Fresh Sanctions Could Seriously Curtail Iran’s Surging Oil Exports
Last year, we reported that the Biden administration has been increasingly cozying up to Iran as the U.S. and its allies hoped to strike a new nuclear deal with Tehran after the Trump administration scuttled the Joint Comprehensive Plan of Action (JCPOA) deal of 2015. Following the imposition of severe sanctions by Washington, Iranian oil production tumbled from 3.8 million barrels per day in early 2018 to less than 2 mb/d in late 2020; however, production has surged under Biden to 3.2 mb/d. Since the start of the current escalation in the Middle East, experts have debated whether the status quo with Iran is going to be maintained or the West will attempt to roll the clock back to early 2022 or even to late 2020. The latest attacks on U.S. troops in the region have all but removed those doubts. On Monday, news emerged that three U.S. service members were killed in Jordan, while more than 40 other soldiers were injured following a drone attack on a U.S. military base near the Syrian border. U.S. forces are suspected to have mistaken the enemy drone for an American one and let it pass through unchallenged. The U.S. and its European allies have wasted no time condemning Iran for the attack and are mulling boosting sanctions on the country due to Tehran’s unabashed support for militant groups in the region, particularly its support for Houthi forces. U.S. Secretary of State Antony Blinken has revealed that the West’s response to the attack will be “multi-levelled, come in stages, and be sustained over time”. “Following the threats posed by the Islamic Republic in the region, especially its support for the Houthis and proxy groups in Iraq in recent months, which led to the formation of an international coalition in the Red Sea, recently, the United States and some Western countries have initiated discussions to intensify sanctions against Iran,” a diplomatic source told Iran International. As commodity analysts at Standard Chartered have observed, the markets only issued a muted response to the attacks with oil prices pulling back after the initial spike. StanChart has speculated that the market is assuming the U.S. will only issue a single layer of response over a short period that will be limited to Iraq and Syria, but is not pricing in a response that could be extended over time. StanChart says that, following the attack, there’s a big probability of a significant change in the policy dynamic between the U.S. and Iran, and in particular Iran’s surging oil production is likely to be in the crosshairs. The Biden administration is likely to be further motivated to take stern action on Iran due to the country’s continued violation of the terms of the JCPOA agreement. Iran has not only lifted the cap on its stockpile of uranium to 18 times the level permitted by JCPOA but has also increased its enrichment activities to 60%, far above the 3.67% permitted level. A year ago, the International Atomic Energy Agency (IAEA) reported the discovery of particles of uranium enriched to 83.7%. The U.S. as well as allies the UK, France and Germany (commonly referred to as the E3) have pointed out there’s no credible civilian justification for Iran’s nuclear programme. Last September, E3 reported they are “committed to preventing Iran from developing nuclear weapons, including through the snapback process if necessary”. Market Weakness Not Justified By Fundamentals Previously, StanChart has argued that the weak oil price action is not justified by oil fundamentals, which remain strong. The commodity analysts have pointed out that the bearish sentiment is mainly being driven by the notion that demand growth has failed to meet Wall Street’s expectations, a notion it has dispelled using actual data. Last year, oil demand at the end of the year surpassed January 2023 forecasts; forecast for the current year by the EIA estimate is 881kb/d higher, the IEA estimate is 380 kb/d higher while StanChart’s is 819 kb/d higher. Standard Chartered has reiterated its earlier position that oil markets are heavily discounting geopolitical risks due to a lack of clear understanding about seasonality. In StanChart’s view, the current oversupply in January is primarily due to seasonality but has predicted the markets will gradually tighten as the months roll on–again, due to seasonality. According to the experts, the current global crude inventory build of 1.17 mb/d will flip to a draw of 1.40 mb/d in February, with the inventory draw widening to 1.48 mb/d in March, thanks in large part to seasonal demand recovery. StanChart says the expected inventory draws, coupled with the seasonal upswing in demand, could potentially trigger a significant oil price rally.
RIL’s profit from consumer business to leapfrog petroleum
Reliance Industries (RIL) is likely to witness higher profit growth in its consumer businesses—telecom and retail—from next year vis-à-vis its traditional oil refining and petrochemical business. The higher growth will help consumer businesses leapfrog RIL’s standalone business, which is oil to chemicals (O2C). The twist in the tale is that the conglomerate built the telecom and retail verticals using the cash flow from O2C. Analyst community expects a reduction in capital expenditure at telecom and retail, while the businesses improve cash flow aided by booming margins. According to a report by Bernstein Research, Reliance Jio’s focus will shift to monetisation of assets with the completion of 5G rollout and it will lead to moderation in capital expenditure. “We expect around 15% CAGR revenue growth for Jio over the next 3 years with a strong 11% plus tariff hike in FY25. Market share gains will continue as Jio reaches around 500 million subscribers and around 47% revenue share by FY25,” it said. At the retail front, the performance of the grocery business remains solid for Reliance Retail Ltd (RRL) supported by price hikes of staples and recovery in general merchandise demand, says JP Morgan in its report. Robust performance in fashion and lifestyle despite muted category demand and the improving traction for grocery in quick commerce channels is also helping the company. “The operating leverage is aiding Reliance Retail’s margin expansion,” says JP Morgan. The retail business grew 24% year-on-year which Bernstein believes is sustainable with store expansion and a higher eCommerce mix. “We see normalisation in retail capex with a focus on improving revenue per square feet as older stores mature,” the analysts said. While consumer businesses, which were started/ramped up in the last five years, see a better profit leeway for the next few years, O2C earnings growth is likely to end flat. The volume growth and the margin expansion are unlikely to improve in the petrochemicals business this year. The earnings growth will stall at current levels until 2026-27 when additional capacity comes online, says Bernstein. However, there is hope in the oil and exploration and production business. The volumes are likely to peak in the next 12 months while the company continues to build solar and battery-making capacity.
Deadline to levy additional duty on unblended diesel deferred
The Centre has deferred the deadline to levy an additional ₹2 per litre tax on unblended diesel by one more year to April 1, 2025, according to a Central Board of Indirect Taxes and Customs (CBIC) said in a notification. The levy on petrol and diesel that is not blended with ethanol and bio-diesel, respectively was announced in FY23 budget. The move was in line with with government’s commitment to promoting biofuels and reducing crude imports. India remains the world’s third-biggest crude importer and consumer, importing around 85% of its total consumption. It has set a target to cut imports by 10% to 67% by 2025 by enhancing domestic crude production, ethanol blending and shifting focus to renewables, green hydrogen and promoting electric vehicles among others.
NGEL signs MoU with Govt of Maharashtra for development of Green Hydrogen Projects
NTPC Green Energy Limited (NGEL) signed a memorandum of understanding (MoU) with Govt of Maharashtra for development of Green Hydrogen and derivatives (Green Ammonia, Green Methanol) of up to 1 million ton capacity per annum, including Pump Hydro Projects of 2 GW and development of RE projects with or without storage up to 5GW in the state. The MoU was exchanged between NGEL’s Chief Executive Officer Mohit Bhargava and GoM’s Deputy Secretary (Energy) Narayan Karad in the presence of Chief Minister Deputy CM and other senior officials. The above MoU has been signed as a part of Green Investment Plan of Govt of Maharashtra in the next five years and envisages a potential investment of approximately Rs 800 billion. NTPC is in the path of building up RE capacity of 60 GW by 2032. NGEL is a wholly-owned subsidiary of NTPC and aims to be the flag bearer of NTPC’s Renewable Energy journey with an operational capacity of over 3.4 GW and 26 GW in pipeline including 7 GW under implementation.
41% in India still rely on biomass for cooking, emitting 340 mn tonnes of CO2 annually
Forty-one percent of the Indian population still uses wood, cow dung or other biomass as cooking fuel and cumulatively emits around 340 million tonnes of carbon dioxide into the environment every year, which is about 13 per cent of India’s greenhouse gas emissions, according to a new report. The report “India’s Transition to E-cooking” by the independent think tank Centre for Science and Environment also said that the Pradhan Mantri Ujjwala Yojana led to a rapid expansion in access to liquified petroleum gas (LPG) in India, but it has “not guaranteed a sustained transition to clean cooking in households” that benefited from the scheme. Around a third of the world’s population 2.4 billion people globally (including 500 million people in India) still lack access to clean cooking solutions. This causes untold damage to the economy, public health and the environment. Approximately three million people globally (including 0.6 million people in India) die prematurely every year because of indoor air pollution. These deaths are mostly caused by wood-based cooking, the report said, citing research conducted in the past. Although the Ministry of Petroleum and Natural Gas (MOPNG) claims that the country’s household LPG “coverage” stands at 99.8 per cent, the National Family Health Survey conducted in 201921 (NFHS-5) shows that 41 per cent of the population still cooks on biomass, it said. “CSE’s own calculations have found that this 41 per cent cumulatively emits — when it cooks on wood, cow dung or other biomass around 340 million tonnes of CO2 (carbon dioxide) into the environment every year, which is about 13 per cent of India’s national GHG emissions,” the report said. A review of India’s last Biennial Update Report (BUR3) to the United Nations Framework Convention on Climate Change shows this particular sectoral emission is not counted as part of national emissions. Through PMUY launched in May 2016, more than 100 million households in India received LPG cylinders by the end of March 20
LNG market expansion needs South Asian demand
LNG’s penetration into South Asian markets is significant, but nowhere near its potential. India, Pakistan and Bangladesh represent combined markets of some 1.7bn people. These countries are characterised by static or falling domestic gas production combined with high rates of energy demand growth and a desire to increase the use of gas within their economies to supplant costlier and/or higher emissions fuels. However, South Asian markets are what is known in LNG analyst parlance as ‘price-sensitive.’ What this means in practice is that typically state-owned buyers have low levels of creditworthiness and entrenched debt, the product of being on the wrong side of energy and industrial subsidies. The sale price of electricity and other gas-based products, such as fertilisers, are often below the cost of production in the domestic market, creating a vicious circle of indebtedness. Retreat from the spot market In 2022, as LNG prices rose to record levels, India, Pakistan and Bangladesh all retreated from the spot market, and relied on long-term contracts, which in the case of the latter two at least were insufficient in volume to meet demand for imported gas.
Oil regulator PNGRB launches drive to increase piped gas adoption
Oil regulator PNGRB has launched a two-month long nationwide drive to increase adoption of piped natural gas as a cooking fuel in household kitchens in an attempt to cut dependence on imported fossil-fuels. “The Petroleum and Natural Gas Regulatory Board (PNGRB) along with city gas distribution entities will run a campaign from January 26 to March 31, aimed to promote the adoption of piped natural gas (PNG) among households and to expand PNG consumer base across a broader segment of the population,” it said in a statement. While PNG has gained currency in the last few years after PNGRB expanded city gas networks to most parts of the country, sizable households continue to use either LPG or conventional fuels like firewood and cow dung for cooking. While India is about 50 per cent dependent on imports to meet cooking gas LPG needs, use of conventional fuels is considered a health hazard. PNG offers a viable alternative. It is convenient as it does not require ordering for refills everytime a LPG bottle is exhausted, and is also cheaper. Stating that natural gas is clean and convenient fossil fuel, PNGRB said the campaign will be focussed on those areas where gas pipeline network has been laid or will be laid in the immediate future. Promotion of natural gas is part of the Prime Minister’s vision to increase its share in India’s energy basket to 15 per cent by 2030, from the current 6.2 per cent to transform the country into a gas-based economy. “PNGRB is taking various initiatives to promote natural gas in households as cooking fuel as well as in transport, commercial and industrial sectors,” the statement said. “National PNG Drive is one amongst them to facilitate supply of natural gas to existing registered customers besides enrolling customers for new PNG connections.” City Gas Distribution (CGD) entities will actively participate in the National PNG drive, undertake various promotional activities to increase the awareness on the use of PNG – a clean, environmentally friendly, safe and reliable fuel. Indraprastha Gas Ltd is partnering with PNGRB for the drive in the national capital. Other CGD entities are doing the same in other cities. “During the campaign period, CGD entities will launch various promotional schemes. In addition, the entities will undertake door-to-door campaigns, organize road shows etc to encourage and enrol customers for conversion to PNG,” it said. Till date there are 300 geographical areas (GAs) authorized in the country, covering 98 per cent of the population and 88 per cent of its area for development of CGD Network. “The targets up to 2032 inter alia includes installation of 12.5 crore domestic PNG connections, establishment of 17,751 CNG stations,” the statement said. As on November 30, 2023, 1.2 crore domestic PNG connections and 6,159 CNG stations have been established in the country.
Russia And Iran Finalize 20-Year Deal That Will Change The Middle East Forever
Iran’s Supreme Leader, Ali Khamenei, gave his official approval on 18 January to a new 20-year comprehensive cooperation deal between the Islamic Republic of Iran and Russia, according to a senior energy source in Iran and a senior source in the European Union’s (E.U.) energy security complex, exclusively spoken to by OilPrice.com last week. The 20-year deal – ‘The Treaty on the Basis of Mutual Relations and Principles of Cooperation between Iran and Russia’ – was presented for his consideration on 11 December 2023. It will replace the 10-year-deal signed in March 2001 (extended twice by five years) and has been expanded not only in duration but also in scope and scale, particularly in the defense and energy sectors. In several respects, the new deal additionally complements key elements of the all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, as first revealed anywhere in the world in my 3 September 2019 article on the subject and analysed in full in my new book on the new global oil market order. In the energy sector to begin with, the new deal gives Russia the first right of extraction in the Iranian section of the Caspian Sea, including the potentially huge Chalous field. The wider Caspian basins area, including both onshore and offshore fields, is conservatively estimated to have around 48 billion barrels of oil and 292 trillion cubic feet (tcf) of natural gas in proven and probable reserves. In 2019, Russia was instrumental in changing the legal status of the Caspian basins area, cutting Iran’s share from 50 percent to just 11.875 percent in the process, as also detailed in my new book. Before the Chalous discovery, this meant that Iran would lose at least US$3.2 trillion in revenues from the lost value of energy products across the shared assets of the Caspian Sea resource going forward. Given the newest internal-use only estimates from Iran and Russia, this figure could be a lot higher. Previously, the estimates were that Chalous contained around 124 billion cubic feet (bcf) of gas in place. This equated to around one quarter of the gas reserves contained in Iran’s supergiant South Pars natural gas field that account for around 40 percent of Iran’s total estimated gas reserves and about 80 per cent of its gas production. The new estimates are that it is a twin-field site, nine kilometres apart, with ‘Greater’ Chalous having 208 bcf of gas in place, and ‘Lesser’ Chalous having 42 bcf of gas, giving a combined figure of 250 bcm of gas. The same right of first extraction for Russia will also now apply to Iran’s major oil and gas fields in the Khorramshahr and nearby Ilam provinces that border Iraq. The shared fields of Iran and Iraq have long allowed Tehran to side-step sanctions in place against its key oil sector, as it is impossible to tell what oil has come from the Iranian side or the Iraqi side of these fields, which means that Iran is able simply to rebrand its own sanctioned oil as unsanctioned Iraqi oil and ship it anywhere it wants, as also analysed in full in my new book on the new global oil market order. Former Petroleum Minister, Bijan Zanganeh, publicly highlighted this very practice when he said in 2020: “What we export is not under Iran’s name. The documents are changed over and over, as well as [the] specifications.” Another advantage of the shared fields is that they allow effectively free movement of personnel from the Iranian side to the Iraqi side, and the utilisation of key oil and gas developments across Iraq is a key part of Iran’s longstanding plan, fully supported by Russia, to build a ‘land bridge’ to the Mediterranean Sea coast of Syria. This would enable Iran and Russia to exponentially increase weapons delivery into southern Lebanon and the Golan Heights area of Syria to be used in attacks on Israel. The core aim of this policy is to provoke a broader conflict in the Middle East that would draw in the U.S. and its allies into an unwinnable war of the sort seen recently in Iraq and Afghanistan, and which may soon be seen as the Israel-Hamas War escalates. The price of all manufactured items traded between Russia and Iran, including military and energy hardware, has been formalised in the new deal, although also not in Iran’s favour. For Iranian goods exported to Russia, Tehran will receive the cost of production plus 8 percent. However, these export sales to Russia will not be transferred to Iran, but rather they will be held as credit in the Central Bank of Russia (CBR). Moreover, Iran will receive a huge markdown on US dollar/Rouble or Euro/Rouble exchange rates used to calculate its credits in the CBR. Conversely, for Russian goods exported to Iran, Moscow will receive the payment in advance of delivery and at a much stronger exchange rate that benefits Russia. Moreover, the base price before any exchange rate calculations are made, will be founded on the highest price that Russia has received in the previous 180 days for whichever product it is selling Iran. This system has informally been in place for several weeks now, and according to the senior energy sector source in Tehran exclusively spoken to by OilPrice.com last week, Russia has ensured itself the highest possible price by selling to Belarus at a very large premium whichever product it intends to sell later to Iran, so establishing the required pricing benchmark. Payments for goods and services falling outside the direct finance route between the central banks of the two countries can now be done through interbank transfers between Iranian and Russian banks. Those also involving renminbi can also be done through China’s Cross-Border Interbank Payment System (CIPS) system, its alternative to the globally-dominant Society for Worldwide Interbank Financial Telecommunications (SWIFT) system. In many cases, the expansion of military cooperation between Iran and Russia is tied into the energy sector elements of the new 20-year deal. Progress is earmarked
100 new biogas plants soon to be established in UP: Hardeep Puri
Lucknow, Union Petroleum and Natural Gas Minister Hardeep Singh Puri on Saturday said that 100 new biogas plants will soon be established in Uttar Pradesh. Speaking to reporters in Lucknow before going to the inauguration of the Compressed Bio Gas Plant in Budaun, Puri said that in the last seven years, under the leadership of Chief Minister Yogi Adityanath, the state has shed the label ‘BIMARU’ (sick) state and has done excellent work in every sector. “Today a new compressed biogas plant is going to be inaugurated in Budaun and the foundation stone of new compressed biogas plants will also be laid in eight other districts of the state,” he said. Puri said that the process of land selection for setting up 37 plants is complete. According to a statement by the UP government, Puri said that the Budaun plant, developed on 50 acres with an investment of about Rs 135 crore, will produce about 14 tonne of compressed biogas every day, and will be instrumental in stubble management. Earlier, Adityanath called biogas the best option to realise Prime Minister Narendra Modi’s vision of ‘Waste to Wealth’. Biogas is not only a solution to the problem of smog in NCR (National Capital Region) but also a means to increase the income of farmers, he said. According to Union Petroleum Secretary Pankaj Jain, under the biofuel policy of UP, there is a provision of a grant of up to Rs 20 crore for the establishment of bioenergy plants.
Red Sea Crisis: No disruption in oil flows to India, only freight up, says HPCL head
The ongoing attacks on shipping vessels by Houthi militants in the Red Sea have not impacted the flow of crude oil to India but freight has gone up due to rerouting via the Cape of Good Hope, Hindustan Petroleum Corporation Ltd (HPCL) chairman Pushp Kumar Joshi said. India, the world’s third-biggest oil importer, gets a bulk of its Russian supplies through the Red Sea. Russian supplies made up for over 35 per cent of India’s total crude imports in 2023, amounting to 1.7 million barrels per day. Russian ships and cargoes are not being prime targets of the attacks at this stage however rerouting of ships around the southern tip of Africa instead of transiting through the Suez Canal and Red Sea has led to ships taking longer voyages, resulting in the shortage of ships and rise in freight charges. In a post-third quarter earnings call with investors, Joshi said HPCL has tied up crude oil supplies till mid-April and it does not see any supply disruptions. HPCL meets 44-45 per cent of its crude oil needs on term contracts with national oil companies such as those in Saudi Arabia and Iraq. The remaining is on the spot or from the current market, he said. “Term crude has not been impacted (due to the Red Sea crisis),” he said, adding the spot imports are on DES basis where the shipping is arranged by the supplier. “The spot supplies too are not impacted.” HPCL, he said, has “already tied up crude requirements till fiscal year end (in March) and the first couple of weeks of April.” “Crude oil supplies have not seen any disruption as of now. This has definitely impacted the freight rates and freight rates have travelled northward.” Spot imports include opportunity crude such as Russian oil which is sold at a discount because some western nations have shunned it due to Moscow’s February 2022 invasion of Ukraine. “So far as supply is concerned, I am quite confident that supply requirements are being met. We also have to see how this situation unfolds in the next few weeks, basis that we will have to take a call but as far as the procurement side is concerned, I am already in a comfortable situation till March 31 and two weeks of April,” he said. Joshi said HPCL has tied up both term and spot supplies including opportunity crude till mid-April. “We are not experiencing any disruption there.”. On Russian imports, he said Russian oil made up for 30 per cent of all crude oil imported by HPCL in 2023. While the supplies are not being impacted, the rerouting of ships could inflate insurance costs and crimp refining margins. Shippers are avoiding the Red Sea and Bab al-Mandab Strait after a US-led coalition struck Iran-backed Houthi militants in northern Yemen. This however has impacted diesel exports to Europe. Longer voyages have hit diesel cargo cost, which has increased by USD 850,000-1 million. Due to the rerouting of a voyage through the Cape of Good Hope instead of going through the Suez Canal, shipments from India to the US will take an additional 10-14 days, while shipments from Europe/the Mediterranean will take 20-25 days.