Aramco, ADNOC reportedly weighing bids for Australia’s Santos, but analysts sceptical
Saudi Aramco and Abu Dhabi National Oil Company (ADNOC) have been separately considering bids for Santos, Bloomberg News reported, sending shares of the Australian gas producer up 6.5% on Thursday. Both Saudi Aramco and ADNOC have been conducting preliminary evaluations of Santos as a possible acquisition target, the report said, citing sources who declined to be named as the information was private. The sources said Santos could attract interest from other potential buyers, according to the report. Deliberations are on, and the suitors have not decided whether to proceed with any proposals, it added. “Santos does not comment on media speculation,” a company spokesperson said. Saudi Aramco did not immediately respond to Reuters’ request for comment, while ADNOC declined to comment.
Why U.S. Oil and Gas Production Is Slowing Down
Slowing drilling activity in the U.S. shale patch is capping oil production growth while natural gas output is down from year-ago levels amid above-average inventories and unsustainably low prices earlier this year. Oil and gas prices have dropped since the highs from the summer of 2022 when they spiked following the Russian invasion of Ukraine. The decline in U.S. benchmark oil and gas prices over the past nearly two years has reduced – with a lag – drilling activity in the shale patch. America’s oil and gas production hit record highs at the end of 2023 and continues to be close to all-time highs, but growth has slowed down in oil output while gas production has started to fall after a mild 2023/2024 winter boosted inventories to above-average levels and sunk Henry Hub gas prices to $1.80 per million British thermal units (MMBtu) in February 2024, compared to $9 / MMBtu in August 2022. Oil Output Growth Slowing Crude oil production from the Lower 48 basins, which exclude the federal offshore Gulf of Mexico, increased by 500,000 barrels per day (bpd) in April 2024 from the same month in 2023. But in April last year, the annual growth in the Lower 48 output stood at 900,000 bpd, per EIA data cited by Reuters market analyst John Kemp. The number of oil rigs currently stands at 479—down by 66 compared to this time last year, according to the latest Baker Hughes data. Despite the decline in the number of oil rigs, U.S. oil production has grown compared to year-ago levels, mostly thanks to efficiency gains, analysts say. Amid the ongoing consolidation in the American oil and gas industry, producers have become bigger and are focusing on shareholder returns. They wouldn’t be inclined to respond to every price spike with a major boost in drilling that ultimately floods the market with oil and depresses prices. The big companies are looking to become bigger by adding premier assets of the takeover targets to their portfolios. And the key driver of the industry now is returning more to shareholders and preparing for inventory stacked up for years of production ahead, without the need to grow organically by investing too much cash flow into the drilling of new locations and wells. In the second quarter of the year, oil production was essentially unchanged from the first quarter, amid a modest rise in the overall business activity index, according to oil and gas executives responding to the latest Dallas Fed Energy Survey. “WTI (West Texas Intermediate) crude and Henry Hub natural gas pricing directly affects our business as we are operating existing wells and providing cash flow to investors,” an executive at an exploration and production (E&P) firm said in comments to the survey. Another E&P executive added, “The last few years of mergers and acquisitions have decreased activity in the oil patch. The majors are not going to exhaust reserves to raise domestic production until supply and demand curves meet their goals.” “They do not have to participate in treadmill drilling to keep incomes at a pace to develop reserves and pay back loans.” So, growth in shale production is set to slow down. Lower 48 oil production growth exceeded expectations in 2023, adding 900,000 bpd of supply last year, but Wood Mackenzie expects Lower 48 oil production to grow by just 270,000 bpd in 2024 and another 330,000 bpd in 2025. Last year, big efficiency gains allowed operators to meet or exceed expectations for wells turned in line, which helped boost production with significantly fewer rigs, according to WoodMac’s principal analyst Nathan Nemeth. “However, efficiency gains and associated well cost savings are not translating into more drilling activity like we’ve seen in the past. Instead, E&Ps have reiterated plans to return cash to shareholders,” Nemeth noted. Natural Gas Output Declines While U.S. oil production continues to rise, albeit at a slower pace, natural gas output has dropped from December 2023 highs, and production has turned lower compared to year-ago levels. Dry natural gas production was 101.7 billion cubic feet per day (bcf/d) in April 2024, down from 102.7 bcf/d in April 2023, the lowest for 16 months. Major natural gas producers curtailed some output in the spring in response to the price slump earlier this year, which saw prices tumble to a three-decade low. In its latest Short-Term Energy Outlook, the EIA expects U.S. marketed natural gas production to drop by 1% this year, led by a 9% decline in the Haynesville region and 4% decline in the Appalachia region as some producers have limited development and production due to low natural gas prices. The current refill season has seen lower injections into storage so far, due to rising demand for gas-powered electricity in the summer heat waves. However, gas inventories are above average for this time of year, and working natural gas stocks for the week ending June 26 were 21% higher than the five-year average and 11% higher than last year at this time, per EIA data. The EIA expects storage inventories to end the summer injection season on October 31 at 6% above the five-year average. “If U.S. natural gas production is lower than our forecast and consumption in the electric power sector to meet air-conditioning demand increases more than we expect, natural gas prices could be higher than forecast,” the administration said.
Blue Energy Motors Spearheading India’s LNG Revolution in Long-Haul Trucking
India’s ambitious environmental goals have ignited a vital discussion: is Liquified Natural Gas (LNG) the pivotal transition fuel? In an exclusive interaction with Anirudh Bhuwalka, CEO of Blue Energy Motors, Rajesh Rajgor explores the company’s pioneering efforts in bringing LNG trucks to India. Bhuwalka emphasizes collaborations with industry giants like the IVECO Group and stresses LNG’s significant effects on emissions, efficiency, and cost. Through proactive maintenance and strategic partnerships, Blue Energy Motors strives to spearhead India’s shift towards cleaner transportation energy solutions. India is rapidly expanding its LNG fueling infrastructure, planning to establish 1,000 stations along major highways and industrial areas to promote cleaner transportation fuels, led by the Ministry of Petroleum and Natural Gas (MoPNG) and major oil companies like IOCL, BPCL, and HPCL. This initiative aims to support the transition from diesel to LNG for heavy-duty vehicles, particularly long-haul trucks, aligning with India’s strategy to enhance energy security and sustainability in its transportation sector. India aims to reduce its carbon intensity by 45% by the end of the decade and achieve zero emissions by 2070. Bhuwalka highlights the pressing need to address pollution levels, stating, “India has around 4 million medium and heavy-duty vehicles, which contribute significantly to pollution. Although commercial vehicles constitute only about 4% of the vehicles on the road, they are responsible for 40% of automotive pollution. Within this 40%, heavy-duty vehicles account for 65% of the emissions. This underscores the urgency of tackling emissions from the transportation sector.” Moreover, Bhuwalka stresses the urgency of decarbonizing the trucking industry, stating, “The numbers are staggering,” and warning that “With India’s economy poised for further growth, this pollution is set to double in the next decade.” He emphasizes the need for immediate action to prevent worsening air quality and congestion in cities. Turning to potential solutions, Bhuwalka highlights the merits of LNG as a transition fuel, asserting, “While LNG may not be as clean as electric or hydrogen options, it offers immediate benefits,” and citing their experience with LNG trucks showing “a 30% reduction in carbon footprint compared to diesel.”
Need to unbundle natural gas marketing and transportation, says Indian Gas Exchange CEO
India needs an independent system operator to ensure fair access to full capacity of natural gas pipelines for all market players, says Indian Gas Exchange (IGX) CEO Rajesh Kumar Mediratta. In an interview with Sanjeev Choudhary, Mediratta called for splitting of gas companies engaged in both marketing and transportation to end the advantage bundled entities enjoy over standalone marketers. Edited excerpts: What are some of the measures the government can take to develop domestic natgas market? If we want to develop our natural gas market, we need to bring best practices with a level playing. Bundled and unbundled marketers should have equal access to information and the same imbalance or ship-or-pay charge mechanism. The absence of transparent and non-discriminatory access to gas grid impedes competition and, ultimately, stifles the growth of the gas market. The solution is to split bundled entities into two – one to look after marketing function and other for transportation. Until then, the two functions should work at an arm’s length, with tough ring-fencing regulations. Do we need an independent system operator? We need an independent system operator to ensure fair access to the full capacity of pipelines for all market players. The scheduling, nomination, imbalance management for all pipeline capacity may be done on a non-discriminate and neutral basis. This will help boost participants’ confidence in the gas market and encourage customers to shift to gas. How crucial is it to bring gas under goods and services tax (GST)? The gas trading market is currently fragmented due to the route-based and counterparty-dependent pipeline tariff collection and different state taxes. To address this, it is essential to rationalise the system to a counterparty-independent and route-agnostic mechanism, such as the ‘entry-exit’ or one common tariff. The government should consider bringing natural gas into the ambit of GST.
India’s LNG imports set to slump as monsoon hits power demand
India’s booming liquefied natural gas imports are likely to slow as cooler weather due to monsoon rains crimps electricity demand and increases in hydropower crowd out expensive gas-fired generators. “Electricity demand won’t be as high as it was in May and June, which is the prime driver of higher LNG imports,” said Ayush Agarwal, LNG analyst at S&P Global Commodity Insights. India bought some 2.6 million tons of the fuel last month, its highest since October 2020, according to Kpler data. That came on the back of affordable spot prices in the range of $11-$12 per million British thermal units, and as gas-based power plants cranked up generation to meet high demand. The shipments were driven by an emergency order to operate gas-fired plants, most of which typically remain under-utilized due to their high generation costs. That resulted in a 63% increase in output from the units during the three months through June. However, as the interim ruling came to an end on June 30, LNG imports are likely to see a decline for the remainder of the year, Agarwal said.