Indian oil firms explore using stranded $600 million to buy Russian oil
Indian oil companies are exploring the possibility of using close to $600 million of their dividend income stranded in Russia to buy oil from that country, officials said on Thursday. India’s top four oil companies — Indian Oil Corporation (IOC), a unit of Bharat Petroleum Corporation Ltd, Oil India Ltd and ONGC Videsh Ltd — haven’t been able to repatriate dividend income they accrue from their investments in Russian oil and gas fields. That money is lying in their bank accounts in Russia but could not be brought to India due to tough Western sanctions that followed Moscow’s invasion of Ukraine. This is at a time when Russia has emerged as the top crude oil supplier to India, accounting for more than a third of all purchases New Delhi makes from overseas. Officials said one of the options could be to loan the money lying in Russian bank accounts to entities buying oil. These entities could repay the loan in India. The entities that buy oil from Russia include IOC and BPCL. “We are studying legal and financial implications of such a move,” an official said. “We are mindful of the sanctions and do not want to do anything that may in any way attract any breach.” Indian state oil firms have invested USD 5.46 billion in buying stakes in four different assets in Russia. These include a 49.9 per cent stake in the Vankorneft oil and gas field and another 29.9 per cent in the TAAS-Yuryakh Neftegazodobycha fields. They get dividends on profits made by the operating consortium from selling oil and gas produced from the fields. Soon after Russia’s invasion of Ukraine in February last year, several major Russian banks were banned from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) financial transaction processing system, constricting Moscow’s ability to access the global payments system. Also, the Russian government has put restrictions on the repatriation of dollars from that country to check volatility in foreign exchange rates. This led to a situation of dividend money getting stranded in Russia. ONGC Videsh Ltd (OVL), the overseas arm of state-owned Oil and Natural Gas Corporation (ONGC), holds a 26 per cent stake in Suzunskoye, Tagulskoye and Lodochnoye fields — collectively known as the Vankor cluster in the north-eastern part of the West Siberia. Indian Oil Corp (IOC), Oil India Ltd (OIL) and Bharat PetroResources Ltd (a unit of Bharat Petroleum Corp Ltd or BPCL) hold another 23.9 per cent in the same project. Russia’s Rosneft is the operator with 50.1 per cent interest. The consortium of OIL, IOC and Bharat PetroResources has a 29.9 per cent stake in TAAS-Yuryakh Neftegazodobycha. Separately, OIL chairman and managing director Ranjit Rath said about USD 150 million of dividend income of OIL is lying in bank accounts in Russia. The total for its consortium (IOC and BPRL included) is about USD 450 million, he said. OVL has another USD 130 million of dividend income. “We see this has a temporary phenomenon,” Rath said. “We are working at three levels — exploring legal options, analysing banking challenges and using government-to-government to negotiations.” He, however, refused to elaborate. Other officials said the options being explored includes using the stranded money to buy oil. “IOC as well as BPCL already are big buyers of Russian oil and perhaps they can use that money to buy oil,” an official said. “Legal and financial issues in doing so are currently being studied.” Another official said a solution is likely to emerge in 2-3 months’ time. The dividend is lying with the Commercial Indo Bank LLC (CIBL), which was a joint venture of the State Bank of India and Canara Bank. Canara Bank in March sold its 40 per cent stake in CIBL to SBI. The dividend from TAAS was paid on a quarterly basis, while Vankorneft’s earnings were paid half-yearly. The Indian firms are looking at options of how to repatriate the money from Russia, Rath said. All dividend income prior to the Ukraine war was repatriated but the one that accrued after that is stuck. The operations of the fields have not been impacted and they continue to produce as normal, he added. OVL also has a 20 per cent stake in the Sakhalin-1 oil and gas field in Far East Russia, and in 2009 acquired Imperial Energy, which has fields in Siberia, for USD 2.1 billion.
Why Oil Could Top $100 In Q4 2023
Oil prices have soared to a 10-month high on Wednesday, with a surprise build in U.S. crude inventories failing to dampen expectations of tight supplies for the rest of the year. Front-month November Brent crude closed +1.5% at $92.06/bbl, its best settlement since November 16 while U.S. front-month Nymex crude for October delivery settled +1.8% to $88.84/bbl, its highest closing price since November 11, 2022. WTI and Brent have now gained 10.7% and 7.1% YTD, respectively. The latest weekly data by the International Energy Agency (IEA) showed that U.S. crude inventories rose by 4 million barrels to 420.6 million barrels, a large increase compared to expectations by a Reuters poll for a 1.9 million-barrel drop. The Paris-based energy watchdog has revised down its demand growth forecast by 600,000 bpd. But that setback has failed to persuade the bulls to cross the aisle. “The big picture is the extended voluntary production cuts by Saudi Arabia and Russia. The deficit is now broadly equal to the Saudi additional voluntary cut,” Andrew Lipow, president of Lipow Oil Associates in Houston, told Reuters. The two countries have extended production cuts of 1.3 million barrels per day (bpd) of crude to year end, which Bank of America has predicted will lift Brent futures above the $100 a barrel threshold before the end of the year. The OPEC Secretariat Oil Market Report published on 12 September contained few significant changes, with the demand growth forecasts unchanged at 2.44 mb/d in 2023 and 2.45 mb/d in 2024 while non-OPEC supply growth was revised higher by 69 thousand barrels per day (kb/d) to 1.58 mb/d in 2023 and revised 6 kb/d lower to 1.38 mb/d in 2024. Commodity analysts at Standard Chartered remain firmly in the bull camp. The analysts have noted that oil prices have been driven higher in Q3 by sharp falls in inventories caused by excess demand, and have predicted that dynamic will continue in Q4. According to StanChart’s demand model, global crude inventories rose by 203 million barrels (mb) in H2-2022 but have forecast a 180 turn from that trend with global inventories expected to fall by 313 mb in H2-2023. The analysts have also predicted draws will average 1.4 mb/d in Q4, lower than Q3’s 2.0 mb/d average and August’s peak 3.1 mb/d draw, representing a significant additional tightening from a base of already low inventories. Meanwhile, the experts have forecast that China’s demand growth will continue being relatively slow and that U.S. supply growth will be relatively fast. Overall, they see a sizable net tightening remaining, reinforced in large part by a considerable y/y reduction in OPEC supply. And, now to the part that really matters: StanChart has forecast Brent prices in Q4 2023 to average USD 93/barrel (bbl), a prediction that has remained virtually unchanged for the past 15 months despite Brent trading across a wide USD 50/bbl range during that period. That said, the analysts have cautioned that their forecast is a period average rather than a point forecast and hence have not ruled out an intra-Q4 high above USD 100/bbl. Indeed, they are confident that oil prices are more likely than not to surprise to the upside. Hedge Funds Turn Ultra-Bullish Just three months ago, oil markets were extremely bearish and rife with short-sellers, thanks to an abundance of negative catalysts including elevated inventory levels, rising supplies by Russia, Iran and Venezuela, weak global demand and sub-par recovery by the Chinese economy. Indeed, StanChart revealed that speculative short volumes were at one point more than six times larger than those after the collapse of Lehman Brothers and Bear Stearns in 2008. But market sentiment has now improved quite dramatically, with hedge funds rushing back into the oil market with their most bullish wagers in more than a year after the extension of cuts by Saudi Arabia and Russia have sent crude surging 30 per cent since mid-June. In fact, the latest data showing positioning by money managers has revealed that they are at the most bullish on U.S. crude since June 2022. “A considerable amount of dry powder had been sitting on the sidelines, meaning the recent strong tape could set off a further chase and catch-up in positioning. This oil market has evolved into as much of a momentum-based market as it is a fundamentally based one,” Michael Tran, a global energy strategist at RBC Capital Markets, has told Bloomberg.
China’s LNG Buying Spree Threatens Global Gas Market Stability
China is back on the spot LNG market to seek cargoes for the coming winter, potentially upsetting a fragile balance in the global natural gas market just as Europe has reached its gas storage target well ahead of the November 1 deadline. Following a record slump in Chinese gas demand and LNG imports last year prompted by Covid-related lockdowns, China’s gas consumption has risen so far this year compared to 2022, although it’s still below the growth seen up to 2021. In recent months, China has signed a lot of long-term LNG supply deals, including with the top exporters, the United States and Qatar. But China is also back on the spot market with a massive tender for cargoes to be delivered later this year and throughout 2024. Intensified competition from China and other Asian buyers could leave Europe in an even more vulnerable position regarding supply for the 2023/2024 winter by driving prices higher and attracting more LNG cargoes to Asia than EU buyers would have liked. China’s state-owned energy giant Sinopec, via its trading arm Unipec, has recently issued a tender seeking to buy as many as 25 LNG cargoes between October 2023 and December 2024, trading sources familiar with the plans told Reuters this week. Sinopec is looking for offers to buy one LNG cargo for delivery in October, five cargoes for November, and seven for December 2023. The rest of the 25 cargoes will be delivered one each month in 2024, according to Reuters’ sources. Sinopec’s trading arm may have plans to resell all or some of those cargoes later and not use them for China’s domestic gas consumption. Whatever the case may be, that’s the biggest tender by a state-held Chinese buyer to seek LNG cargoes on the spot market since February this year, Bloomberg notes. Lockdowns and slower economic growth led last year to the first annual drop in China’s gas consumption since 1990, while China’s LNG imports slumped by 20%, mainly due to reduced demand and high LNG spot prices. This year, Chinese gas demand increased by 5% year-on-year in the first half of 2023, thanks to higher demand in the power and industrial sectors, Miaoru Huang, Research Director, Asia Pacific Gas and LNG, at Wood Mackenzie, wrote in a note earlier this month. China’s domestic gas production is growing, and pipeline supply from Russia to China is also on the rise. But LNG net imports into China in the first half of 2023 also rose, by 6% year-over-year, Huang noted. Going forward, “China will seek more influence on LNG pricing, and on the back of improving flexibility in its gas value chain, it could increasingly act as a swing market in the global LNG supply-demand balance,” Huang says. China’s ‘swing market’ role could be tested as early as this winter, especially if winter in Europe and/or Asia is colder than usual. “We go into this winter with Europe being fairly high-stocked,” Colin Parfitt, vice president of Midstream for Chevron, said at the Gastech 2023 conference in Singapore last week. However, Parfitt warned about possible high volatility if winter is colder. “My view is we’re not out of the woods yet, and we may not be out of the woods for a couple of years until this new supply comes up,” Parfitt said, as carried by Reuters. Despite high levels of gas stocks and reduced gas consumption and imports, Europe’s biggest economy, Germany, is not out of the woods in terms of gas shortages, German industry and government have been warning for months. The supply situation on the global LNG market could further worsen just ahead of the heating season with the ongoing dispute between Chevron and trade unions over pay and work conditions at two export facilities in Australia, which collectively account for 5% of global LNG supply.
India, Saudi Arabia to expedite IOC refinery plan
India and Saudi Arabia have agreed to accelerate Indian state-controlled refiner IOC’s 1.2mn b/d West Coast Refinery project. India and Saudi Arabia issued a joint statement during the visit of Saudi crown prince Mohammad bin Salman to India last week, following his meeting with Indian prime minister Narendra Modi. The deal was followed by the first meeting of the India-Saudi Arabia Strategic Partnership Council. “Both the prime minister and the crown prince extended their full support to the early implementation of the West Coast Refinery project, for which funds to the tune of $50bn are already earmarked,” ministry of external affairs secretary Ausaf Sayeed said in a press briefing on 11 September. IOC’s plans for a 1.2mn b/d refinery at Ratnagiri in west India’s Maharashtra state remain complicated by land acquisition problems. State-controlled Saudi Aramco and Abu Dhabi’s state-owned Adnoc are partners in the project. The two sides also agreed to set up a joint task force to help in identifying and channelling $100bn of investment from Saudi Arabia and for a monitoring committee to ensure progress on the refinery project, Sayeed added. Further details of the agreement, such as the timelines, were unavailable. The two sides also agreed to develop joint projects to transform oil into petrochemicals in the two countries but did not add further details. The joint statement included a number of discussed issues, including an initial agreement on 10 September to co-operate on several new energy and fossil fuel-related sectors. India and Saudi Arabia agreed to diversify their hydrocarbon trade into a comprehensive energy partnership, Sayeed said. The two countries will co-operate in the areas of renewable energy, energy efficiency, hydrogen, carbon capture, utilisation and storage and electricity grid interconnection, according to the Indian government. The two countries will also work together on oil, natural gas, a strategic petroleum reserve (SPR) and energy security. Several major global oil and commodity trading firms have expressed interest in building India’s new SPR, the government told the lower house of parliament on 3 August. The government has earmarked 50bn rupees ($600mn) in its budget for the April 2023-March 2024 fiscal year to rebuild the country’s SPR. The collaboration, for which a timeline is not yet available, will also involve qualitative partnerships between India and Saudi Arabia to localise materials, products and services related to all energy sectors, supply chains and technology, the government said without providing further details. Leaders of the US, India, Saudi Arabia, the UAE and the EU also agreed at the G20 Leaders’ Summit held in Delhi across 9-10 September to work together to establish a multinational rail and shipping corridor connecting south Asia to the Middle East and Europe. A possible timeline for the project was unavailable.
PESB picks Alok Sharma for Indian Oil’s Director (R&D) post
Alok Sharma is set to be next Director (Research & Development) of Indian Oil Corporation Limited (IOCL), a Maharatna oil marketing PSU under the Ministry of Petroleum & Natural Gas (MoPNG). He has been recommended for the post by the Public Enterprises Selection Board Panel (PESB) on Tuesday. Presently, he is serving as Executive Director (R&D) of the same organisation. Sharma has been recommended for the post of Director (R&D) of Indian Oil from a list of eight candidates, who were interviewed by the PESB selection panel. Out of eight candidates seven candidates were from Indian Oil and one candidate was from Bharat Petroleum Corporation Limited (BPCL).
US races ahead of Qatar as top LNG exporter
The United States took the lead as the world’s top exporter of liquefied natural gas (LNG) in the first half of 2023, outpacing all other contenders, including Qatar, according to a recent report from the US Energy Information Administration. While the United States has long vied with Qatar for the title of the world’s leading LNG exporter, Australia unexpectedly seized the second position this year, leaving Qatar in its wake, as per data by the French non-profit organisation CEDIGAZ. Australia’s LNG exports in the first half of 2023 averaged 10.6 billion cubic feet per day (Bcf/d), while Qatar followed closely at 10.4 Bcf/d. The EIA, a governmental authority with knowledge of the energy markets, pointed to the revival of operations at the Freeport LNG facility as a pivotal factor behind the US’ drastic growth, with a slew of other LNG projects on the horizon for the US Gulf Coast. Drawing upon data provided by CEDIGAZ, dedicated to natural gas intelligence, the report reveals that US exports surged by 4% in the initial half of this year when compared to the same period in 2022. The US now ships an average of 11.6 Bcf/d of LNG, outshining every other nation on the globe. It also said US LNG exports reached a monthly pinnacle of 12.4 Bcf/d in April, with Freeport LNG substantially boosting its LNG production. Freeport LNG, the second-largest LNG export terminal in the United States, had a temporary shutdown following an explosion in June 2022. It only resumed shipping in February 2023 after extensive repairs and system upgrades. As per Freeport LNG’s management, the company is now planning to expand operations, potentially adding a fourth train. The expansion is projected to increase their LNG export capacity by more than 5 million metric tonnes per annum (mtpa), raising the total export capacity to over 20 mtpa per year.
Russia’s Novatek: Arctic LNG 2’s first line to reach full capacity in Q1 2024 – RIA
The head of Russia’s largest liquefied natural gas producer, Novatek NVTK.MM, said on Tuesday that Arctic LNG 2’s first line would reach full capacity of 6 million tons in the first quarter of 2024, RIA news agency reported. Russia is seeking to increase production of sea-borne LNG, which could be delivered around the world, as its gas exports via pipelines to Europe are plummeting amid political fallout from Moscow’s military actions in Ukraine. Russian President Vladimir Putin, speaking at the Eastern Economic Forum in the far eastern city of Vladivostok earlier on Tuesday, said Russia plans to triple LNG production in the Arctic region to 64 million tons by 2030. Novatek chief Leonid Mikhelson said his company had been in talks with India and Vietnam on LNG supplies, according to RIA. He also confirmed that Arctic LNG 2 would start operations at the end of this year, RIA reported. Mikhelson said the company’s natural gas output would remain at 82 billion cubic metres this year – a reversal of previous expectations for an increase of up to 2% – while production of oil and gas condensate was expected to increase by between 2% and 2.5%, RIA reported. He also expected the company’s financial results for 2023 to surpass the level reached in 2021 by between 20% and 25%. Novatek also plans to build a new LNG production facility, Murmansk LNG , and Mikhelson said the company would take an investment decision on that project next year. Novatek announced plans in June to build the Murmansk LNG plant, which will have an annual capacity of 20.4 million tonnes per year. The first line at the plant could start operations in 2027.