U.S. LNG Struggles to Balance Growth with Sustainability
The United States became the world’s largest exporter of liquefied natural gas a year ago amid a flood of cheap natural gas from the shale wells of Texas and New Mexico that prompted a series of LNG projects along the Gulf Coast. Lately, however, the industry has started to lose momentum—because of regulations and a federal government that’s all sympathetic ears to climate activists claiming that natural gas is even worse for the atmosphere than coal. In early August, NextDecade announced a $4.3-billion contract with Bechtel Energy to construct the fourth train of the Rio Grande LNG facility. The company planned to make the final investment decision on Rio Grande LNG in the second half of this year. Everything was going well. The project had even seen foreign investors come on board, including Emirati Adnoc and Saudi Aramco. Then, an appeals court canceled the project’s authorization from the Federal Energy Regulatory Commission. The court acted on claims by several environmentalist organizations that said the project—and another one, Texas LNG—would negatively impact the local environment and communities. The environmentalists first approached the Federal Energy Regulatory Commission, which had granted a permit for Rio Grande LNG, but after the commission refused to have another hearing, the green group, led by the Sierra Club, went to an appeals court and that court struck down FERC’s permit—and that’s after NextDecade added a carbon capture and storage system to its original design to make it as low-emission as possible. Rio Grande LNG, then, is being delayed although its first three trains are still under construction. Another LNG project is also being delayed, but that has nothing to do with regulators. It has to do with the bankruptcy of its contractor, Zachry Holdings, which was also announced this month and which has set the Golden Pass LNG project back several months. Per the Financial Times, the contractor fell out with the developers of Golden Pass LNG over the ballooning costs of the project. “LNG plants are energy infrastructure — and building energy infrastructure in America today is hard,” Kevin Brook, managing director of energy research firm ClearView Energy Partners, told the Financial Times. It is indeed hard to build energy infrastructure in America today, especially after the Biden administration imposed what it called a pause on new LNG capacity additions following protests from environmentalists that claimed LNG is worse than coal for the climate. A court then overturned that pause after 16 states sued, claiming that the suspension of new LNG export permits would affect the U.S. economy negatively and interfere with the supply of gas to allies in Europe that were trying to quit Russian gas. Despite that ruling, the U.S. LNG industry growth is losing momentum as regulatory visibility into the future dims and activist pressure increases. There is also a problem with finding long-term investors, it appears. Alaska, for instance, is leading an LNG project that has yet to get off the ground due to a lack of investors. Another project, Tellurian, has been struggling to find investors for its planned Driftwood LNG project, with a price tag estimated at $25 billion. Last month, Australian Woodside Energy struck a deal to acquire Tellurian for $1.2 billion, and that should give Driftwood a second chance as the Australian major seeks to position itself as a “global LNG powerhouse.” Indeed, it is large energy players like Driftwood that could keep the U.S. LNG industry expanding because they are the only ones that can afford the steep price of LNG facilities. Liquefaction projects costs tens of billions in a normal year, and these past two years have seen some pretty significant inflation, which has not exactly made life easier for their developers, as illustrated by the Driftwood LNG saga. The Golden Pass LNG project is led by Exxon, with QatarEnergy also a shareholder. It has a price tag of $11 billion, which is kind of cheap as LNG projects go. The owners have pushed back the start date of the project by six months as they change contractors but there does not seem to be another problem with that project, for now. Rio Grande LNG is in the hands of the judicial system as NextDecade plans to appeal the court’s ruling on the project. The company also warned that the ruling could cast a shadow over the progress of other LNG projects in the country. Demand for LNG on a global scale is pretty healthy and set for sustained growth over the coming years and decades. One reason is the growing demand for electricity, including in the United States itself. The other is the lower emission footprint of natural gas as opposed to cheaper coal. The second reason is not the leading one, as demonstrated by how fast developing nations switched from LNG to coal every time prices on the spot market became too high for them. For LNG developers, it’s a battle of demand versus activism.
Oil Prices Drop as War Premium Evaporates
Crude oil prices slumped today following the news that Israel had accepted a proposal aimed at solving disagreements on a plan for ceasefire in Gaza. Brent crude dropped below $78 per barrel in midmorning Asian trade and West Texas Intermediate slipped below $74 per barrel earlier in the day, with little in the way of bullishness to arrest the slide. “Prices seem to find some headwinds from geopolitical developments in the Middle East and China’s demand outlook,” IG strategist Yeap Jun Rong told Reuters. “A ceasefire deal in Gaza now seems more likely than not, which saw market participants pricing out the risks of geopolitical tensions on oil supplies disruption,” he added. “Lingering Chinese demand concerns have been the key driver weighing on sentiment,” said Warren Patterson, ING’s head of commodities strategy, said as quoted by Bloomberg. “Now the potential for an Israel-Hamas cease-fire has only provided further downward pressure.” Concern about oil demand in China has become the leading bearish factor on the oil market this year. The country, as the world’s biggest oil importer, is seen as a weathervane for global demand trends and trading decisions are often made based on the latest data out of Beijing. In this case, the latest data has shown declines in both crude oil imports and fuel exports, along with a slew of economic reports that revealed developments falling short of expectations and as such being perceived as suggestive of a weakening economic growth and, by extension, oil demand. “Trade and industrial output numbers last week suggested that apparent oil demand continued to trend lower in July,” ING’s Patterson and Ewa Manthey said in a note. “These worries mean that speculators continue to be hesitant about jumping into the market, despite expectations for a deficit environment for the remainder of the year.”
Surge in LPG and Petrol use drives 7.4% growth in India’s oil demand
India witnessed a 7.4% increase in its petroleum product consumption in July 2024, totaling 19.65 million metric tonnes, according to the latest report from the Petroleum Planning and Analysis Cell (PPAC). This uptick is largely fueled by heightened economic activitiesand government infrastructure projects across the country. Liquefied petroleum gas (LPG) usage saw the most significant rise at 10.1%, primarily driven by domestic consumption under government schemes such as the Pradhan Mantri Ujjwala Yojana. Petrol consumption also surged by 10.5%, reflecting increased demand for personal mobility, facilitated by relatively normal monsoonal patterns which reduced usual seasonal travel disruptions. High-speed diesel, crucial for agriculture and freight, recorded a 4.5% increase, supporting ongoing rural activities and enhanced freight movement. Additionally, aviation turbine fuel consumption rose by 9.6%, buoyed by the recovery in air travel both domestically and internationally as pandemic-related restrictions eased further. The report also highlighted a substantial growth in renewable energy, with India’s installed capacity increasing by 165% over the past decade to reach 148 gigawatts. This aligns with the nation’s commitment to sustainable energy development.
Grain and sugarcane to power India’s ethanol production boost to 9.90 billion liters by 2025
In a significant push toward energy self-sufficiency, India is gearing up to enhance its ethanol production to achieve a 20% blending rate in petrol by the Ethanol Supply Year (ESY) 2025, necessitating an annual production of approximately 9.90 billion liters. To meet this ambitious target, the country is set to optimize the use of both grain and sugarcane feedstocks. The move comes as part of a dual strategy to ramp up ethanol output using grains and sugarcane, with annual ethanol production from grains expected to jump to around 6 billion liters by the next season, up from this season’s 3.80 billion liters. Sugarcane will complement this supply, as indicated by CRISIL Ratings, which has highlighted the substantial processing capacity available for ethanol production from sugarcane. This strategic use of both feedstocks is poised to help manage the sugar inventories effectively, particularly in light of the high carry-over stocks anticipated at the end of the current season due to regulatory limits on ethanol production and sugar exports. India’s drive to increase ethanol blending has been marked by a steady rise in the blending rate, which has increased by 200-300 basis points each season since ESY 2021. Despite last year’s erratic rainfall impacting sugarcane production, ethanol output from this route is expected to be around 2.50 billion liters for the season.
Rising demand, stagnant output pushes oil import dependency beyond 88% in April-July
India’s reliance on imported crude oil to meet its domestic consumption needs climbed to over 88 per cent in the first four months of the current financial year due to rising demand for fuel and other petroleum products amid flagging domestic oil production. The country’s oil import dependency in April-July was 88.3 per cent, up from 87.8 in the year-ago period as well as for the full financial year 2023-24 (FY24), per latest data from the oil ministry’s Petroleum Planning & Analysis Cell (PPAC). India’s energy demand has been rising briskly, leading to higher oil imports and increasing dependence on imported crude. Reliance on imported oil has been growing continuously over the past few years, except in FY21, when demand was suppressed due to the COVID-19 pandemic. The country’s oil import dependency stood at 87.8 per cent in FY24, 87.4 per cent in FY23, 85.5 per cent in FY22, 84.4 per cent in FY21, 85 per cent in FY20, and 83.8 per cent in FY19. Heavy dependence on imported crude oil makes the Indian economy vulnerable to global oil price volatility, apart from having a bearing on the country’s trade deficit, foreign exchange reserves, rupee’s exchange rate, and inflation. The government wants to reduce India’s reliance on imported crude oil but sluggish domestic oil output in the face of incessantly growing demand for petroleum products has been the biggest roadblock.