The U.S.’s Hopes In Iraq Have Ended With The Oil-For-Gas Deal With Iran
Ever since the U.S. officially ended its ‘combat mission’ in Iraq on 31 December 2021, it has been looking for a way back into the huge but still relatively untapped oil and gas regions of the country, as analysed in depth in my new book on the new global oil market order. Iraq knows this perfectly well and has sought since then to exploit this need for money from the U.S. whilst having no intention of allowing it to return in any meaningful way. Many analysts trace this reluctance back to the U.S.’s invasion of Iraq in 2003 or to its continued military presence there until 2011, but although neither of these factors helped the U.S.’s ambitions in Iraq, neither of them put the final nail in their coffin either. This came with its unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) – or colloquially, ‘the nuclear deal’ – with Iran in May 2018. Iran has wielded enormous power over Iraq for a very long time indeed through its various political, economic, and military proxies and the death knell of the deal with Iraq meant the same for any ambitions the U.S. had in Iraq. The game plays from Iraq and the U.S. around this starting position were seen again last week but, as in the end of Macbeth’s fleeting moment of glory, these threats and counter-threats are ‘full of sound and fury, signifying nothing’: the game is already over, and the U.S. lost. The last week or so has seen a series of statements from both the U.S. and Iraq surrounding Baghdad’s staggeringly omni-toxic idea that Iraq will pay with its own oil supplies for the gas and electricity that it has long been importing from Iran. This is less of a slap in the face for Washington than a baseball bat in the crotch, as the U.S. has for years been giving Iraq tens of billions of dollars to help with its finances on the specific condition that the country reduces its imports of gas and electricity from Iran eventually to zero. For the U.S., the ending of Iraq’s reliance on Iran for around 40 percent of its power grid needs (through gas and electricity imports) would have provided an excellent starting point for American companies to move back into Iraq to begin a new commercially-based chapter in the two countries’ history. To encourage Iraq towards this end, the U.S. has granted waivers to it to continue to import gas and electricity from Iran to manage this transition away from dependence on its neighbour. Accompanying these waivers have been massive injections of U.S. funding into Iraq, usually following a visit to Washington in August or September each year by whoever was Iraq prime minister at the time to ask for money to bail out the Iraq budget. The principal reason why the Iraq budget needs bailing out every year is because of the industrial-scale corruption that lies at the heart of its oil sector administration, as also analysed in depth in my new book on the new global oil market order. This offensive manoeuvre from the Iraqi playbook is such a regular annual feature in Washington that for a long time, a very senior U.S. legal source closely connected to such discussions exclusively told OilPrice.com some years ago, it has been known as ‘the Baghdad Ballet’. Up until now, the most shocking betrayal of the U.S.’s optimistic trust in Iraq in this context came from the ultra-smooth Mustafa al-Kadhimi. He had danced the usual dance with the U.S. so well that in May 2020 Washington gave him even more money than before and the longest waiver ever given – 120 days – to keep importing gas and electricity from Iran, on the standard condition that Iraq stopped doing it soon. However, once the money had been banked and al-Kadhimi was safely back on home territory, Iraq signed a two-year contract – the longest period ever – with Iran to keep importing gas and electricity from it. Washington let the formidable then-State Department spokeswoman, Morgan Ortagus, out of her room, and she let fly. Not only was the next waiver to Iraq the shortest ever – 30 days – but also at the press conference in which it was announced, Ortagus let it be known that the U.S. was hitting 20 Iran- and Iraq-based entities with swingeing new sanctions. She cited them as being instruments in the funnelling of money to Iran’s Islamic Revolutionary Guards Corps’ (IRGC) elite Quds Force, which was entirely true. She added that the 20 entities were continuing to exploit Iraq’s dependence on Iran as an electricity and gas source by smuggling Iranian petroleum through the Iraqi port of Umm Qasr and money laundering through Iraqi front companies, which was also true. She also said that Washington was extremely concerned that Iraq was continuing to act as a conduit for Iranian oil and gas supplies to make their way out into the world’s major export markets. This was true as well, as additionally analysed in my new book on the new global oil market order. Even against this backdrop of stunning betrayals, though, this new idea from Iraq is of an unprecedentedly omni-toxic variety. Given tangential comments from the current Iraqi Prime Minister, Mohammed al-Sudani, it may well be assumed that Baghdad knows this and, if this is the case, it might well be the latest ruse in this year’s effort to gain another waiver (including allowing Iraqi payments to be made through the regular Iranian banking system), and more multi-billion dollar funding from the U.S. Specifically, and apparently with no sense of the irony involved, al-Sudani said that Iraq has no choice but to start paying for Iranian gas and electricity imports with Iraqi oil because U.S. sanctions on Iran has made it difficult for Iraq to make payments through traditional banking routes. Al-Sudani also said that such supplies are vital because of the rolling power cuts that are occurring across
PetroChina, other global oil companies keen to build reserves in India
PetroChina and global commodity traders Vitol, Glencore and Trafigura are among the nearly two dozen companies that have expressed interest in building India’s new strategic petroleum reserves (SPR), junior oil minister Rameswar Teli told the Lok Sabha on Thursday. India plans to build two commercial-cum-strategic oil storage facilities with a combined capacity of 6.5 million tonnes in a public-private partnership mode. The country already has three facilities with a combined storage of 5.33 million tonnes capacity. The government has been holding roadshows to rope in private players for its proposed facilities.
Russia To Cut Oil Exports By 300,000 bpd In September
Russia will cut oil exports by 300,000 barrels per day in September, Deputy Prime Minister Alexander Novak has announced. Russia has already pledged to cut oil output by around 500,000 bpd from March until year-end. “Within the efforts to ensure the oil market remains balanced Russia will continue to voluntarily reduce its oil supply in the month of September, now by 300,000 barrels per day, by cutting its exports by that quantity to global markets,” Novak has said. The news comes shortly after Saudi Arabia said it would extend its unilateral voluntary cut of 1 million barrels per day into September, and that these output cuts could be extended and/or deepened. Oil prices rose 1% minutes after the Saudi announcement, though it was largely expected by the market. Since then, oil prices have continued to rally. As of Thursday at 11:38 a.m. ET, Brent crude was trading up 1.74% at $84.65, while WTI was trading up 1.91% at $81.01, breaching the $80 resistance mark. Earlier this week, Russian President Vladimir Putin signed into law tax code measures that will narrow the discount of Urals (Russia’s flagship crude) to Brent to $20 per barrel from the current $25 discount. That measure will go into effect in September. The price of Russia’s ESPO crude blend has also risen to an eight-month high. The discount for ESPO vs. Brent is now the narrowest since the embargo went into effect in December, buoyed by strong demand from China’s independent refiners as well as India’s refiners. The new production cuts come as India’s Russian oil imports for July recovered to near all-time highs of 1.93 million bpd in May.
After parliamentary panel flags limited CBG progress, state oil firms cancel 87 LoIs
State-run oil and gas companies have cancelled letters of Intent (LoIs) issued to 87 “non-serious candidates” for setting up of compressed biogas (CBG) plants after a parliamentary panel recommended the review of LoIs, citing limited progress in building CBG plants. Oil and gas companies issue LoIs to entrepreneurs to procure CBG from them. The entrepreneurs use the LoI to receive regulatory clearances and loans for their CBG projects. After the standing committee on petroleum and natural flagged the issue of LoIs, the oil ministry advised state-run oil and gas companies to review the selection criteria for LoI issuance “so that only serious applicants are selected and also to withdraw the LoIs issued to non-performing entrepreneurs,” the committee said in its latest report. As of June 1, 2022, a total of 3,263 LoIs had been issued by the state oil companies, the committee said in its previous report tabled in December. Of this, only 35 CBG plants had been commissioned and around 40 plants were expected to be commissioned by March 2023, it said.
India, Sri Lanka to begin talks on petroleum pipeline project
New Delhi and Colombo are set to begin technical discussions that could pave the way for a multi-product petroleum pipeline between the two South Asian nations, Mint has learnt. The project, which was announced during president Ranil Wickremesinghe’s visit to India in July, is expected to help Sri Lanka improve its energy security at an affordable cost.
India sees 34 per cent fall in oil imports from Saudi Arabia; imports from Russia increase
India’s crude oil imports from Saudi Arabia declined by 34 per cent in July, according to energy cargo tracker Vortexa. A Moneycontrol report said that India imported 484,000 barrels of crude oil per day in July, compared to 734,000 barrels per day (bpd) in June. The decline in India’s imports came after the West Asian kingdom announced supply cuts of one million bpd in July. Saudi Arabia and a number of other oil-producing nations have cut oil supply in a bid to stabilise the global oil prices, Apart from Saudi Arabia, Iraq had decided to lower its oil supply by over 200,000 bpd through the end of the year. In May, Russia and the Organization of the Petroleum Exporting Countries announced a cut in oil production by 1.6 million bpd for the rest of the year. Increase in crude oil imports from Russia In the meantime, Russia continued to be India’s top crude oil supplier in July. According to Viktor Katona, head of crude analysis at Kpler’s, daily volumes increased for the tenth straight month in June, reaching 2.2 million barrels per day. The data reveals that India received more crude oil from Moscow than it did from Saudi Arabia and Iraq, its usual suppliers, put together. Following the invasion of Ukraine, India became a prime consumer of Russian oil, but due to infrastructural problems and the need to maintain good relations with other suppliers, the country’s oil purchase may have reached its limit. Kpler however predicted that due to a decline in Russian oil production, imports may fall next month. According to a Bloomberg report, Reliance Industries Ltd. is the second-largest consumer of Russian crude after state-owned Indian Oil Corporation. India, the third-largest consumer and importer of oil in the world, purchases more than 80 per cent of its oil from foreign markets.
$85 Is Just The Beginning Of The Oil Rally
Earlier this week, media reported that oil production from the members of OPEC had fallen to the lowest since 2021—or 2020, depending on the source—thanks to voluntary production cuts from Saudi Arabia and involuntary declines in Nigeria, Angola, and Libya. The news naturally pushed oil prices higher. Yet they have already begun to climb as traders have finally started paying attention to the supply warnings and demand projections that banks and other analysts have been issuing for weeks. The jump in prices should have made Riyadh happy, and it probably did. The question now is how much higher the Saudis would let prices go before starting to relax their cuts. The Saudi Arabian economy grew by a modest 1.1% in the second quarter of the year, which was down from 3.8% in the first quarter. Media and analysts attributed the slowdown to lower oil prices, even though the Kingdom’s non-oil sector booked a pretty healthy 5.5% growth rate. Yet the weight that the oil trade has in the overall economy remains overwhelming despite Riyadh’s efforts to diversify. And this means that it needs even higher oil prices—to continue with the diversification efforts. Bloomberg’s Grant Smith suggested this week that the Saudis may decide to relax the cut from September as Brent moves to $85 and above. The reasoning was that refiners would welcome the additional barrels, and the Saudis would be happy to boost their market share after losing some of it because of the voluntary cuts. On the other hand, Smith wrote, longtime OPEC observers were not convinced this would be enough for the Saudis to relax the cuts. Uncertainty about demand was one reason cited, and the risk of disrupting the discipline of OPEC as a whole was another. Ultimately, however, the Saudis can keep the cap on output for exactly as long as they need to in order to get prices where they want them to be. It is yet another demonstration that not only is OPEC very much alive and relevant in today’s world, but its de facto leader still has plenty of sway over the group. “The kingdom will want to see a protracted rise toward $90 a barrel and possibly improvement in Chinese economic data to start considering putting the 1 million barrels per day back into the market,” PVM Oil Associates analyst Tamas Varga told Bloomberg earlier this week. Meanwhile, Goldman Sachs updated its outlook on oil demand in a way that should please Riyadh. The bank said oil demand had hit a record in July, reaching 102.8 million barrels daily, and that this would lead to a deficit of 1.8 million bpd in the second quarter of the year. In such a context, there is really no rush for Saudi Arabia to return those barrels to the market. Especially if they are not exactly a whole million. This was suggested by an unnamed EU source who spoke to Oilprice.com’s Simon Watkins, saying that the production data for Saudi Arabia showed no cuts were being made from fields that the Saudis operate in a neutral zone that the Kingdom shares with Kuwait. In other words, Saudi Arabia may be cutting some barrels but pumping plenty in the neutral zone and selling those “under the radar,” as Watkins reported. This would allow it to benefit from higher prices, boost its market share, and simultaneously continue to exert upward pressure on prices with the official cuts. Meanwhile, the American Petroleum Institute did the Saudis a huge favor by reporting an estimated 15.4-million-barrel inventory drop for last week. The massive figure seriously exceeded analyst expectations, which were for a much more moderate inventory decline of less than a million barrels. Traders are rushing to cover their short positions in oil, too, and this is boosting prices further. The benchmarks jumped to a three-month high this week as funds bought crude and fuels and changed their bets from bearish to bullish. All this works in Saudi Arabia’s favor, and it also suggests prices could reach the level Riyadh would like to see sooner rather than later. And that’s when things would get interesting: announcing an end to the cuts would be unwise as it would immediately cause a plunge in prices. A gradual relaxation is a more likely option, as suggested by analysts surveyed by Bloomberg this week.
Essar Oil and Gas Exploration and Production to invest Rs 20 billion in Bengal CBM block
Essar Oil and Gas Exploration and Production on Monday reported a net profit of Rs 3.35 billion in the financial year ended March 31, helped by reduced operating costs and higher prices. It reported a Rs 2.12 billion in net profit a year ago. The company plans to invest Rs 20 billion in the next 18 to 24 months for drilling 200 more wells in the Raniganj block. The unconventional hydrocarbon producer reported its highest revenues in a year of Rs 9 billion in FY2023, a growth of about 1.8 times compared with the previous year. EOGEPL currently produces two-thirds of India’s gas output from coal seams called coal bed methane (CBM). It plans to invest Rs 20 billion in the next 18 to 24 months for drilling 200 more wells, which will help swell output. It produced 0.84 million standard cubic metres per day of CBM. The company strives to contribute 5 per cent to India’s total gas production in the next five years. The Raniganj block is the highest producer of CBM to date and the only CBM project in India to produce over 82 billion cubic feet of CBM gas to date. Prashant Ruia, director, Essar Capital and EOGEPL, said, “The company aims to participate in India’s mission of reducing carbon footprint and becoming a gas-based economy by the next decade. EOGEPL aims to provide industries in its vicinity with alternative clean fuel at economical prices by ramping up its gas production at the cheapest cost.”
Europe’s LNG Imports Fall To 20-Month Low
LNG imports into Europe fell in July to the lowest level since November 2021 as low European benchmark natural gas prices are discouraging traders to ship many cargoes to the continent right now. Europe’s LNG imports declined by 7% year over year in July, to 8.6 million tons, the lowest import volumes since November 2021, when the energy crisis in Europe began, ship-tracking data compiled by Bloomberg showed on Wednesday. The front-month futures at the TTF hub, the benchmark for Europe’s gas trading, were at $30.43 (27.71 euros) per megawatt-hour (MWh) as of early Wednesday in Amsterdam. Prices jumped earlier this week as maintenance offshore Norway, including at the giant gas field Troll, reduced pipeline gas exports from Norway, which is now Europe’s single-largest gas supplier having ousted Russia from the top spot after the Russian invasion of Ukraine. However, Europe’s benchmark natural gas prices have fallen in recent months and are now 80% lower than the records seen last summer amid ample gas inventories with storage sites on track to be full well in advance of EU targets. EU gas storage levels are much higher than the five-year average and the levels from this time last year, easing concerns about Europe’s gas supply. The EU gas storage sites were 85% full as of July 31, according to data from Gas Infrastructure Europe. Comfortable inventory levels are capping the price gains from Norwegian maintenance stoppages, keeping European prices lower. The low European natural gas prices discourage traders from sending too much LNG to Europe now as sellers are looking at the Asian market where spot LNG prices have risen amid heatwaves in Japan, South Korea, and parts of China. “The discount of European gas prices compared to Asian LNG prices increased to an average of around US$2.1/MMBtu in July compared to an average of around US$0.3/MMBtu in June 2023,” ING strategists Warren Patterson and Ewa Manthey said earlier this week. “The higher discount in the European gas market could help divert more LNG cargoes towards Asia and reduce the supply glut in the European market.”
Petronet expects lower price in Qatar LNG contract renewal, eyes more term deals
India’s largest importer of liquefied natural gas (LNG) Petronet LNG expects to extend its term contract with Qatar at prices lower than what the West Asian gas exporter offered in recent contracts with countries like China and Bangladesh. Additionally, the company is in talks with various international suppliers for more term deals as India seeks to secure long-term LNG supplies in a market prone to volatility. “We are hopeful that we will be getting definitely a better deal than the others. That is our expectation,” Petronet LNG’s Chief Executive Officer (CEO) A.K. Singh said, adding that renegotiation talks have started and are moving in a “positive direction”. Singh, however, declined to share specifics of the pricing levels being sought by the company. According to him, there are indications that recent contracts by Qatar have been finalised at a slope of 12-13% to the price of Brent crude. As part of the current term deal with Qatar that ends in 2028, Petronet LNG imports 8.5 million tonnes per annum (mtpa) of LNG, or super-cooled gas, at a slope of 12.67 per cent to the price of Brent plus an additional charge of $0.52 per million British thermal units. Apart from extending the Qatar contract at a lower price, the company is also understood to be looking at increasing the import volumes by up to 1 mtpa. Petronet’s Qatar LNG contract is India’s biggest term contract for super-cooled gas. According to Singh, the extreme price volatility that was seen over the past couple of years in global LNG markets has established that term contracts, and not spot purchases, are the most viable option for securing supplies at a reasonable price. He said that increasing gas consumption on a sustainable basis through spot purchases is not a viable option. Therefore, Petronet LNG is in talks with other global suppliers for more term contracts. As one of the major importers of LNG globally, India was adversely impacted by the tightening global supply and surging spot LNG prices last year in the aftermath of Russia’s invasion of Ukraine. India’s oil and gas companies, public sector players in particular, are scouting for long-term LNG purchase agreements with global suppliers to secure reliable supplies of super-cooled gas. Recently, Indian Oil corporation inked term deals with Abu Dhabi’s ADNOC Gas and France’s TotalEnergies for importing 1.2 mtpa and 0.8 mtpa of LNG, respectively.