Margins of Indian refiners likely to be under pressure in 2024
Margins of Indian petrochemical companies like Reliance Industries, GAIL, and Indian Oil are likely to remain under pressure in the upcoming year. According to brokerage firm Prabhudas Lilladher, Chinese plans to reduce dependence on oil imports coupled with low demand environment in Europe are expected to be the reasons behind such margin pressure. “China, the world’s largest producer and consumer of petrochemicals has been adding new petrochemical capacities and improving its self-sufficiency. Thus, China has reduced its reliance on imports. Along with this, demand concerns too persist in Europe on the back of high inflation and interest rates. This has led to suppressed product margins,” the brokerage firm wrote in a report. Meanwhile, Indian refiners have announced aggressive expansion plans. Reliance has announced expansion plans across its petrochemical value chain, which will come up by 2026. Indian Oil is planning to enhance its petrochemical capacity from 4.1 mmtpa to 15 mmtpa by FY30. Similarly, GAIL is also expanding its capacity by setting up new plants. “Petro-chemical margins have been suppressed since the beginning of 2023 and we expect RIL, GAIL and IOCL’s petro-chemical margins to remain weak going into 2024 too, on the back of production capacities exceeding demand,” PrabhudasLilladher wrote in its report. As Chinese and Indian petrochemical producers add capacity, it is likely to create a supply glut without matching demand globally. With prediction of mild recession in the US and weak European economic health, demand for petrochemical products is not likely to improve in the next calendar year. Against this backdrop, Indian refiners’ margins will continue to be under pressure in 2024.
India ups LNG imports in October
India’s liquefied natural gas (LNG) imports rose in October compared to the same month last year, according to the preliminary data from the oil ministry’s Petroleum Planning and Analysis Cell. The country imported 2.34 billion cubic meters, or about 1.71 million tonnes of LNG, in October, a rise of 18.2 percent compared to the same month in 2022, PPAC said. During April-October, India took 17.75 bcm of LNG, or some 13 million tonnes, up by 13.4 percent, PPAC said. India paid $1.2 billion for October LNG imports, down from $1.4 billion last year, it said. As per India’s natural gas production, it reached 3.16 bcm in October, up by 9.3 percent compared to the corresponding month of the previous year. During April-October, gas production rose by 4.8 percent to about 21 bcm, PPAC said. At the moment, India imports LNG via seven facilities with a combined capacity of about 47.7 million tonnes. India’s Adani and France’s TotalEnergies started supplying natural gas in April to the grid from their 5 mtpa Dhamra LNG import facility located in Odisha, on India’s east coast. In August, the partners completed the first truck loading operation at the facility. During April-October, Petronet LNG’s 17.5 mtpa Dahej terminal operated at 94.3 percent capacity, while Shell’s 5 mtpa Hazira terminal operated at 39.8 percent capacity, PPAC said. The Dhamra LNG terminal operated at 26.4 percent capacity, it said.
Oil Prices Remain Depressed After OPEC+ Shocked Markets
Crude oil prices remained depressed in morning trade today in Asia following the Wednesday slump. Yesterday’s drop in prices was caused by news that OPEC+ is delaying its meeting, originally scheduled for this Sunday, to next Thursday. The latest EIA oil inventory report then added to downward pressure on oil prices by showing a sizeable build in U.S. crude stocks. Brent crude and West Texas Intermediate shed more than 1% earlier today, with Reuters reporting that there appeared to be disagreement among OPEC members on the production levels the cartel was aiming for. Citing unnamed sources from the cartel, the report said the dispute focused on African members. Analysts have suggested that Angola, Nigeria, and Congo want to have their production quotas raised from the levels agreed at a meeting in June. In June, OPEC+ agreed to limit output, with Saudi Arabia voluntarily cutting production by 1 million bpd and then extending this commitment until the end of this year. Since then, Saudi Arabia has expressed dissatisfaction with the production levels of other OPEC members. “At that meeting, OPEC squared the books on increasing UAE’s quota… by reducing the targets for the African nations that were underperforming their required production numbers,” RBC Capital Markets’ Helima Croft said in a note, cited by Reuters. ING’s Warren Patterson noted that disagreement among OPEC members would heighten price volatility but it remains unclear whether this disagreement would affect the cartel’s policy or Saudi Arabia’s production plans, Bloomberg reported earlier today. Citigroup analysts said they did not expect any surprises from the OPEC meeting, with Saudi Arabia most likely to extend its voluntary cuts of 1 million bpd for another month. The rest of OPEC would probably stick to their current quotas, the analysts predicted. Fears that OPEC+ will further deepen cuts at its next meeting put downward pressure on oil prices earlier this week, but the postponement of the meeting has added further concerns over the intensifying spat among the cartel’s members. Ahead of the delayed meeting, most analysts had expected the Saudis to extend the voluntary production cuts into 2024.
OPEC gains India oil market share in October, Russia slips
OPEC’s share in India’s oil imports in October hit a 10-month high as refiners bought more crude from Saudi Arabia and the United Arab Emirates after discounts narrowed for Russian oil that month, trade data showed. Russia’s share of the Indian market in October slipped to the lowest in nine months, according to Reuters calculations based on ship tracking data from trade sources. India, the world’s third-biggest oil importer and consumer, typically relies on producers in the Middle East for most of its oil needs and has encouraged refiners to diversify to cheaper alternatives to cut costs. The South Asian nation has emerged as the top buyer of the Russian seaborne oil sold at a discount after Western nations stopped buying from Moscow following its invasion of Ukraine. India imported about 4.7 million barrels per day (bpd) of crude in October, up 8.4% from the previous month as refiners increased purchases to meet higher local fuel demand during the festive season, the data showed. Imports from Saudi Arabia and the United Arab Emirates jumped to a 7-month high, up about 53% and 63% respectively in October from the previous month, the data showed. That helped lift the share of the producers in the Organization of the Petroleum Exporting Countries to 54% in October, up from 50% in September, according to the data. India imported on average 1.56 million barrels per day (bpd) of Russian oil in October, up 1.2% from the previous month, the data showed. Despite the increase, Russian oil’s share in India’s October imports slipped to 33% from 35% in September. Russia was the top oil supplier to India in April to October, the first seven months of this fiscal year to March 2024, followed by Iraq and Saudi Arabia. Higher intake of Russian oil boosted the share of the Commonwealth of Independent States (CIS) in India’s oil imports to the highest during April-October, the data showed.
Kerala Cabinet announces tie-up with BPCL to install compressed biogas plant fuelled by urban waste in Kochi
A Kerala Cabinet meeting on November 22, 2023 sought to convert Kochi’s mounting organic waste problem into a civic advantage by engaging the public sector Bharath Petroleum Corporation Limited (BPCL) to construct an industrial-level compressed biogas plant that would turn tons of biodegradable refuse from households, hotels, marriage auditoriums and markets into valuable energy and nutrient-rich fertilizer sludge. The plant would come up on 10 acres of Municipal Corporation land at Brahmapuram. The Kerala Government would hand over the public property to the BPCL. The Cabinet pegged the proposed plant’s daily processing capacity at 150 metric tonnes. The BPCL would underwrite the entire cost of the ₹150-crore project. The government would supply power and water to the plant at a subsidised rate. The BPCL would complete the scheme in 15 months. Kochi has a population of an estimated 7,00,000 and nearly 1,61,000 dwellings.
Indraprastha Gas Targets LNG Trucking Amid EV Shift. Here’s What Morgan Stanley Makes Of It
Indraprastha Gas Ltd.’s tie-up with Container Corp. to boost liquefied natural gas as trucking fuel will benefit the city gas distributor when it faces a risk from electric vehicle transition in Delhi, its largest market, according to Morgan Stanley. LNG trucking is a nascent market in India, unlike in China or the U.S., according to the international broking firm. While various stakeholders like Retailers and Petronet LNG Ltd. have been attempting to develop the ecosystem, there has been limited success to date, it said. If successful, LNG trucking would provide a new demand growth area, which is not yet priced in by market, Morgan Stanley said. While Indraprastha does stand to benefit, oil retailers Bharat Petroleum Corp., Hindustan Petroleum Corp. and Indian Oil Corp. could be bigger beneficiaries. Indraprastha Gas signed a memorandum of understanding for using LNG in trucks, which have 990-litre cryogenic gas tanks with a 1,400-kilometre mileage. The deal is an attempt to diversify from gas consumer base as EV adoption can hurt demand for the fuel.
Brent crude futures jump over 2 per cent due to fears of supply cuts in Opec+ production
Brent crude futures climbed more than 2 per cent, gaining $2 a barrel on Monday as further supply cuts in Opec+ production are expected in the coming weeks. Brent crude futures were up $2.00 to $82.61 a barrel by 1539 GMT. US West Texas Intermediate crude was up $1.65, or 2.17 per cent at $77.54. The front-month December WTI contract expires later on Monday. The more active January futures gained $1.79 to $77.83. Both contracts settled 4 per cent higher on Friday after three Opec+ sources told Reuters that the producer group, comprising the Organization of the Petroleum Exporting Countries (Opec) and allies, including Russia, is set to consider whether to make additional supply cuts when it meets on November 26. Oil prices have dropped almost 20 per cent since late September while prompt inter-month spreads for Brent and WTI slipped into contango last week. In a contango market, prompt prices are lower than those in future months, signalling sufficient supply. “In light of last week’s obliteration of oil bulls, some kind of response was forthcoming from the (OPEC) producer group,” said Tamas Varga of oil broker PVM.
The Dramatic Downfall of ESG Investing
Investors are withdrawing money from sustainable funds as the ESG enthusiasm of the past few years is waning amid high interest rates, poor returns, plunging renewable energy stocks, tightened SEC rules, and political backlash. Over the past year, investors have withdrawn a total of $14.2 billion from U.S. sustainable funds in four consecutive quarters of net withdrawals, data from Morningstar showed. Green Energy Stocks Battered Globally, renewable energy funds saw record outflows of money in the third quarter of 2023 as stocks of wind and solar developers and suppliers crashed amid rising costs, higher interest rates, and supply-chain challenges. Renewable energy exchange traded funds (ETFs), tracking the performance of clean energy companies, suffered a total of $1.4 billion of outflows in the third quarter, the highest outflows of any previous quarter, according to data from LSEG Lipper cited by Reuters. The record outflows between July and September only partially offset net inflows of $3.36 billion for the first half of 2023, the data showed. A perfect storm of soaring costs, supply chain delays, rising interest rates, and low electricity prices at auctions have been hurting renewables-related companies in recent months. “There’s a dark cloud hanging over green stocks,” Martin Frandsen, a portfolio manager at Principal Asset Management, told the Financial Times last month. Investors Pull Billions From U.S. Sustainable Funds It’s not only the recent flop in renewable energy stocks that’s keeping Wall Street away from sustainable investments. The high interest rates and politicians targeting sustainable investing have also played a role in investor decisions, industry executives and analysts say. In the third quarter of 2023 alone, investors pulled $2.7 billion from U.S. sustainable funds, continuing a trend of net withdrawals that started in the fourth quarter of 2022, per data from Morningstar Direct. “Although the motivations behind outflows cannot be perfectly quantified, many factors are in play. These include rising energy prices, high interest rates, concerns about greenwashing, and political backlash,” Alyssa Stankiewicz, an associate director of sustainability research for Morningstar, wrote in an analysis last month. All U.S. funds also saw net withdrawals in the third quarter of 2023, but the demand drop in sustainable funds was steeper compared to conventional funds, according to Morningstar. As a result of net withdrawals and poor performance, assets in sustainable funds dropped back below the $298.8 billion mark at the end of the third quarter—falling by 17% from the record-high of $358.2 billion at the end of 2021 but up by 10% from the recent low of $272.2 billion in the third quarter of 2022, Morningstar data showed. Moreover, for the first time ever, more sustainable funds closed in the third quarter than the number of funds launched. Three new sustainable funds launched, and one existing fund was added to the sustainable funds landscape in Q3, while 13 sustainable funds closed and four funds moved away from ESG mandates, Morningstar said. Columbia Threadneedle, Hartford, and BlackRock liquidated the largest sustainable funds in terms of assets in the third quarter. As a result, the total number of sustainable open-end and exchange-traded funds in the United States were 661 at the end of the quarter. After the third quarter, the list of the top 12 worst-performing ETFs in October was packed with thematic funds in the clean energy space, according to Morningstar Direct research from early November. Electric Vehicle Charging Infrastructure UCITS ETF, First Trust Nasdaq Clean Edge Green Energy UCITS ETF, and the Invesco Solar Energy UCITS ETF were the biggest ETF losers. New Rules And Political Backlash Discourage Sustainable Fund Investors In recent months, the Biden Administration’s rule allowing employee retirement plans to consider ESG factors in investment decisions has been challenged by Republican-led states. Fund managers say the rule may have impacted the popularity of sustainable funds. “We found that the demand for ESG investing, by financial professionals working with retirement-plan participants, was more limited than we anticipated,” Ron Rice, vice president of marketing at Pacific Financial, told The Wall Street Journal. In addition, the Securities and Exchange Commission (SEC) has been stepping up efforts to combat the greenwashing of labeling funds as sustainable. The SEC updated in September the so-called Names Rule, requiring 80% of a fund’s portfolio to match the asset advertised by its name. “The updated rule will apply not only to funds whose names suggest a focus in particular investments, industries, or geographies—but also to funds whose names suggest a focus in investments with particular characteristics. This includes names suggesting an investment focus on Environment, Social, and Governance (ESG)-related factors through names such as “sustainable,” “green,” or “socially responsible,” SEC chair Gary Gensler said. In addition, sustainable investing in the U.S. has been criticized by Republican states, most notably Texas, which says that ESG standards are harming America’s energy industry and threatens millions of jobs. Texas prohibits state contracts and investments with companies that boycott energy companies. At the end of last year, the Florida Treasury said it would divest $2 billion worth of assets under management by BlackRock because of the ESG investing by the world’s largest asset manager. “If Larry, or his friends on Wall Street, want to change the world – run for office,” Florida Chief Financial Officer (CFO) Jimmy Patronis said at the time. “Using our cash, however, to fund BlackRock’s social-engineering project isn’t something Florida ever signed up for.”
Galileo produces first LNG for India’s GAIL
Global engineering and manufacturing company Galileo Technologies (Galileo) has marked a milestone in Asia’s energy development having produced the first batch of liquefied natural gas (LNG) for Indian natural gas company GAIL. To produce the LNG, Galileo uses its compact and modular Cryobox units which are connected to state gas pipelines. According to the company, these units condense all the capabilities of a large-scale LNG plant into a transportable, low-weight module. Carried out by GAIL, the operation will see LNG supplied to Indian industry and public transport in the country. “We are proud to be pioneers in the first LNG production in India and appreciate GAIL’s trust in our technology,” said Emilio Weber, International Commercial Director of Galileo. According to S&P Global seaborne data, India’s LNG imports rose to 2.02 million metric tonnes in April 2023 from 1.94mmt in March and from 1.7mmt in April 2022. India’s natural gas consumption for 2023 was revised upwards in May by the International Energy Agency (IEA), when it predicted a 4% year-on-year increase due to a modest recovery in the power sector and continued growth in industrial activity and city gas sectors.
JP Morgan Expects Brent Crude to Average $83 in 2024
JP Morgan has forecast an average price for Brent crude of $83 per barrel next year amid a stable market. The forecast is based on the analysts’ expectations of resilient demand for oil in the United States, strong demand growth in emerging markets, and stability in European markets. For 2025, JP Morgan analysts said they expected an average Brent crude price of $75 per barrel. As with many others, the forecast is based on expectations of substantial energy efficiency gains and growth in EV sales at the expense of internal combustion engine vehicles, leading to lower demand for fuels. At the same time, the bank also expects a weakening of jet fuel demand after the recent surge. In terms of total demand, for this year JP Morgan analysts expect growth of 1.9 million bod, weakening to 1.6 million bpd in 2024. “Despite sustained economic headwinds, we see demand … underpinned by robust EM, resilient US and weak but stable Europe,” the bank’s analysts wrote. “Demand composition will likely flip, with two-thirds of demand gains set to come from the overall economic expansion, while continued normalization of jet fuel would contribute the rest.” On the supply side, JP Morgan expects growth in non-OPEC production, which could undermine the cartel’s efforts to keep prices above a certain level. If non-OPEC supply growth is strong enough, it could push Brent below $70 per barrel. In this context, JP Morgan’s analysts said they expected OPEC+ to keep the lid on production to support prices. Meanwhile, prices fell earlier today, reversing gains made on Monday after a report saying OPEC+ was considering additional production cuts to push prices higher. Despite these plans, traders appear focused on demand uncertainty once again. Goldman Sachs had said on Monday that it was reasonable to expect deeper OPEC+ cuts when the cartel meets next, on November 26.