Supply and Demand Shocks Still Rocking Energy Markets
A year and a half after a renowned Harvard professor described the pandemic of 2020 as “the mother of all shocks” to energy markets, oil and gas prices are still being rocked by supply and demand shocks, with economic growth trends and geopolitical tensions offsetting or exacerbating them. “One reason why oil and gas prices are so volatile is that short-term demand for energy responds much faster to changes in growth than to price changes. So, when there is an energy shock, it can take a huge price change to clear the market,” Kenneth Rogoff, a Professor of Economics at Harvard University and former Chief Economist and Director of Research at the International Monetary Fund (IMF), wrote in an opinion piece in Project Syndicate in July of 2022. The big shock to energy markets that year was the impact of the Russian war in Ukraine on global oil and gas supply and prices. Yet, the pandemic of 2020 was “the mother of all shocks, bringing about the biggest sustained shift in demand since World War II,” Rogoff said. According to the economist, in the longer term, “Giant waves of supply and demand shocks will likely continue to roil energy markets and the global economy.” Shocks are always lurking around the corner in the energy markets. After the big Russian export destination shift, the geopolitical event of 2023 that disrupted flows again was the Hamas-Israel war, which started in the last quarter of the year. The market had just adjusted to Russia’s crude and oil products going to Asia, Africa, and South America instead of to Europe. Now, it’s grappling with trade route changes as tankers carrying oil and LNG have started to avoid the Suez Canal and the Houthi missile attacks in the Red Sea and are opting for two-week-longer routes via the Cape of Good Hope in Africa. These new shocks to global oil and gas markets have been largely offset by constant concerns about the state of the global economy and fears that recession hasn’t been avoided yet. According to Rogoff’s forecast, carried in Project Syndicate last month, 2024 could be a “rocky year for everyone.” The economist believes that the chances of a recession in the U.S. are still “probably around 30%, compared to 15% in normal years.” China still faces “several daunting challenges” to have its economy recover to 5% annual growth, while other emerging markets could be most at risk to withstand a crisis if the global economy falls short of expectations, Rogoff says. In oil markets, on the supply side, OPEC+ continues to cut production and exports in 2024, while non-OPEC+ producers have surprised to the upside with supply growth, offsetting some of the cartel’s cuts. The shock on the natural gas markets from 2022 and early 2023 after the Russian invasion of Ukraine was mitigated by a warmer 2022/2023 winter and industrial slowdown in Europe, as well as high LNG imports and a rush to replenish stockpiles, which were full to the brim ahead of this winter. After the pandemic, economic and geopolitical factors continued to surprise energy markets, leading to high volatility. Crude oil prices, which had tanked in the spring of 2020, surged to above $130 in the wake of the Russian invasion of Ukraine. Natural gas prices hit records in August 2022 when Russia cut off most pipeline gas supply to Europe. Still, shocks such as the Hamas-Israel war that would have pushed prices higher have been offset by continued concerns about the global economy. Demand has been resilient over the past year, but concerns about economies are keeping a lid on oil price spikes from the rising tensions in the Middle East, the world’s most important oil-exporting and oil trade route region. Weak economic data and the ongoing property crisis in China, plus a U.S. economy not out of the woods yet, have also contributed to a muted market reaction to OPEC’s cuts to supply. Following a short-lived spike in oil prices after the Hamas-Israel conflict began in early October, futures have traded in a narrow $75-$80 a barrel range, suggesting that economic and demand reduction shocks could outweigh in the near term supply shocks, unless a wider conflict in the Middle East cuts actual supply to the market.
LNG Prices Linger at 7-Month Lows Despite High Asian Imports
Ample supply is keeping spot LNG prices in Asia around the lowest level in seven months, defying seasonal patterns in which prices spike in peak winter. Last week, the average LNG price for March delivery into northeast Asia was up by $0.10 week-on-week to $9.60 per million British thermal units (MMBtu), remaining close to the seven-month low of $9.50 per MMBtu from the previous week, according to estimates from industry sources quoted by Reuters. For a third week in a row, Asia’s spot LNG prices remained below the $10/ MMBtu threshold, despite the season–peak winter in north Asia. Comfortable inventories and reduced demand, coupled with high exports from the top LNG exporters the U.S., Australia, and Qatar, are keeping prices muted. Asia’s LNG imports were estimated to have hit in December a record-high for any month in history as China regained the top importer spot from Japan and lower spot prices incentivized purchases. Imports of LNG into Asia rose to 26.5 million metric tons in December, per data from commodity analysts Kpler reported by Reuters columnist Clyde Russell. In January this year, Asia is estimated to have imported LNG volumes of 26.13 million tons, close to the record-high level from the previous month. But supply has also increased, especially from the United States and Australia, Reuters’ Russell notes. U.S. LNG exports are estimated to have reached a record high in December and the second-largest volumes in January, according to the data Russell quoted. Outside Asia, demand in Europe is tepid, with industries hesitant about boosting natural gas consumption, although prices are now a fraction of the records seen in 2022 and Europe appears to have put the worst of the energy crisis behind. The still high volatility in gas futures prices, compared to historical averages, and uncertainties ranging from geopolitical flare-ups in the Middle East to the U.S. pausing new LNG export project approvals, continue to be a concern for European industrial gas customers, analysts tell Bloomberg. Weak demand from Europe’s industry, due to lower consumption and weak economies, has been one of the reasons of the gas price slump this winter, despite the peak demand period for heating.
Green hydrogen: Proposals for projects worth ₹2.70 trillion received, says energy minister
To boost energy production from non-conventional sources, the Uttar Pradesh government was spearheading campaigns such as installing rooftop solar panels in 25,000 homes in Varanasi, energy minister AK Sharma said here on Saturday adding the goal was to provide roof-to-grid solarisation to 1.35 million households across the state. He also said that the state had received proposals for projects worth ₹2.73 trillion from 20 companies for setting up green hydrogen facilities. “The move is expected to reduce carbon emissions and create employment opportunities for 1,20,000 individuals in renewable energy,” he said. The state, he said, was actively participating in the National Green Hydrogen Mission, also offering subsidies for the purchase of biomass collection machinery and supporting the establishment of compressed biogas, biodiesel and bio-coal units. “The state aims to capitalise on the renewable energy sector and provide technical skills training to the youth in manufacturing, maintenance, and operation of solar facilities. The focus on green hydrogen aligns with the national goal of achieving net-zero carbon emissions by 2070, as announced by Prime Minister Narendra Modi,” Sharma said.
India’s crude oil imports from Russia hit 12-month low but long-term appetite remains intact
India’s crude oil imports from Russia fell for a second straight month in January to its lowest in 12 months but the nation’s insatiable appetite for Russian crude remains for the long term, according to data from energy cargo tracker and industry officials. Russia supplied 1.2 million barrels per day of crude oil to India in January, down from 1.32 million barrels in December and 1.62 million barrels in November 2023, according to data from energy cargo tracker Vortexa. Russia however continues to remain India’s top oil supplier, accounting for a little less than a quarter of 4.91 million barrels a day of oil that the world’s third largest energy consumer imported in January. The decline in cargoes from Russia was made up by increased sourcing from Iraq, which supplied 1.1 million barrels per day (bpd) in January, up from 985,000 bpd in the previous month. Supplies from Saudi Arabia declined to 659,000 bpd from 668,000 bpd in December. India is more than 85 per cent dependent on imports for its needs of crude oil, which is converted into fuels such as petrol and diesel at refineries. Its appetite for Russian oil swelled ever since such oil started trading on discount as the West shunned it to punish Moscow for its invasion of Ukraine. According to Vortexa, an energy intelligence firm, India imported just 36,255 bpd of crude oil from Russia in December 2021 as compared to 1.05 million bpd from Iraq and 952,625 bpd from Saudi Arabia. There were no imports from Russia in the following two months but they resumed in March, soon after the Ukraine war broke out in late February. Imports from Russia soared to an all-time high of 2.1 million bpd in June last year, accounting for almost 40 per cent of all oil India imported. According to Serena Huang, Vortexa’s head of APAC analysis, the reason for the fall in Russian crude oil import in last couple of months was the narrowing of Russian crude discounts versus Middle Eastern crude, recent US sanctions on shipowners carrying Russian crude above the price cap and rising tanker premiums as a result of the Red Sea attacks. Also, some state refiners rushed to fulfill term commitments with Middle Eastern suppliers, industry officials said adding the removal of sanctions on Venezuela has whetted the appetite of private Indian refiners to resume purchases from the South American supplier. Indian refiners started snapping up crude shipments from Venezuela after a three-year suspension in September 2020. These developments together have contributed to a slowdown in Russian purchases. Industry officials said the long-term demand for Russian crude oil remains intact. “A dip in one month and rise in another doesn’t tell you the entire story. The fact remains that Indian companies will continue to buy Russian crude oil as long as they make economic sense,” an official said. Indian state firms buy Russian crude oil on a delivered basis, meaning the supplier has to make arrangements for shipping and the buyer pays only when oil is delivered at the receiving port. This is unlike sourcing from the Middle East where the buyer pays for shipping and insurance. “Till such time that the delivered cost of Russian crude oil is less attractive as compared to alternate sources, Indian refiners will buy,” another official said. Trade sources and analysts also said that refiners are currently expressing increasing concerns about rising shipping costs and insurance. The US in December imposed sanctions on ships and vessel operators carrying Russian oil sold above the USD 60 a barrel cap set by the Group of Seven nations. Several tankers had to divert as banks and service providers were asked to ensure cargoes do not breach the price limit. Hindustan Petroleum Corporation Ltd (HPCL) chairman Pushp Kumar Joshi at an investor call last month said Russian oil made up for 30 per cent of all oil that the company imported and that the company has tied up supplies from Russia and other sources till mid-April. Bharat Petroleum Corporation Ltd (BPCL) chairman G Krishnakumar at an earning call late last month stated that 40 per cent of all crude oil that the firm imported in December quarter came from Russia.
SAF, Green Hydrogen, CCUS likely to be in spotlight at IEW 2024: EIL CMD
India is gearing to host the second edition of its flagship energy sector event, India Energy Week (IEW) 2024, in Goa from February 6-9. In the run-up to the event, PSU Watch spoke to Engineers India Limited’s (EIL) Chairperson and Managing Director Vartika Shukla to get a sense of the themes that will dominate the discussions at the marquee event. According to Shukla, Sustainable Aviation Fuels (SAF), Green Hydrogen and Carbon Capture, Utilisation and Storage (CCUS) technologies, along with digitalisation and automation are going to be the key themes that will be in the spotlight at IEW 2024. Here are excerpts: What are you looking forward to the most at India Energy Week? As you are aware that IEW 2024 is a platform where more than 350 exhibiting companies will engage with a diverse audience of over 35,000 energy professionals, forging meaningful connections, fostering collaborations, unveiling innovations and exchanging insights that will be integral to shaping the future of India’s energy landscape. This event shall be setting the narrative through several experts-led deliberations for a smooth energy transition for India vis-à-vis the global scenario in the years to come. We look forward to interacting with the industry leaders and technologists in the areas, inter alia, including Sustainable Aviation Fuels (SAF) technologies, CCUS technologies, Waste-to-Energy and value-added products, niche chemicals, Crude-Oil-to-Chemicals (COTC), evolving green hydrogen (GH2) production technologies, etc. We are keen to offer EIL’s engineering and innovative technology services in these emerging areas to buttress the efforts led by the industries toward the stated net-zero objectives of the country. What does your company plan to showcase? EIL is planning to showcase the engineering and technological prowess attained in its journey of around six decades serving clientele from various sectors in the areas of Oil & Gas, Fertilizers, Energy Efficient Infrastructure, Digitalization & Automation, Renewable Energy, etc. EIL will be presenting its unique track record of organisational capabilities and diversified experience in the energy industry through various thematic areas designed around innovative technologies developed by EIL. Some of them include our technology offerings for Bio-ATF production, Green Hydrogen/ Green Ammonia, Concentrated Solar Thermal (CST) technology etc. EIL will showcase its contribution to make India Atmanirbhar primarily in the energy sector by building a strong and potent manufacturing sector of the nation through its diversified operations, indigenous technology development, and venturing into the supply of proprietary engineered products. EIL is also planning to showcase its efforts in decarbonising its operations and technical solutions developed thereof for the assessment of the carbon footprint of the industry to assist global energy companies in achieving their energy transition objectives. According to you, what would be some of the themes that will be in the spotlight this year at IEW 2024? We believe the pace of technology development and its implementation particularly in the green energy sector has accelerated manifold in comparison to its state in the previous decade. India is poised to set up renewable power infrastructure on a significantly large scale to meet the twin objectives of meeting its burgeoning energy demand as well as achieving its Intended Nationally Determined (INDC) targets. At IEW 2024, we are going to witness deliberations around various possibilities of integrating renewable energy into the existing systems and processes. It is worth mentioning here that EIL has also executed Memorandum of Understanding (MoU) with Sunrise CSP Group for collaboration in the area of Concentrated Solar Technology (CST). EIL is offering solutions to integrate CST technology in various applications ranging from reducing the fossil fuel firing in process units to 24×7 power generation.
MRPL signs 5-year pact with BPCL for RLNG supply from Kochi
Mangalore Refinery and Petrochemicals Ltd. (MRPL) has signed a five-year gas supply agreement with the Bharat Petroleum Corporation Limited (BPCL). Under the agreement, BPCL will supply 0.43 MMSCMD (Million Metric Standard Cubic Metres a Day) of RLNG (Regasified Liquefied Natural Gas) to MRPL’s refinery and petrochemical facility in Mangaluru from its Kochi terminal. Sathyanarayana H.C., Group General Manager (Technical Services) of MRPL and Santhosh Sontakke Chief General Manager, Sourcing, Sales and Logistics (Gas) of BPCL, signed the pact in Mangaluru on February 1. Gas plays a significant role in refining crude oil, reducing feed costs, optimizing fuel, and lowering overall emissions from the refinery. MRPL intends to utilise RLNG as feed for the production of hydrogen and fuel for gas turbines to generate power, steam, and various furnaces. Using natural gas in the refinery helps reduce both the emissions and carbon footprint of the refinery, a MRPL release said on Saturday. Based on economics, the refinery will replace naphtha, diesel and fuel oil with RLNG, it said.
ONGC, IOC, other oil PSUs to invest ₹1200 billion in FY25
ONGC, IOC and other oil PSUs will invest about ₹1200 billion in the coming fiscal starting April in oil and gas exploration, refineries, petrochemicals and laying pipelines to meet the needs of the world’s fastest-growing energy consuming nation. The investment proposed in 2024-25 is 5 per cent higher than ₹1120 billion spent by the State-owned oil firms in the current fiscal year that ends on March 31, according to Budget 2024-25 documents. Oil and Natural Gas Corp (ONGC) has a planned capital spending of ₹308 billion in the next financial year. This expenditure in finding new reserves of oil and gas and bringing to production discoveries it has already made, is slightly higher than ₹305 billion capex in 2023-24 fiscal (April 2023 to March 2024). It is developing discoveries on both east and west coasts of the country. The top oil producer’s overseas arm, ONGC Videsh Ltd (OVL) will invest 68 per cent more at ₹55.80 billion in 2024-25 in oil and gas operations abroad when compared with the previous fiscal. Indian Oil Corp (IOC), the country’s top oil refiner, will be the top spender with an investment outlay of ₹309.10 billion, with the bulk of it in expansion and upgrade of its seven refineries that produce fuel. This outlay also includes ₹32.99 billion in the petrochemical business and another ₹2.3648 billion in the small oil and gas exploration portfolio it has. The investment planned by IOC is less than ₹312.54 billion spending in the current 2023-24 fiscal. Bharat Petroleum Corp Ltd (BPCL) has proposed a 30 per cent higher capital spending at ₹130 billion, two-thirds of which will be in its core refining business. Gas utility GAIL India Ltd will see its planned investment decline to over ₹80 billion in 2024-25 from ₹97.50 billion in the previous fiscal as most of its pipeline grid expansion projects are nearing completion. Hindustan Petroleum Corp Ltd (HPCL), a subsidiary of ONGC, will invest ₹125 billion in FY25, marginally higher than ₹120 billion in the previous year. Oil India Ltd, the nation’s second-largest oil producer, will invest ₹68.80 billion next year as compared to ₹56.48 billion in the current fiscal. In her interim budget for 2024-25 ahead of general elections, Finance Minister Nirmala Sitharaman had on February 1 put off capital support to oil marketing companies — IOC, BPCL and HPCL — to the next fiscal year. She, while presenting the annual Budget for 2023-24 on February 1 last year, announced equity infusion of ₹300 billion in IOC, BPCL and HPCL to support their energy transition plans. Alongside, she had also proposed ₹50 billion for buying crude oil to fill strategic underground storages at Mangalore in Karnataka and Visakhapatnam in Andhra Pradesh that India has built to guard against any supply disruptions. In November last year, the Finance Ministry halved the equity support and the documents of the interim budget for 2024-25 Sitharaman presented in Lok Sabha on Thursday showed no allocation for equity infusion in the current fiscal. The ₹150 billion has now been earmarked for 2024-25 fiscal (April 2024 to March 2025). The budget documents did not provide any funds either in the current fiscal or the next for filling the strategic reserves. While other state-owned oil companies such as ONGC and GAIL (India) Ltd too have lined up billions of dollars of investment to achieve net zero carbon emissions, the equity support was limited to the three fuel retailers, who had suffered huge losses in 2022 when they held retail petrol, diesel and cooking gas (LPG) prices despite a spike in raw material (crude oil) prices following Russia’s invasion of Ukraine..