New U.S. Oil Field Developments Are A Sign Of Things To Come For Saudi Arabia
Events often have a way of highlighting the circular nature of time rather than its linearity. An extraordinarily notable recent example of this was this year’s incursion into Israel of Hamas on Yom Kippur, just as happened on Yom Kippur 50 years earlier when an Arab coalition did the same. In the same way that the recent incursion resulted in the ongoing Irael-Hamas War, so the events of 1973 led to the Yom Kippur War. So far, due to the exceptional efforts of U.S. Secretary of State, Antony Blinken, and his team, the Israel-Hamas War has not widened into a war that could have disastrous consequences for the oil price, but it may yet do so. In 1973, though, the Yom Kippur War led directly to an embargo by OPEC members – plus Egypt, Syria, and Tunisia – on oil exports to the U.S., the U.K., Japan, Canada, and the Netherlands in response to their collective supplying of arms, intelligence resources, and logistical support to Israel during the War. By the end of the embargo in March 1974, the price of oil had risen around 267 percent, from about US$3 per barrel (pb) to over US$11 pb. This, in turn, stoked the fire of a global economic slowdown, especially felt in the net oil importing countries of the West. However, from a long-term perspective, even more important than any of this was the way it changed U.S. policy towards Saudi Arabia and OPEC from that point. Judging from recent announcements from the U.S., the current Israel-Hamas War may have prompted the final phase of that policy made back in 1974. At the end of the embargo in 1974, some branded it a failure, as it had not resulted in Israel giving back all the territory it had gained in the Yom Kippur War. However, in a broader sense, a wider war had been won by Saudi, OPEC, and other Arab states in shifting the balance of power in the global oil market from the big consumers of oil (mainly in the West at that time) to the big producers of oil (mainly in the Middle East at that point). This shift was accurately summed up by the slick, clever and urbane then-Saudi Minister of Oil and Mineral Reserves, Sheikh Ahmed Zaki Yamani, who was widely credited with formulating the embargo strategy. Crucially for what followed in terms of U.S. policy, one titanic figure in Washington agreed with Yamani’s view, and this was the late Henry Kissinger. A extremely influential geopolitical strategist who served as U.S. National Security Advisor from January 1969 to November 1975, Secretary of State from September 1973 to January 1977, and senior adviser to many U.S. presidents after that, Kissinger came to three key conclusions based on that 1973/74 Oil Crisis, analysed in full in my new book on the new global oil market order. The first was that the U.S. could never truly trust Saudi Arabia again, as it had broken the underlying ethos of the foundation stone agreement between the two countries made back on 14 February 1945 between the then-US President, Franklin D Roosevelt, and the then-Saudi King, Abdulaziz bin Abdul Rahman Al Saud, as also detailed in the book. This deal had run smoothly from that point to the onset of the 1973/74 Oil Crisis, and it was simply that the U.S. would receive all the oil supplies it needed for as long as Saudi Arabia had oil in place and, in return for this, the U.S. would guarantee the security both of Saudi Arabia and its ruling House of Saud. Saudi Arabia had clearly broken this covenant in leading the embargo on oil supplies against the U.S. Kissinger’s second conclusion was that the U.S. needed to expedite its efforts to become self-sufficient in energy resources as soon as possible, with a focus in the shorter term on oil supplies. He did not have any clear idea at that time when that self-sufficiency might come, as the shale oil and gas revolution was not even in the significant development stage at that point. Third, Kissinger concluded that the best course of action for the U.S. to keep obtaining all the oil and gas it needed to retain its top global economic and political position was to ensure that the Middle Eastern countries did not band together again in the future against the U.S. The optimal way for the U.S. to ensure this, he successfully argued, was to use the ‘divide and rule’ principle between the region’s major oil and gas producers, which in turn was a variant of the ‘triangular diplomacy’ he had advocated and used to great effect in the U.S.’s dealings with Russia and China at that time. In short, this involved playing one side off against the other by leveraging whatever fault lines ran through the target countries at any given time, be they economic, political, or religious, or any combination thereof. There are multiple major examples of this policy at work analysed in my new book, but two of the most significant were leveraging the religious schism between Shia and Sunni Islam (as exemplified respectively by Iran and Saudi Arabia), and the undermining of resurgent ideas of pan-Arabism. In the case of the former, notable examples have included the U.S. invasion of Iraq in 2003, and its unilateral withdrawal from the ‘nuclear deal’ with Iran in 2018. In the latter’s case, notable examples include the U.S. sponsorship of the Egypt-Israel Peace Treaty, after which Egyptian President Anwar Sadat was assassinated, and the Arab–Israeli relationship normalisation deals. From 1974 to the 2014, this U.S. strategy was broadly successful in ensuring no re-occurrence of meaningful collective actions against it by Saudi Arabia and OPEC. However, by early 2014, it had become obvious to the Saudis that the U.S. had found a way that might ensure its energy independence in the future, as it had long wanted.
Swan Energy announces pre-payment of Rs 3 billion debt for its FSRU Project
Swan Energy Ltd on Tuesday said that TOPL, subsidiary of the company, has pre-paid Rs 3.00 billion, out of its internal accruals, to its consortium of senior lenders of Floating Storage and Degasification Unit (FSRU) Project. “TOPL has also created the required Debt Service Retention Account (DSRA) of ~Rs 950 million,” it said in a regulatory filing. The FSRU vessel was commissioned in February 2023, which represents India’s first new build FSRU initiative, embodying Swan Energy’s leadership in ushering transformative developments in the LNG sector. “The partial debt prepayment is a significant milestone achievement and demonstrates a strong financial position,” the company said. Swan Energy holds a 32.12 per cent stake in the Jafarabad unit.
IOCL green H2 tender in legal mess, gets one bid
The tender to set up the first green hydrogen plant of state-run oil refiner and marketer Indian Oil Corp. Ltd (IOCL) received one bid till the 29 November deadline, people aware of the development said. The bid came from GH4India Pvt. Ltd, which is IOCL’s own joint venture (JV) with infrastructure and engineering major Larsen & Toubro (L&T) and renewable energy company ReNew, the people said on the condition of anonymity. The JV, in which all three companies have equal stakes, was formed this year in August. Meanwhile, an industry body of green hydrogen firms has approached the Delhi high court, alleging bias towards IOCL’s JV in the tender clauses. “Around 50 players had participated in the pre-bid consultation. However, only one player submitted the bid due to the right of first refusal clause,” said another person aware of the development. According to the people cited above, the right of first refusal clause (Clause 19 of the tender) gives IOCL preferential right to purchase excess green hydrogen generated at the green hydrogen generation unit (GHGU). In case IOCL does not confirm the purchase within 60 days, the operator can offer the gas to third-party customers. However, the price offered to them cannot be lower than what was offered to IOCL. Other terms and conditions offered, too, must be less favourable than those offered to IOCL. “The parties would have to agree that IOCL shall be entitled to exercise its right of refusal every time the quantity of the green hydrogen generated at the GHGU increases on account of capacity augmentation or technological upgradation, modification or restructuring,” said one of the people earlier.
Clock ticking on India’s crude oil reserves, petroleum ministry gives time of 15 year
India’s crude oil reserves will last another 15 years in the absence of new finds, the petroleum ministry has informed a parliamentary panel. “The E&P (exploration and production) companies under all regimes have reported 447.57 million tonnes (mt) of 2P Reserves (Proved + Probable) as of April 1, 2022. At the current annual production level, the reserves will last for about 15 years provided no new reserves are accreted,” the oil ministry said. The calculations did not consider reserves that are recoverable technically nor did it take into account future discoveries. “Thus, oil reserves are likely to last longer from the current estimate,” the ministry has qualified. India consumes about 5.5-5.6 million barrels per day, with the share of imports about 4.6 million barrels per day, which is about 10 per cent of the overall oil trade in the world. The import of crude by oil PSUs jumped to 141.2mt in 2022-23 from 120.5mt in 2021-22. As per the International Energy Agency’s World Energy Outlook 2022, the energy demand of the country is expected to grow at about 3 per cent per annum till 2040, compared with the global growth rate of 1 per cent. Asian premium Most of the foreign national oil companies declare the selling price of crude oil for different grades. They declare it either as a flat price or as a premium or discount to the marker crude oil. The ministry informed the panel that over and above the official selling price, an extra cost called the Asian premium is levied on the purchase of oil. The levy is on account of lower transportation costs due to the proximity of India to West Asia from where the country imports a big share of its crude oil requirement. This, however, impacts the gross refining margins of the companies. The panel report said: “The official selling price (OSP) decided by the national oil companies (NOCs) in the West Asia needs better transparency. The oil PSUs along with other oil importing companies should try to impress upon the NOCs to fix OSPs based on certain formulae.” “The price of crude oil has no relation with the production cost, etc. Since the commodity is a natural resource endowed upon some countries the pricing should be reasonable to ensure energy access at affordable prices to citizens across the world.” Since the oil-producing countries to a large extent are acting in a concerted way, the price of crude oil is largely producer-determined rather than market-driven. “The committee would recommend the ministry to coordinate with other oil importing countries and approach multilateral institutions to bring reforms in the pricing of crude oil to availability at a reasonable price to the global community,” the report added
Oil Prices Steady Before Holiday
Crude oil prices were trading slightly down on Friday afternoon, just hours before the weekend and the Christmas holiday, reasonably unaffected by Angola’s decision to quit OPEC. The price of a barrel of WTI was trading at $74.03, $0.07 down on the day, or a 0.09% dip. Last year, the Friday before Christmas saw WTI trading higher than today, at $79.56 per barrel. Since that time last year, WTI has exchanged hands between $67 and almost $92 per barrel. Brent crude was trading at $79.23 per barrel on Friday, a $0.16 drop or a 0.20% decrease. That’s down from about $84 per barrel around last Christmas. Over the past week, WTI has risen from just under $72. Gasoline prices in the United States have also risen over the last week. The current price for a gallon of regular-grade gasoline in the United States is now averaging $3.129 per gallon, according to the latest AAA data. That compares to $3.087 per gallon a week ago. Last year at this time, gasoline prices averaged $3.101 per gallon, just 2.8 cents below today’s average prices. This week saw the first weekly increase in gasoline prices since September. What doesn’t appear to be affecting oil or gasoline prices is Angola’s decision to quit the OPEC group. Angola and Nigeria were given lower crude oil production quotas as part of the OPEC+ agreement this summer, after the two producers had underperformed and failed to pump to their quotas for years due to a lack of investment in new fields and maturing older oilfields. The two members disagreed with the ruling, which delayed the latest OPEC meeting. The issue was unresolved as of the latest meeting, and Angola earlier this week decided to part ways with OPEC. Oil prices initially fell, but had steadied out by Friday.