New U.S. Oil Field Developments Are A Sign Of Things To Come For Saudi Arabia
Events often have a way of highlighting the circular nature of time rather than its linearity. An extraordinarily notable recent example of this was this year’s incursion into Israel of Hamas on Yom Kippur, just as happened on Yom Kippur 50 years earlier when an Arab coalition did the same. In the same way that the recent incursion resulted in the ongoing Irael-Hamas War, so the events of 1973 led to the Yom Kippur War. So far, due to the exceptional efforts of U.S. Secretary of State, Antony Blinken, and his team, the Israel-Hamas War has not widened into a war that could have disastrous consequences for the oil price, but it may yet do so. In 1973, though, the Yom Kippur War led directly to an embargo by OPEC members – plus Egypt, Syria, and Tunisia – on oil exports to the U.S., the U.K., Japan, Canada, and the Netherlands in response to their collective supplying of arms, intelligence resources, and logistical support to Israel during the War. By the end of the embargo in March 1974, the price of oil had risen around 267 percent, from about US$3 per barrel (pb) to over US$11 pb. This, in turn, stoked the fire of a global economic slowdown, especially felt in the net oil importing countries of the West. However, from a long-term perspective, even more important than any of this was the way it changed U.S. policy towards Saudi Arabia and OPEC from that point. Judging from recent announcements from the U.S., the current Israel-Hamas War may have prompted the final phase of that policy made back in 1974. At the end of the embargo in 1974, some branded it a failure, as it had not resulted in Israel giving back all the territory it had gained in the Yom Kippur War. However, in a broader sense, a wider war had been won by Saudi, OPEC, and other Arab states in shifting the balance of power in the global oil market from the big consumers of oil (mainly in the West at that time) to the big producers of oil (mainly in the Middle East at that point). This shift was accurately summed up by the slick, clever and urbane then-Saudi Minister of Oil and Mineral Reserves, Sheikh Ahmed Zaki Yamani, who was widely credited with formulating the embargo strategy. Crucially for what followed in terms of U.S. policy, one titanic figure in Washington agreed with Yamani’s view, and this was the late Henry Kissinger. A extremely influential geopolitical strategist who served as U.S. National Security Advisor from January 1969 to November 1975, Secretary of State from September 1973 to January 1977, and senior adviser to many U.S. presidents after that, Kissinger came to three key conclusions based on that 1973/74 Oil Crisis, analysed in full in my new book on the new global oil market order. The first was that the U.S. could never truly trust Saudi Arabia again, as it had broken the underlying ethos of the foundation stone agreement between the two countries made back on 14 February 1945 between the then-US President, Franklin D Roosevelt, and the then-Saudi King, Abdulaziz bin Abdul Rahman Al Saud, as also detailed in the book. This deal had run smoothly from that point to the onset of the 1973/74 Oil Crisis, and it was simply that the U.S. would receive all the oil supplies it needed for as long as Saudi Arabia had oil in place and, in return for this, the U.S. would guarantee the security both of Saudi Arabia and its ruling House of Saud. Saudi Arabia had clearly broken this covenant in leading the embargo on oil supplies against the U.S. Kissinger’s second conclusion was that the U.S. needed to expedite its efforts to become self-sufficient in energy resources as soon as possible, with a focus in the shorter term on oil supplies. He did not have any clear idea at that time when that self-sufficiency might come, as the shale oil and gas revolution was not even in the significant development stage at that point. Third, Kissinger concluded that the best course of action for the U.S. to keep obtaining all the oil and gas it needed to retain its top global economic and political position was to ensure that the Middle Eastern countries did not band together again in the future against the U.S. The optimal way for the U.S. to ensure this, he successfully argued, was to use the ‘divide and rule’ principle between the region’s major oil and gas producers, which in turn was a variant of the ‘triangular diplomacy’ he had advocated and used to great effect in the U.S.’s dealings with Russia and China at that time. In short, this involved playing one side off against the other by leveraging whatever fault lines ran through the target countries at any given time, be they economic, political, or religious, or any combination thereof. There are multiple major examples of this policy at work analysed in my new book, but two of the most significant were leveraging the religious schism between Shia and Sunni Islam (as exemplified respectively by Iran and Saudi Arabia), and the undermining of resurgent ideas of pan-Arabism. In the case of the former, notable examples have included the U.S. invasion of Iraq in 2003, and its unilateral withdrawal from the ‘nuclear deal’ with Iran in 2018. In the latter’s case, notable examples include the U.S. sponsorship of the Egypt-Israel Peace Treaty, after which Egyptian President Anwar Sadat was assassinated, and the Arab–Israeli relationship normalisation deals. From 1974 to the 2014, this U.S. strategy was broadly successful in ensuring no re-occurrence of meaningful collective actions against it by Saudi Arabia and OPEC. However, by early 2014, it had become obvious to the Saudis that the U.S. had found a way that might ensure its energy independence in the future, as it had long wanted.
Swan Energy announces pre-payment of Rs 3 billion debt for its FSRU Project
Swan Energy Ltd on Tuesday said that TOPL, subsidiary of the company, has pre-paid Rs 3.00 billion, out of its internal accruals, to its consortium of senior lenders of Floating Storage and Degasification Unit (FSRU) Project. “TOPL has also created the required Debt Service Retention Account (DSRA) of ~Rs 950 million,” it said in a regulatory filing. The FSRU vessel was commissioned in February 2023, which represents India’s first new build FSRU initiative, embodying Swan Energy’s leadership in ushering transformative developments in the LNG sector. “The partial debt prepayment is a significant milestone achievement and demonstrates a strong financial position,” the company said. Swan Energy holds a 32.12 per cent stake in the Jafarabad unit.
IOCL green H2 tender in legal mess, gets one bid
The tender to set up the first green hydrogen plant of state-run oil refiner and marketer Indian Oil Corp. Ltd (IOCL) received one bid till the 29 November deadline, people aware of the development said. The bid came from GH4India Pvt. Ltd, which is IOCL’s own joint venture (JV) with infrastructure and engineering major Larsen & Toubro (L&T) and renewable energy company ReNew, the people said on the condition of anonymity. The JV, in which all three companies have equal stakes, was formed this year in August. Meanwhile, an industry body of green hydrogen firms has approached the Delhi high court, alleging bias towards IOCL’s JV in the tender clauses. “Around 50 players had participated in the pre-bid consultation. However, only one player submitted the bid due to the right of first refusal clause,” said another person aware of the development. According to the people cited above, the right of first refusal clause (Clause 19 of the tender) gives IOCL preferential right to purchase excess green hydrogen generated at the green hydrogen generation unit (GHGU). In case IOCL does not confirm the purchase within 60 days, the operator can offer the gas to third-party customers. However, the price offered to them cannot be lower than what was offered to IOCL. Other terms and conditions offered, too, must be less favourable than those offered to IOCL. “The parties would have to agree that IOCL shall be entitled to exercise its right of refusal every time the quantity of the green hydrogen generated at the GHGU increases on account of capacity augmentation or technological upgradation, modification or restructuring,” said one of the people earlier.
Clock ticking on India’s crude oil reserves, petroleum ministry gives time of 15 year
India’s crude oil reserves will last another 15 years in the absence of new finds, the petroleum ministry has informed a parliamentary panel. “The E&P (exploration and production) companies under all regimes have reported 447.57 million tonnes (mt) of 2P Reserves (Proved + Probable) as of April 1, 2022. At the current annual production level, the reserves will last for about 15 years provided no new reserves are accreted,” the oil ministry said. The calculations did not consider reserves that are recoverable technically nor did it take into account future discoveries. “Thus, oil reserves are likely to last longer from the current estimate,” the ministry has qualified. India consumes about 5.5-5.6 million barrels per day, with the share of imports about 4.6 million barrels per day, which is about 10 per cent of the overall oil trade in the world. The import of crude by oil PSUs jumped to 141.2mt in 2022-23 from 120.5mt in 2021-22. As per the International Energy Agency’s World Energy Outlook 2022, the energy demand of the country is expected to grow at about 3 per cent per annum till 2040, compared with the global growth rate of 1 per cent. Asian premium Most of the foreign national oil companies declare the selling price of crude oil for different grades. They declare it either as a flat price or as a premium or discount to the marker crude oil. The ministry informed the panel that over and above the official selling price, an extra cost called the Asian premium is levied on the purchase of oil. The levy is on account of lower transportation costs due to the proximity of India to West Asia from where the country imports a big share of its crude oil requirement. This, however, impacts the gross refining margins of the companies. The panel report said: “The official selling price (OSP) decided by the national oil companies (NOCs) in the West Asia needs better transparency. The oil PSUs along with other oil importing companies should try to impress upon the NOCs to fix OSPs based on certain formulae.” “The price of crude oil has no relation with the production cost, etc. Since the commodity is a natural resource endowed upon some countries the pricing should be reasonable to ensure energy access at affordable prices to citizens across the world.” Since the oil-producing countries to a large extent are acting in a concerted way, the price of crude oil is largely producer-determined rather than market-driven. “The committee would recommend the ministry to coordinate with other oil importing countries and approach multilateral institutions to bring reforms in the pricing of crude oil to availability at a reasonable price to the global community,” the report added
Oil Prices Steady Before Holiday
Crude oil prices were trading slightly down on Friday afternoon, just hours before the weekend and the Christmas holiday, reasonably unaffected by Angola’s decision to quit OPEC. The price of a barrel of WTI was trading at $74.03, $0.07 down on the day, or a 0.09% dip. Last year, the Friday before Christmas saw WTI trading higher than today, at $79.56 per barrel. Since that time last year, WTI has exchanged hands between $67 and almost $92 per barrel. Brent crude was trading at $79.23 per barrel on Friday, a $0.16 drop or a 0.20% decrease. That’s down from about $84 per barrel around last Christmas. Over the past week, WTI has risen from just under $72. Gasoline prices in the United States have also risen over the last week. The current price for a gallon of regular-grade gasoline in the United States is now averaging $3.129 per gallon, according to the latest AAA data. That compares to $3.087 per gallon a week ago. Last year at this time, gasoline prices averaged $3.101 per gallon, just 2.8 cents below today’s average prices. This week saw the first weekly increase in gasoline prices since September. What doesn’t appear to be affecting oil or gasoline prices is Angola’s decision to quit the OPEC group. Angola and Nigeria were given lower crude oil production quotas as part of the OPEC+ agreement this summer, after the two producers had underperformed and failed to pump to their quotas for years due to a lack of investment in new fields and maturing older oilfields. The two members disagreed with the ruling, which delayed the latest OPEC meeting. The issue was unresolved as of the latest meeting, and Angola earlier this week decided to part ways with OPEC. Oil prices initially fell, but had steadied out by Friday.
No takers for rupee payment for oil imports
India’s push for rupee to be used to pay for import of crude oil has not found any takers as suppliers have expressed concern on repatriation of funds and high transactional costs, the oil ministry told a parliamentary standing committee. The default payment currency for all contracts for import of crude oil is US dollar as per the international trade practice. However, in a bid to internationalise the Indian currency, the Reserve Bank of India on July 11, 2022 allowed importers to pay with rupees and exporters be paid in rupee. While there has been some success with non-oil trade with a select few countries, rupee continues to be shunned by oil exporters. “During FY 2022-23, no crude oil imports by oil PSUs was settled in Indian rupee. Crude oil suppliers (including UAE’s ADNOC) continue to express their concern on the repatriation of funds in the preferred currency and also highlighted high transactional costs associated with conversion of funds along with exchange fluctuation risks,” the oil ministry told the parliamentary department related standing committee. The ministry, whose subimissions are part of the committee’s report which was tabled in Parliament last week, said Indian Oil Corporation (IOC) has informed that it incurred high transaction costs as crude oil suppliers pass on the additional transactional costs to IOC.” The RBI, it said, had last year permitted opening of rupee vostro accounts in the partner trading country. Under this mechanism, Indian importers undertaking imports through this mechanism shall make payment in Indian rupee which shall be credited into the special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier. “Payments for crude oil can be made in Indian rupee, subject to the suppliers’ complying with regulatory guidelines in this regard,” the ministry said. “Currently, Reliance Industries Ltd and oil PSUs do not have an agreement with any crude oil supplier to make purchases in Indian currency for supply of crude oil.” India is the world’s third largest energy consumer. With its domestic production meeting less than 15% of its needs, the country imports the remaining crude oil, which is converted to fuels such as petrol and diesel at refineries.
First rupee payment for oil to UAE: India looks for more deals, no targets: Officials
India’s first-ever payment in rupees for crude oil purchased from the UAE is helping the world’s third largest energy consumer push for taking the local currency global, as it looks for similar deals with other suppliers, officials said, adding internationalisation is a process and there are no targets. With the nation more than 85 per cent dependent on imports for meeting its oil needs, India has been pursuing a three-pronged strategy of buying from the cheapest available source, diversifying sources of supply and not breaching any international obligation like the price cap in case of Russian oil. While the strategy helped save billions of dollars, when it ramped up imports of Russian oil that was shunned by some in West post Ukraine war, it is looking to settle trade in rupees instead of dollars in a bid to cut transaction costs by eliminating dollar conversions. India in July signed an agreement with the UAE for rupee settlement and soon after Indian Oil Corporation (IOC) made payments for purchase of a million barrels of crude oil from Abu Dhabi National Oil Company (ADNOC) in Indian rupees. Some of the Russian oil imports too have been settled in rupee. Officials said the default payment currency for import of crude oil has been the US dollar for several decades and the currency traditionally has liquidity as well as lower hedging cost. But to boost the rupee’s role in cross-border payments, the Reserve Bank of India allowed more than a dozen banks to settle trades in rupees with 18 countries since last year. Since then, India has been encouraging big oil exporters such as the UAE and Saudi Arabia to accept the Indian currency for trade settlements, officials said, adding the first success happened in August this year when IOC made the rupee payment to ADNOC. More such deals may happen in future, they said, insisting there was no target as internationalisation is a process and cannot happen overnight. “We have to be mindful that it (rupee settlement) does not lead to increase in cost and is in no way detrimental to the trade,” an official said. “Settling a trade in rupee where the amount is not big does not pose much problem but when you have each shipload of crude oil costing millions of dollars, there are issues.” India, they said, is navigating the situation keeping overarching national interest in mind. The internationalization of the rupee will help reduce dollar demand and make the Indian economy less vulnerable to global currency shocks. A parliamentary standing committee report, tabled in Parliament last week, stated that there were not many takers for Indian rupee. Officials said that situation was true for 2022-23 fiscal and there has been a rupee trade this year. “During FY 2022-23, no crude oil imports by oil PSUs were settled in Indian rupee. Crude oil suppliers (including UAE’s ADNOC) continue to express their concern on the repatriation of funds in the preferred currency and also highlighted high transactional costs associated with conversion of funds along with exchange fluctuation risks,” the ministry told the panel. The ministry, whose subimissions are part of the committee’s report which was tabled in Parliament last week, said India Oil Corporation (IOC) has informed that it incurred high transaction costs as crude oil suppliers pass on the additional transactional costs to IOC.”
IOC, BPCL, HPCL in talks to raise ₹5,500 crore by securitising licence fee
Indian Oil, Bharat Petroleum and Hindustan Petroleum are discussing plans to raise ₹5,500 crore by securitising the licence fee they get from their petrol pump dealers as part of the government’s push for asset monetisation by state companies, according to multiple people familiar with the matter. Top company executives at three state-run refiners have discussed the monetisation plan with officials at Niti Aayog and the petroleum and finance ministries for months, they said. Indian Oil is targeting to raise ₹2,500 crore while BPCL and HPCL are aiming for ₹1,500 crore each by securitising the licence fee for three years and selling the securities to banks or other buyers, according to the companies’ plans. The licence fee is linked to the volume of petrol and diesel sold at a pump and is settled between a dealer and the company each fortnight or month. The licence fee for diesel and petrol varies from ₹ 128 per kilolitre to ₹369 per kilolitre based on the location of the petrol pump. A goods and services tax (GST) of 18-28% also applies to the licence fee. Indian Oil, BPCL and HPCL didn’t respond to ET’s request for comment for the story. A source close to Indian Oil, who didn’t want to be named, said the idea of monetising licence fees was first discussed last year when fuel retailers were making losses following a spike in international fuel prices and were looking to raise cash through innovative means. While the plan to monetise licence fees is on the table, the urgency to execute it has reduced as companies now flush with cash due to record-high profits in the first half of the current fiscal year, the person said. Compared to Indian Oil, BPCL and HPCL appear keener on the plan to monetise licence fees, another person with knowledge of the matter said. The government has been pushing state-run oil companies for years to monetise their assets to raise resources that can be deployed in new projects. Three years ago, the government had drawn up a plan, which expected state oil and gas companies to transfer some of their pipelines to InvITs and sell minority stakes in those to raise Rs 17,000 crore. The plan didn’t take off as the companies said they could raise capital from lenders at a much lower cost than the return they may have to offer to InvIT investors.
Two Elections that Will Impact Energy and Geopolitics in 2024
The New Year will bring not only new leadership to key energy venues around the world, but it will also bring impactful developments in the run-up, as incumbents act to secure their destinies at all costs. From Russia to Venezuela and the United States, with a stage-setting surprise already unveiled in Argentina, this is one of the most important election years in decades. Russia: March 15-17, 2024 Russian President Vladimir Putin is pulling out all the stops for his presidential bid in March next year. To that end, leading Kremlin critic and the country’s most influential opposition figure and anti-corruption campaigner, Alexei Navalny, has been sequestered (at best) in a secret location for the past two weeks. No one knows where the imprisoned opposition leader is now. Navalny, who has been serving a prison term in the 1K-6 prison outside of Moscow has not appeared at any scheduled court hearings for December, according to The Moscow Times, and his lawyers haven’t seen him since December 5. In August, Navalny was sentenced to 19 years in prison on “extremism” charges in a brazen attempt to keep him out of politics. In the meantime, it’s the high season for treason in Russia as Putin seeks to quash any detractors. According to The Moscow Times, a record number of 63 cases of high treason have been sent to the courts this year, with an additional seven cases for “confidential cooperation with a foreign state or organization.” It smacks of Stalin’s days. On December 22, Putin seized the country’s biggest car dealership (Rolf) and put it under state management, claiming it was for commercial reasons but the reality is that the owner is Sergei Petrov, a Kremlin critic. Rolf, which is based in Cyprus, has been around since the fall of the Soviet Union. The Kremlin has accused Rolf of illegally moving money abroad at a time when Russia’s wartime economy can’t allow for it. Petrov’s take on this is that Putin is paving the way for his cronies to redistribute assets amongst themselves. On the war in Ukraine, it remains unclear as to whether Putin has succeeded in conveying to the public that this is a victory in any way, or what it has meant for the Russian economy or Russia’s influence in the former Soviet arena. Russia in 2024 will undoubtedly usher in another victory for Putin, but his cronies and loyalists have been shifting, and that means a redistribution of assets and a largely uninvestable country. His victory will not, of course, shock the market or have much impact on oil and gas prices, which have long ago calculated any Putin premium there is to be had. A defeat for Putin, however, would roil markets because of the massive amount of uncertainty this would bring. Can anyone challenge Putin at this point? Not really. The only challenger hopeful is former journalist Yekaterina Duntsova, who is being accused of being backed by Yukos Oil boss Mikhail Khodorkovsky (both deny this), who is classified in Russia as a “foreign agent”. He’s a fugitive oligarch running an opposition movement from outside of Russia. A second candidate appeared in December, 60-year-old Boris Nadezhdin, a former politician and commentator who has accused Putin of undermining the country’s democratic institutions with his authoritarianism. He’s also called Putin’s invasion of Ukraine a “fatal mistake”–a statement that could land him in prison for treason. 71-year-old Putin does not appear to have been weakened significantly by the failed Wagner mutiny earlier this year; Ukraine’s counteroffensive has showed signs of stalling; and while the economy may not be rock solid due to the war effort, the propaganda machine is working at full force to get across a different narrative, and it seems to be working. Most analysts are preparing for a show election that will see Putin–already in power since 1999–remain in power thanks to Constitutional amendments that he made sure went through to allow him to stay in power for more than a decade longer. For oil, it will mean more of the current status quo of war in Ukraine and Western sanctions and price caps, which will simply become the norm. Venezuela – 2024 (TBD) Venezuelan President Nicolas Maduro cut a deal with Washington for a temporary easing of sanctions on Venezuelan oil. The deal was for free and fair elections, and that he would not attempt to thwart the opposition’s participation. His first move was to issue arrest warrants for a handful of opposition figures, including former National Assembly leader Juan Guaido and staffers of the opposition presidential candidate Maria Corina Machado. This coincided with the holding of a referendum on the annexation of Essequibo, the oil-rich area of Guyana, which makes up some two-thirds of the country’s territory. While Guyana and Venezuela have held talks since and vowed to refrain from a military confrontation over the matter, Maduro is desperate, and from a domestic standpoint, this is a play designed to circumvent elections by escalating things to a level that would allow him to declare a state of emergency. As noted by Andres Oppenheimer writing for the Miami Herald in late December, to achieve his goals, Maduro could send a stealth force to claim Essequibo without firing a single bullet. By establishing this presence and officially declaring Essequibo under Venezuelan control, Maduro creates an international incident that the West will find necessary to address. Under the continually escalating pressure of an “international incident”, Maduro will find the legitimacy he needs to declare a state of emergency and cancel 2024 elections, or at least postpone them indefinitely. A state of emergency would allow him to cancel elections. The West would act slowly because China and Russia would back Venezuela’s claim and the West would seek to avoid any actual confrontation. This is a potential Pandora’s Box of geopolitical consequences, too, because Maduro is also being used as a puppet for Chinese and Iranian ends. As historian Gregory Copley noted for Oilprice.com earlier in December, China and Iran
Red Sea Ship Attacks Pose Threat To West Asian Crude Oil Supply
The rising attacks on ships, especially oil tankers, in and around the Red Sea may cause a temporary hindrance to India’s petroleum exports from West Asia, given the recent developments. Concerns were raised after two India-bound warships were targeted by drones during the Israel-Hamas conflict, as outlined by media reports. Late on Saturday, Iran-aligned Houthi rebels are said to have launched a drone strike on the crude oil tanker MV Sai Baba, which is registered under the flag of Gabon and is carrying 25 Indian crew members. The United States Central Command (CENTCOM) reports that the incident happened in rebel-controlled territory, but thankfully no injuries were reported. MV Sai Baba, certified by the Indian Register of Shipping, was en route to India, adhering to international law requiring merchant ships to register in a host country. The US Central Command’s report followed another attack on the merchant vessel MV Chem Pluto, which was hit by a suspected drone in the Arabian Sea. This vessel, with around 20 Indian crew members, caught fire about 217 nautical miles off the Porbandar coast. The fact that most oil volumes pass through the affected waters makes these instances significant. The government is keeping a careful eye on the situation and is aware that these kinds of attacks may have an effect on the short-term flow of crude oil from West Asia. Furthermore, as shipments from Europe are choosing to take the longer route around Africa and the Cape of Good Hope rather than the Red Sea through the Suez Canal, shipping costs are predicted to increase even more.