Brent crude may hit $100/barrel this year if OPEC+ continues output cut
The crude price in the international market could hit $100 a barrel this year if OPEC+ (the Organization of Petroleum Exporting Countries) continues with its production cut, said Russell Hardy, chief executive of the world’s largest energy trader, Vitol. Russell, speaking at the FT Commodities Global Summit in Switzerland’s Lausanne, also mentioned that Vitol is expecting global growth of 1.9 million barrels a day this year, similar to 2023, with China, India, and jet fuel from increased air travel continuing to underpin growth. “It’s really a supply-constrained market, but we’ve averaged about $83/b so far this year, so $80 to $100/b feels like a sensible range for the market given OPEC’s control of inventories around the world,” said Hardy. Due to various geopolitical issues, the Brent crude price is touching a new high, and today it is trading at $89.93 a barrel at 19.05 PM IST. It went above $91 per barrel on April 8, 2024, for the first time since October 2023, an increase of almost 20% since the start of the year. The ongoing tensions between Israel and Iran over the OPEC producer’s support for Hamas and recent attacks by Ukraine on Russian oil property can further increase the crude price in the international market. The voluntary production cut of 5 million barrels per day of crude announced by OPEC+ will further aggravate the situation. “Predictions that oil prices will hit $100/b this year have been growing of late, fueled by escalating tensions between Israel and Iran over the OPEC producer’s support for Hamas in Gaza and stronger-than-expected demand data,” said at S&P Global in a report. The situation is further aggravated by OPEC+’s voluntary production cut of 5 million barrels per day, announced in October 2022. Analysts at S&P Global believe the recent extension of these cuts, particularly by the “OPEC+ Six” (Iraq, the United Arab Emirates, Kuwait, Algeria, Kazakhstan, and Oman), combined with potential damage from Ukrainian attacks, increases the risk of even higher oil prices.
Europe becomes top spot for India’s exports of petroleum products
Europe became the top destination for India’s export of petroleum products such as petrol and diesel, supplying $18.4 billion worth of these products this fiscal, from April to January 2024. According to the commerce ministry data, India exported refined petroleum product the most, $10.9 billion, to the Netherlands, followed by $5.7 billion to Singapore, $5.4 billion to the UAE, $5 billion to the USA, $3.5 billion to Australia, and $3.2 billion to South Africa for the same period. Overall, India exported petroleum products worth $70.13 billion. In terms of crude oil imports, India received the largest quantity from Russia, followed by Iraq, Saudi Arabia, the UAE, and the USA from April to January 2024. The country imported crude worth $38.9 billion from Russia, with Iraq as the second-largest supplier at $23.4 billion. From Saudi Arabia, India imported crude worth $17.7 billion, and from the USA, it imported $4.7 billion worth of crude. Despite decreasing discounts on oil and sanctions from G7 nations due to its actions in Ukraine, Russia remained dominant supplier of oil to India in 2023-24. Initially, Russian crude was sold at a discount of $30/barrel to the international benchmark Brent, but now the discount has narrowed to $2-3 per barrel. As per the commerce ministry data, India’s imports from Venezuela also began. India imported $0.179 billion worth of crude from the South American country in January. India’s imports from Venezuela also began. India imported $0.179 billion worth of crude from the South American country in January. India, which resumed importing Venezuelan crude oil in December 2023 after a hiatus of more than three years, emerged as the largest buyer in January 2024 for the South American nation that has the world’s largest proven oil reserves. India exports petroleum products of $70 billion Overall, India exported petroleum products of $70 bn. In terms of crude oil imports, India received largest quantity from Russia, followed by Iraq, Saudi Arabia, the UAE, and the USA from Apr 2023 to Jan 2024.
Natural Gas should be subject to GST, says GAIL Chairman
The government would need to undertake major policy changes if the country is to meet its objective of more than doubling natural gas’s share in the energy mix to 15% by 2030, according to GAIL chairman Sandeep Kumar Gupta. Sanjeev Choudhary, the former finance chief of Indian Oil Corporation who will take over as CEO of India’s largest gas marketer and transporter in 2022, said in an interview that the government should mandate the use of natural gas in refineries and steel production, as well as make emissions a factor in the merit order for electricity dispatch, to help gas-based power compete with coal-based supply. He also stated that natural gas should be subject to the GST regime, the production-linked incentive (PLI) should be extended to LNG-powered vehicles, and the GST on CNG-powered vehicles should be reduced from 28% to 5%, on par with electric vehicles (EVs). The global gas market is well supplied, and there are no concerns regarding LNG prices. The arbitrary production limits imposed by OPEC+ have an impact on LNG prices, which are related to crude oil. The situation can be corrected if the production group reconsiders its judgment and takes proper action. Global LNG export capacity is expected to grow dramatically over the next few years, putting pressure on pricing. Is domestic gas demand rising? There is no significant increase, particularly in the power or fertiliser sectors. However, there has been an increase in city gas prices. Domestic demand would not increase significantly unless refineries, steel, and power plants made significant shifts to gas. What can be done to increase gas consumption? Some policy changes would be required if we are to attain our target of 15% gas in the domestic energy mix by 2030. Gas must be subject to GST, which will solve the issue of stranded input credit claims. The lack of input credit makes gas more expensive than competing liquid fuels. The gas should attract no more than 5% GST. The 14% central excise duty on compression should be removed because it is not a manufacturing activity. If we get tax relief, we can lower CNG pricing or offer incentives to drivers who switch to CNG. Approximately 80% of our gas-based power facilities are inactive because they cannot make it to the merit order. When a government has established a goal to increase the amount of gas in its energy mix and there is a climate challenge, the merit order should consider not just the cost of production but also the emissions. When emissions are taken into account, gas-based power will begin to displace other sources. To protect the environment, the government will need to compel the use of natural gas in refineries, steel plants, and other businesses. It should be mandatory for industries to adopt lower-emitting natural gas for a portion of their fuel needs. Refiners have a great capability to use natural gas, but their fuel decisions are now dictated solely by economic considerations. Are you concerned that EVs will grab part of your markets? The Centre is strongly supportive of electric vehicles. States are likewise at full throttle. This will reduce the need for CNG in such locations. LNG and CNG vehicles should be eligible for incentives similar to those provided to EVs. PLI for LNG cars should be provided. GST on CNG vehicles is currently 28%, but GST on EVs is only 5%. India’s energy grid is essentially grey today, hence gas should be supported as a transition fuel. What are your wider goals for GAIL? Our objective is to transform GAIL into a fully integrated gas value chain corporation with worldwide significance. We are seeking additional approval for pipes to complete the national gas grid. We also intend to add large gas or ethane-based petrochemical operations. Petrochemicals have enormous potential in India because we import a lot of them. However, the margins are not there. As a result, we would want tariff protection and budgetary incentives from the governments to invest in new facilities.
Gas Glut? Not for Long.
Natural gas prices are falling all over the world. There is abundant supply, and demand has been lukewarm this northern hemisphere winter, which was relatively mild. Indeed, the global gas market is in oversupply. This prompted Morgan Stanley to recently forecast a gas glut that we have not seen in decades. It was going to materialize as a result of strong growth in LNG production capacity, the bank’s commodity analysts said. They cited numbers showing that there was 400 million tons in such capacity to date, but another 150 million tons were under construction—“a record wave of expansion”. It appears the forecast was based on an assumption of not very strong demand growth—but it may be the wrong assumption. Because natural gas demand is set to grow, and grow quite robustly. At the same time, some producers, notably in the United States are already starting to withhold production, because of the low price of the commodity. Asia imported record volumes of liquefied natural gas last month, data from Kpler showed recently. The biggest buyers were China, India, and Thailand, with India’s LNG purchases up by 30% from a year earlier and China’s 22% higher than in March 2023. That record would not have been possible had prices not fallen—and prices had fallen because Europe was buying less LNG. The reason Europe was buying less LNG were its full gas storage sites. Winter was once again mild in Europe and it never got to exhaust the gas it had purchased in anticipation of the heating season. In fact, Europe saw record gas in storage as of the end of this heating season, and that contributed to the weakness of natural gas prices—along with the depressed industrial activity on the continent. The fact that demand for LNG immediately rebounded as prices fell suggests that the longer they stay low, the stronger demand will get, especially among countries that have been trying to reduce their consumption of coal in favor of gas. There are a lot of these, under pressure from transition-focused governments that, though no fans of any hydrocarbons, acknowledge that natural gas has a lower emissions footprint than coal. Two years ago, Europe priced these countries out of the market. Now, with prices so low, they may well consider returning to it, driving higher demand. Supply, on the other hand, may not grow as much as Morgan Stanley expects. The bank’s analysts point to U.S. gas exporters that are planning a lot of new LNG capacity. But whether all of this capacity would end up getting built is another question. Tellurian’s Driftwood LNG project is one example. The facility has been in the works for years, but it has kept failing to secure the necessary long-term buyer commitments to proceed. The future of Venture Global’s second LNG plant is also uncertain—as is the future of all new LNG plants as the federal government paused new capacity approvals. Demand, meanwhile, may be set for even stronger growth, thanks to artificial intelligence. Data centers, which already consume substantial amounts of electricity, are about to become an even bigger drain on the grid as AI gets incorporated in more services. This will automatically mean stronger demand for natural gas for generation—because wind and solar will not be able to handle the surge. “Gas is the only cost-efficient energy generation capable of providing the type of 24/7 reliable power required by the big technology companies to power the AI boom,” the founder of Energy Capital Partners, an investor in both alternative and hydrocarbon sources of energy, told the Financial Times recently. Doug Kimmelman added that gas will be critical for the power supply of data centers in the AI era. Demand for electricity from data centers, according to the International Energy Agency, is set to swell twofold from 2022 by 2026, potentially topping 1,000 TWh. This is a lot of electricity consumption and for all the pledges that Big Tech has made for using low-carbon energy to power its data centers, most of its actual energy comes from hydrocarbons, simply because there is no low-carbon energy that is available around the clock without interruption—and carbon credits can and are bought separately from the electricity they are tied to. All this means that the outlook for natural gas demand in the coming years is quite bullish. Low prices invariably stimulate stronger demand and in this case the ambition for lower emissions helps gas demand specifically grow even more strongly. Then there is the question of supply. It may look abundant now, but in a few months, U.S. drillers’ move to curb supply by drilling but not completing new wells will begin to be felt. Besides, no one can say how the next winter in the northern hemisphere will turn out. It may be mild, but it may be harsh. It is a little bit ironic that if the milder winters of the last two years were driven by climate change, Europe has climate change to thank for its lower use of hydrocarbons.