil had painted on its back temporarily disappeared. Energy security temporarily became more important than decarbonization. That era is over, according to some analysts. Now, the pressure on Big Oil to decarbonize is going to increase. All Big Oil majors except BP reported weaker profits for the second quarter because of the decline in oil and gas prices. BP, which reports on Tuesday, is also expected to book slimmer profits for this year’s second quarter than last year’s. The time of plenty seems to be over. According to the Financial Times, this means that the supply squeeze threat has passed, and now the governments that subsidized diesel and gasoline will once again increase the pressure on the oil industry to go green. In fact, the pressure has never decreased, even when oil was trading above $100 a barrel last year. And despite that pressure, Big Oil has signaled a retreat from earlier ambitious transition targets. It seems everyone got a reality check last year. Only Big Oil came out with different outtakes from that check than the governments that slapped windfall profit taxes on the industry and then worried it would stop investing in more production. The pressure is working: European supermajors have been splashing on various low-carbon projects, from wind and solar capacity to EV chargers. But that was before 2022. This year, BP and Shell basically walked back their decarbonization pledges to the frustration of their activist investors. Those same investors, by the way, received much lower support for their climate-related resolutions at this year’s AGMs than in previous years. The rest of the shareholders must have liked the share repurchase programs and the fatter dividends. Meanwhile, the American supermajors, who have generally steered clear of things like wind and solar, are venturing into raw transition materials: Exxon and Chevron both announced forays into lithium mining this year, signaling the potential direction their decarbonization drive would take. The two are also busy expanding their carbon capture capabilities. Exxon, for one, sees a future in which its decarbonization business could one day outgrow its core oil and gas business. In Europe, BP and TotalEnergies just won a tender for offshore wind capacity in Germany, essentially beating the wind industry on its own turf. Just because the leadership of these companies has signaled it will go easy on the whole decarbonization affair doesn’t mean it will pass on opportunities to benefit from generous government funding for wind and solar. Big Oil has been under the microscope for years now, with governments, regulators, and activists all watching the industry closely for any suggestion they might want to expand their core business. Yet when they did do that, activists protested last year as expected, but governments didn’t. Governments in Europe spent billions on fuel subsidies contributing to Big Oil’s massive profits. In the U.S., President Biden and his energy secretary pleaded with Big Oil to boost oil production after actively working to make boosting oil production as difficult as possible. Now, decarbonization is back on the table as a top concern amid a ramp-up in the climate emergency talk from officials such as the UN’s Antonio Guterres. But the perception that the supply squeeze threat is over, as suggested by the Financial Times last week, may well be wrong. Oil and gas prices are palpably lower now than they were this time last year, but they are on the climb. And the reason they are on the climb is that fears are growing that demand for oil will soon exceed supply thanks to OPEC+ efforts to prop up prices and unrelenting demand growth, despite price movements. The current situation is somewhat paradoxical: national and international government officials are calling for the decarbonization of the hydrocarbons industry. At the same time, they are forecasting higher demand for these same hydrocarbons and, in the case of the IEA, warning that this higher demand would result in a deficit. It would be reasonable to suggest that this means decarbonization efforts are not exactly going as planned. The reason for this is that the need for energy is immediate and pressing. People need energy right now and not in five years. And Big Oil is happy to help while it invests in that new energy capacity that will be up and running in five years thanks to government subsidies.
Modi’s Oil Strategy: Is India Rethinking Its Russian Crude Imports?
Following several months of increased imports of Russian crude by India, the trend may finally begin to wane as it stockpiles enough to meet the country’s demand. India has favoured Russian crude in recent months due to its discounted prices, making its oil much cheaper than Middle Eastern alternatives. But moving out of peak season, India’s oil demand is expected to fall over the coming months before rising again next year. Further, Russia is expected to reduce its oil exports in line with fellow OPEC+ member Saudi Arabia’s voluntary production cuts. Since the Russian invasion of Ukraine, India has been importing large amounts of Russian crude thanks to its highly competitive oil prices. As Russia undercuts OPEC by heavily discounting its crude, several countries, including China and India, have been taking advantage of the opportunity to stockpile low-cost oil while demand is high. This move has been criticised by many governments around the world following the gradual introduction of sanctions on Russian energy by the U.S. and EU over the last year. President Biden and several other state leaders have urged countries around the globe to restrict the import of Russian oil and gas to condemn the ongoing war and harm its economy. But Indian Prime Minister Modi has repeatedly defended the country’s decision to increase imports of Russian crude as a means to meet India’s growing energy demand. India has repeatedly asked high-income countries to support the development of its renewable energy industry in support of a global green transition, which has continually fallen on deaf ears. The country’s reliance on oil and gas is still significant and Modi believes as a low-income country it should be permitted to purchase whatever oil is being offered at the lowest price, having failed to see support for its energy industry from the U.S. and Europe. In June, India’s imports of Russian crude hit a record high of 2.2. million bpd, accounting for about 40 percentof India’s crude imports, following 10 consecutive months of increases. In the previous month, its imports of Russian oil surpassed the combined imports of its two next biggest suppliers, Saudi Arabia and Iraq. India is the third-largest importer of crude in the world, making it a significant market for Russia to capture. Before the Russia-Ukraine war, India imported very little Russian crude. But since Putin began to offer discounted crude, to ensure it kept selling its energy products to those still interested in buying them, India has been steadily increasing its imports. However, India’s ability to import more Russian oil has likely reached a limit as it goes into its lower-demand monsoon season. Janiv Shah, a senior analyst at Rystad Energy, stated “India will look to continue Russian crude imports, but perhaps it has reached its limit, hampering any additional barrels.” Shah explained, “I would say 2.2 million b/d will be the peak this year … We believe India’s imports of Russian crude will see a slight downward correction to two million barrels per day. That will be the sustainable level of buying.” This forecast has been echoed by other energy experts. India’s high energy demand season is in the winter months before it slows during the rainy season for around four months. During this time, lots of construction projects stop and several refiners have plans to use the low season to carry out maintenance on their facilities. Its oil demand has already begun to decrease, falling by around 3.7 percent month-on-month in June. Meanwhile, Russia’s ability to export larger amounts of crude may also have reached its limit. The country’s oil exports decreased by around 600,000 bpd to 7.3 million bpd in June, the lowest amount since March 2021. In addition, Russia pledged to reduce its oil exports in July in solidarity with Saudi Arabia’s quota cuts. The OPEC leader said it would reduce its oil production in an attempt to boost oil prices, following a steep decline in recent months, something that Russia may have contributed to. Russia has been undercutting OPEC+ oil prices to attract consumers and continue selling crude, to the detriment of other OPEC+ members. But it seems that Putin was only willing to push Saudi Arabia so far. Although India’s imports of Russian crude may remain stable for the rest of the year, depending on the state of the conflict and Russian oil prices, Indian refiners may well try to increase their Russian crude imports even further in 2024. Although India’s refiners will likely want to maintain their relationship with long-term Middle Eastern crude exporters. The country’s imports of oil from the Middle East are thought to have decreased by around 21.7 percent in June compared to the beginning of the year, although India has some minimum purchase agreements and does not want to rely solely on Russia for its oil.
Pakistan Is Being Priced Out Of The LNG Market Again
Pakistan has dropped plans to procure LNG cargos for next year after its tender only attracted two offers that featured a 30% premium to market prices. Per a Bloomberg report that cited unnamed traders in the know, the offers had come from Trafigura and the delivery dates had been in January and February 2024. This is not the first time Pakistan is being forced out of the LNG market because of prices. Last year, when the suspension of Russian pipeline gas deliveries turned Europe into a major LNG buyer, importers such as Pakistan were essentially priced out of the market. Even supplies that should have been locked in under long-term contracts were affected when Eni announced early this year it would not be able to deliver its contracted once-monthly LNG cargo to Pakistan due to circumstances outside its control. Other suppliers of LNG to Asian countries also chose to breach their contracts amid sky-high prices on the spot market. This has made Pakistan’s energy situation quite precarious, with blackouts plaguing the country last year for months and power rationing becoming unavoidable. This year, the price situation has largely normalized and this has allowed Pakistan and other poorer Asian nations to return to the LNG market. As the latest news from Pakistan suggests, however, this return may well have been temporary. Based on the reported premium asked by Trafigura for LNG deliveries to Pakistan next year, commodity traders’ expectations would be for yet another strong jump in prices come heating season. Demand from the rest of Asia is also seen rebounding as is demand from Europe. The latter has been lukewarm so far this year because of the mild winter last year that saw a lot of gas remain in storage. That gas is basically unsellable as it was bought at record prices and any resale would lead to massive losses.
Centre increases windfall tax on crude to Rs 4250 per tonne
The centre on Monday increased windfall tax on domestically produced crude petroleum to Rs 4250 per tonne from existing Rs 1,600 per tonne. It has also increased duty on export of diesel to Rs one per litre from Nil. The new rates will be effective August 1.
Saudi Arabia Is Cooking Up A Surprise For The Oil Markets
Recent production cuts by Saudi Arabia are beginning to take a toll on the nation’s economy, according to the IMF’s latest World Economic Outlook. The Kingdom’s 2023 GDP growth projections have been significantly reduced, now expected to reach only 1.9%, down from the previously projected 3.1% in May. The IMF attributed this downgrade to the production cuts announced in April and June as part of the OPEC+ agreement. Despite efforts to diversify the economy with Vision 2030, Saudi Arabia remains heavily reliant on hydrocarbon revenues, with the impact of oil market developments still outweighing the growth potential of non-hydrocarbon sectors. Although the Kingdom has taken strides in economic diversification, all new projects, including the ambitious Giga-Projects, continue to be tied to oil and gas funds. Aramco’s substantial revenue base remains crucial for driving economic activity. While this analysis may not sit well with Saudi officials, the IMF downgrade could potentially be followed by similar reactions in the financial markets. The unilateral production cut presented by Saudi Energy Minister Prince Abdulaziz bin Salman, which was extended during the recent OPEC+ meeting, is now showing negative consequences. The Kingdom’s official stance is that Riyadh is the sole entity capable of controlling and stabilizing markets, particularly oil prices. However, many analysts have expressed skepticism about the true motives behind the Saudi move, as a tighter demand-supply situation is expected in the latter half of 2023. Some argue that price fluctuations and speculation are part of the market’s natural dynamics, and intervention may not be necessary. Evidence supporting the effectiveness of the Saudi cut is debatable. When the cut was initially announced, markets showed minimal reaction, and prices remained weak. The slow economic recovery in China and marginal global demand growth have kept oil prices within the range of $75-85 per barrel. The recent price rally can be attributed to factors unrelated to Saudi Arabia’s actions, such as stock withdrawals and reduced fear of a global recession. Saudi Arabia’s progress in economic diversification projects requires higher foreign direct investments (FDI) and increased government revenues, as well as access to international financial markets. The IMF report has cast some doubt on these aspirations. With the MENA region experiencing lower GDP growth projections and some countries facing financial crises, Saudi Arabia must reevaluate its short-term economic strategies. While non-oil GDP growth is robust, it cannot fully compensate for the current reliance on oil revenues. The low FDI inflow during Q1 2023 raises concerns, especially when compared to the expectations set in Vision 2030. Market analysts and media should closely monitor Riyadh’s actions in the coming weeks, as a significant change may be on the horizon. Although no immediate changes are expected at the upcoming JMCC meeting, a Saudi production hike before October 2023 is highly plausible. Signs of a new demand-supply crunch in oil and petroleum product storage volumes, along with positive indicators in Asia, Europe, and the USA, could lead to a dramatic shift in the Kingdom’s production volume strategies. A surprise move to prevent oil prices from surpassing $90-100 per barrel in Q4 could be in the works. While the media may not be informed, it is likely that Crown Prince Mohammed bin Salman and his brother are preparing a new Saudi surprise after the summer season.
Duliajan Numaligarh Pipeline Limited proposes 500km natural gas pipeline in northeast
Two major pipeline projects are in the works in the northeast, which produce 20 per cent of the country’s natural gas output of 75 million metric standard cubic metres per day(mmscmd). Assam, Arunachal Pradesh and Tripura have established gas production potential in the region, while Manipur and Nagaland are believed to have substantial reserves. Duliajan Numaligarh Pipeline Limited has proposed a 500km natural gas pipeline from Duliajan to Chandrapur near Guwahati through Jorhat, Golaghat, Karbi Anglong and Nagaon in the state. DNP operates a dedicated pipeline supplying natural gas to the Numaligarh refinery. The company said there was a huge business opportunity of around 5.5mmscmd with a pipeline which needs to target the city gas distributors and other bulk consumer industries at Bokajan, Diphu, Lumding, Hojai, Lanka, Nagaon, Morigaon and onwards to Chandrapur near Guwahati. The pipeline can also be connected to the IGGL Phase-I pipeline near Borpothar (Golaghat district in Assam). It can connect to the new gas sources along the route in Dibrugarh and Sibsagar districts. DNP is also looking at sourcing gas from other players in the region such as HaEC, Oil Max .
Qatar’s quest to becoming the world’s most secure gas energy source
Energy security and liquified natural gas (LNG) have dominated headlines over the last year. Among the discussions stands a large, yet geographically small, player — Qatar. The Gulf state has been at the centre of energy discussions, particularly during the onset of Russia’s invasion of Ukraine, as Europe scrambled to seek an alternative to its heavy dependence on Moscow’s gas. The demand for energy reflected well on Qatar’s oil and gas sector, with state-owned QatarEnergy recording a net profit of $42.47 billion (QAR 154.6 billion), representing a 58% year-on-year increase. “Qatar managed to increase production slightly last year in order to help meet increased global demand for LNG following the reduction of Russian pipeline exports to Europe, underlining its role as a secure source,” Jamie Ingram, Senior Editor at Middle East Economic Survey (MEE), told Doha News. Since the early detection of its gas resources, energy has evolved into a potent instrument of Qatar’s soft diplomacy, propelling the nation towards achieving global production dominance. Rise to prominence In 1971, Qatar entered the realm of natural gas by making its inaugural non-associated gas discovery off the north-east coast, eventually establishing what is currently recognised as the North Field. This would mark a pivotal moment for the Gulf state. The gas-rich area, which Qatar shares with Iran, carries more than 900 trillion standard cubic feet of gas reserves and represents 20% of the world’s proven reserves. Qatar’s proven reserves witnessed a steady increase over the years, jumping from 2,265 billion cubic meters in 1981 to 8,500 billion cubic meters in 1996. It was not until the late 1990s when the country made its first sale and purchase agreement with Japan’s Chubu Electric for 4 tonnes of LNG per annum, marking the beginning of a decades-long gas industry friendship between Tokyo and Doha. Prior to the discovery of gas, oil was the primary driver of Qatar’s wealth until it became clear to the country that natural gas is the future. Qatar had utilised the years of low oil demand, especially during the 2007 global financial crisis, as an opportunity to grow its use of LNG. The Gulf state recorded a major milestone in 2010 when its production of LNG reached 77 mtpa (million tonnes per annum), climbing up the industry ladder to become the world’s largest LNG producer. Despite having already topped the global LNG race, Qatar has continued to increase its annual LNG production, promising to reach 126 mtpa by 2027 through the North Field Expansion project—the largest of its kind on a global scale. Qatar’s announcement of the North Field campaign came at a critical time in its economy in 2017, during which the Gulf state found itself grappling with an unexpected embargo was led by its neighbours—Saudi Arabia, the United Arab Emirates, Bahrain and Egypt. More than a year into the rift, by 2019, Qatar made the surprising decision of exiting the Organisation of the Petroleum Exporting Countries (OPEC), which Saudi Arabia and the UAE hold major influence in. Qatar’s energy minister Saad Sherida Al Kaabi said at the time that the country wanted to shift its focus towards natural gas, a move that has since solidified its position in the LNG world. Four years after its withdrawal from OPEC, Qatar became the star of the show in the energy sector, with analysts pointing to the $30 billion North Field expansion project’s major role in turning the Gulf state into a reliable partner in the gas industry. “Qatar’s decision to invest in expanding capacity helps reassure importers that it is committed to being a reliable supplier for decades to come. Countries such as China can continue to invest in expanding gas-fired power plant capacity safe in the knowledge that new supplies are coming onto the market,” Ingram said.
GAIL India misses Q1 profit view as natural gas marketing drags
GAIL (India) Ltd (GAIL.NS), the country’s largest gas distributor, reported a lower-than-expected quarterly profit on Monday hurt by weak performance at its core natural gas marketing segment. The company’s standalone profit after tax fell to 14.12 billion rupees ($171.67 million) in the quarter ended June 30, from 29.15 billion rupees a year earlier. Analysts, on average, were expecting GAIL to earn 16.06 billion rupees, as per Refinitiv data. The state-owned gas company’s revenue from operations fell about 14% to 322.27 billion rupees. Its natural gas marketing segment, which contributes 82.1% of the total revenue, saw an 18% drop in quarterly revenue. During the quarter, GAIL’s biggest natural gas marketing segment saw a 56.2% slump in its profit. Its LPG and liquid hydrocarbons segment’s profitability dropped 68% during the quarter. The firm is reeling from the impact of a former unit of Russia-owned Gazprom Marketing and Trading’s failure to deliver some liquefied natural gas (LNG) cargoes following western sanctions on Moscow over its invasion of Ukraine last year. GAIL had said it will get four LNG cargoes from Sefe in June, equivalent to the volumes it was getting under a deal with Sefe, a former unit of Russia’s Gazprom. Sefe resumed supplies to GAIL from March this year. Additionally, GAIL revised the investment cost for a proposed propane plant to 112.56 billion rupees from an initial investment of 78.23 billion rupees. GAIL’s shares, which were trading up 4.6% Monday morning, trimmed gains to be 1.3% higher after results.