Record Profit Season Is Over For U.S. Shale
Record profits – that would be the best summary of the state of the global oil industry last year. From Big Oil majors to U.S. shale independents, everyone made money from the oil and gas price rally sparked by the war in Ukraine. But the party seems to be over, at least for shale drillers. The Energy Information Administration said earlier this month it expected U.S. oil and gas production to hit a record next month. Oil output in the shale patch, the EIA said, would rise by 75,000 barrels daily, and the Permian would contribute 30,000 bpd of that, for a record total of 9.36 million barrels daily. Gas output would gain 400 million cu ft daily to a record 96.6 billion cu ft. Yet meanwhile, Baker Hughes has reported that drilling rigs are on the decline, with the February rig count revealing the largest cut in activity since June 2020. The total count as of last week was still 15.8 percent higher than it was a year ago, but any comparison with 2020—a year devastating for the U.S. oil industry—should sound an alarm bell. The industry is also signaling it has no big production growth plans. In fact, it has been signaling this for quite a while, with executives noting they do not have much motivation to boost production, even with most forecasters expecting a tighter supply situation in crude oil later this year. To begin with, oil and gas companies in the U.S. are quite aware that they are operating in a hostile environment. President Biden has been openly antagonistic to that industry, blaming it for high retail fuel prices and for making record profits, accusing it of war profiteering and threatening windfall taxes in retaliation. Calls from the White House to boost oil production have mostly fallen on deaf ears because of, among other things, various regulatory requirements that make production expansion a lengthy process that many in the industry have been complaining about. Then there is inflation. It’s easy to ignore when you’re busy berating shale oil and gas producers for their record profits, but it has not gone away. It is, in fact, very much still present and guiding companies’ plans for the immediate future. “We’ve seen anywhere between 30 and 50 per cent inflation — depending on which cost category you’re talking about — that’s what we’re walking into in 2023,” said the chief financial officer of Devon Energy, Jeff Ritenour, during the company’s latest earnings call, as quoted by the Financial Times. In that, Ritenour echoed comments made a couple of months ago by Pioneer Natural Resources’ CEO, Scott Sheffield, following remarks by White House energy advisor Amos Hochstein, who called the oil industry “un-American” because of companies’ refusal to switch back to growth mode. “He was criticising the majors and independents for not growing more,” Sheffield told the FT in December. “He doesn’t realise if we wanted to grow more than 5 per cent, I’d have to call up all the service contractors; they’re going to charge me 30 to 40 per cent more; it’s going to take a year to build new equipment; it’s going to take two years to start showing results. By that time, you may go through an oil price collapse.” Because of higher costs, even if oil and gas production in the shale patch hits a record in March, the same won’t be true of shale drillers’ cash flow. According to Rystad Energy, that peaked last year, hitting $104 billion, and is set to decline to $87 billion this year. That’s bad news for production plans because higher cash flows brought about by higher oil and gas prices helped shale drillers return a lot of cash to investors after years of burning through it in order to see just how fast and how much they could increase production. Speaking of investors, they are yet another factor limiting any production growth potential for U.S. shale drillers —precisely because of those years of drillers burning through cash to see just how much oil and gas they could produce. Investors have had enough of uncontrolled growth. And the companies know it. “Significant growth is still off the cards for the majority of public shale oil E&Ps, who have continued to set cash return targets over production targets and are not willing to budge from focus on capital discipline,” a Rystad analyst, Matthew Bernstein, told the FT last week. Indeed, with cost inflation where it is, with the Fed signaling it will not change course on interest rates anytime soon, and with an administration unlikely to suddenly become friendly to oil and gas, chances are there will not be much further growth in shale oil and gas production this year. Even if prices rise, which most analysts believe they will because global supply remains tight and China is expected to roar back to its usual growth pace before long.
Construction Of India-Nepal Petroleum Pipeline Reaches Final Stage
The construction of infrastructure for importing petrol and kerosene through the Motihari-Amlekhganj petroleum pipeline has reached its final stage. Nepal Oil Corporation (NOC) and Indian Oil Corporation (IOC) have also started the infrastructure construction work required to supply petrol and kerosene through pipelines at Amlekhganj depot. Pradeep Kumar Yadav, Head of Madhesh Regional Office of NOC, has said that the infrastructure construction work required for importing petrol and kerosene from Motihari-Amlekhganj petroleum pipeline is in the final stage. He said that for the storage of petrol and kerosene to be supplied through the pipeline, expansion of storage capacity at Amlekhganj depot, construction of labs and automatic machines, the budget are being spent in three areas. Yadav mentioned that out of four billion rupees to be spent on the work of supplying petrol and kerosene through the pipeline, IOC will give one billion rupees and NOC will spend three billion rupees. Currently, only diesel is being supplied through the Nepal-India inter-country petroleum pipeline from Motihari in Bihar, India to Amlekhganj in Nepal. Yadav said that after the start of the supply of petrol and kerosene through the pipeline from Motihari in Bihar, India to Amlekhganj in Nepal, there will be an annual saving of 1.80 billion rupees. Similarly, He said that the expansion of storage capacity, construction of labs and work of auto machines under construction at Amlekhganj depot will be completed by February 2024 and the target will be supply of petrol and kerosene through the pipeline. He said that two petrol tanks with a capacity of 4100 kilo liters, two transmix tanks with a capacity of 250 kilo liters, 24 fully automatic loading ways (refillers) for petrol transportation, a pump house and a laboratory are being constructed at Amlekhganj depot of NOC. Likewise, Yadav also said that upgrading of firefighting system, WS system for separating water and oil and construction of PMCC room are also underway. He said that Likhita Infrastructure Pvt Ltd, which has taken the contract for the construction of necessary infrastructure at Amlekhganj depot for petrol and kerosene storage, is working to complete the construction by mid-February 2024. Although it is possible to import diesel, petrol and kerosene through the same pipeline, only diesel was being imported due to the lack of storage capacity in the Amlekhganj depot. Since only diesel was being supplied through the pipeline, petrol and kerosene had to be transported from Barauni in Bihar to Amlekhganj by tankers. “Now all the three petroleum products namely petrol, diesel and kerosene are going to be imported through the pipeline. With this, the number of tankers being used for import from Amlekhganj to Barauni as well as the technical loss will be zero, the transportation cost will be saved and it will help in reducing environmental pollution,” said Yadav. Yadav said that after the completion of the works conducted at the Amlekhganj depot, it is estimated that NOC will save Rs 3.8 billion annually from the petroleum products coming from the pipeline. Since only 70 percent of the diesel required for Nepal is supplied through the pipeline, NOC has been saving two billion annually. Petroleum products can be supplied up to three liters per hour through the pipeline. It is said that after the expansion of the storage capacity at Amlekhganj depot, the storage capacity of diesel will reach 24,840 kilo liters and the storage capacity of petrol will reach 16,630 kilo liters. On September 9, 2018, Indian Prime Minister Narendra Modi from Delhi and Nepal’s Prime Minister KP Sharma Oli jointly inaugurated the 69 km long Motihari-Amlekhganj international petroleum pipeline by switching a press from Kathmandu. NOC is saving one to one rupee 50 paisa per liter of diesel while importing diesel through the pipeline. Indian Prime Minister Narendra Modi, who came to Nepal in 2014, announced that IOC will build a pipeline with subsidies for petroleum products to be supplied from India to Nepal.
Russia halts oil supply to Poland
Warsaw, Feb 26 (IANS) Russia has halted oil supplies to Poland via the Druzhba pipeline, Poland’s leading oil and gas conglomerate PKN Orlen said. Local media reported that the supply halt through the pipeline, exempted from the sanctions imposed by the European Union on Russia following the Russian special military operation in Ukraine, came a day after Poland delivered its first Leopard tanks to Ukraine. The company on Saturday said it is fully prepared for such a situation and that deliveries to its refinery can be made entirely by sea, Xinhua News Agency reported. “Only 10 per cent of the raw material came from Russia, and we will replace it with oil from other directions,” Daniel Obajtek, CEO of the Polish refiner, said on Twitter.
IOC to set up green hydrogen plants at all refineries; lines up Rs 2000 billion for net zero by 2046
India’s top oil firm IOC will set up green hydrogen plants at all its refineries as it pivots a Rs 2000 billion green transition plan to achieve net-zero emissions from its operations by 2046, its chairman Shrikant Madhav Vaidyasaid. Indian Oil Corporation (IOC) is remodelling business with an increased focus on petrochemicals to hedge volatility in the fuel business, while at the same time turning petrol pumps into energy outlets that offer EV charging points and battery swapping options besides conventional fuels as it looks to make itself future-ready, he said. The company intends to expand its refining capacity to 106.7 million tonnes per annum from 81.2 million tonnes as it sees India’s oil demand climbing from 5.1 million barrels per day to 7-7.2 million bpd by 2030 and 9 million bpd by 2040. “Oil will continue to be a mainstay fuel for the next few years but we are preparing for transition which will involve a combination of green hydrogen, biofuels, EVs and alternate fuels,” he said. Hydrogen — the cleanest known fuel that discharges only oxygen and water when burnt — is being touted as the fuel of the future, but its relatively higher cost then alternate fuel currently limit its usage in industries. Refineries, which turn crude oil into fuel such as petrol and diesel, use hydrogen to lower the sulfur content of diesel fuel. This hydrogen is currently produced using fossil fuels such as natural gas. IOC plans to use electricity generated from renewable sources such as solar to split water to produce green hydrogen. In an interview with PTI, Vaidya said the company will set up a 7,000 tonnes per annum green hydrogen producing facility at its Panipat oil refinery at a cost of Rs 20 billion by 2025. “We are starting with Panipat but eventually all refineries will have green hydrogen units,” he said. This is part of the company’s target of achieving net-zero emissions from operations by 2046. “We plan to invest over Rs 2000 billion to achieve net-zero,” he said. These investments cover setting up green hydrogen facilities at refineries, improving efficiency, renewable energy capacity addition and alternate fuels. Currently, IOC’s greenhouse gas (GHG) emission, emanating majorly from the company’s refining operations, is 21.5 million tonnes of carbon dioxide equivalent (MMTCO2e) per annum. This will rise to 40.44 MMTCO2e by 2030 after considering the expansions planned and taking the emissions of its subsidiaries into account. The company plans to use natural gas in refineries in place of liquid fuels as well as replace grey hydrogen (produced from fossil fuel) with green one that is manufactured from renewable power. IOC is also looking at carbon offsetting through ecosystem restoration and Carbon Capture Utilisation and Storage (CCUS), among others. “We plan to achieve two-thirds of emission reduction through energy efficiency, electrification and fuel replacement efforts, while about a third of the total emission would be mitigated through options such as CCUS, nature-based solutions and purchase of carbon credits,” he said.
China Secures Two Long-Term LNG Deals With U.S. Producer
A Chinese company has sealed two 20-year LNG purchase deals with Venture Global, which will see the latter supply two million tons of liquefied gas to China Gas Holdings annually, beginning in 2027. The gas will come from Venture Global’s two projects in Louisiana, Reuters has reported, Plaquemines LNG and CP2 LNG. The Plaquemines LNG facility, currently in construction, will have a capacity of 20 million tons annually when completed. CP2 LNG will also have a nameplate capacity of 20 million tons, with peak capacity of 24 million tons, Venture Global said in a fact sheet. The two contracts with China Gas Holdings add to one it signed with Energy Transfer for the supply of 700,000 tons of LNG annually over a period of 25 years, amid a rush among Chinese energy buyers to secure a long-term supply of liquefied gas. Reuters notes that for Venture Global this is the third recent deal with a Chinese company: last year, the LNG developer signed one 20-year contract with state-owned energy major Sinopec for the delivery of 4 million tons of LNG annually, and another, with a Sinopec subsidiary, for the delivery of another 3.8 million tons per year. China specifically, and Asia as a whole, is being watched by LNG producers as one certain demand growth region, alongside Europe. China is of special interest because, unlike many other Asian economies, it can afford LNG, even at current prices. These are down from last year’s highs but are still higher than before Russia invaded Ukraine. According to one LNG tanker operator, prices will continue trending higher until 2025, driving U.S. LNG investment because of the arbitrage between global and local prices. The CEO of Flex LNG said he expected Henry Hub prices to rise from below $3 per mmBtu now to some $5 by 2025, while Europe’s TTF benchmark and the Asian Japan-Korea Marker top $20 per mmBtu before retreating to $15, according to a conference call cited by Natural Gas Intelligence.
India expects fuel demand to grow 4.7% in FY24
Fuel consumption in 2023-24, a proxy for oil demand, could rise to 233.8 million tonnes from the revised estimate of 222.9 million tonnes for the current fiscal year ending in March, according to government forecasts by Reuters. By Reuters: India’s fuel demand is likely to grow 4.7% in the next fiscal year beginning on April 1, initial government estimates showed. Fuel consumption in 2023-24, a proxy for oil demand, could rise to 233.8 million tonnes from the revised estimate of 222.9 million tonnes for the current fiscal year ending in March, according to government forecasts. The estimates were released on the website of the Petroleum Planning and Analysis Cell (PPAC), a unit of the federal oil ministry. India is the world’s third-biggest oil importer and consumer. Domestic demand for gasoline, used mainly in passenger vehicles, is expected to rise by 7.1% to 37.8 million tonnes, while gasoil consumption was seen growing by about 4.2% to 90.6 million tonnes, the data showed. Indian state refiners’ gasoline and gasoil sales rose in the first two weeks of February from the same period last month, preliminary data showed, boosted by a pick up in transport of goods and mobility. Consumption of aviation fuel would likely increase by 14% to 8.6 million tonnes, compared with the revised estimate of 7.4 million tonnes for the year ending March 2023. Demand for petcoke, a better-burning alternative to coal, could increase 5.8% to 19 million tonnes, while demand for liquefied petroleum gas, used as cooking fuel, is estimated to grow 1.7% to 29.1 million tonnes, PPAC said.
Jio-BP to sell bio-CNG, compressed biogas
Jio-bp, a fuel retail joint venture between Reliance Industries and British oil major BP, will shortly begin retailing compressed biogas (CBG) and bio-CNG (B-CNG), both of which can be used in place of compressed natural gas in CNG-powered vehicles. To begin with, the company will retail CBG and B-CNG at its outlets in western India, and later expand to other outlets, people in the know said. “Jio-bp is actively working on setting up CBG/bio-CNG retailing at its collocated fuel retail outlets and our first outlet is likely to come up soon,” Jio-bp told ET in an emailed response. The company said aligned with its sustainability policies, Jio-bp will convert more and more customers to B-CNG.
ADNOC Expects To Raise $2 Billion By Listing Its Natural Gas Business
The United Arab Emirates’ state oil and gas major, ADNOC, has said it expects to raise some $2 billion from the listing of its gas business. The price range for the IPO would give the business a market valuation of between $47 billion and $50.8 billion, Reuters reported. If the offering ends up at the higher end of the range it will become the largest ever for Abu Dhabi. Separately, Bloomberg reported that the share offering had been subscribed in full in a matter of hours, suggesting there was still strong investor appetite for Gulf stocks. Cornerstone investors, the report noted, had committed $850 million in the offering. These included funds with links to the Abu Dhabi government, Bloomberg said. The Emirati state energy major announced it would be listing its gas business last year before the business was even set up as a separate unit. This took place at the beginning of this year. The new unit, ADNOC Gas, has a production capacity of some 10 billion cu ft daily and operates a pipeline network of over 2,000 miles. The new company said it expects to pay its new shareholders a total of $3.25 billion this year The shares of the new business entity will be floated on March 13, with institutional investors having until March 2 to subscribe. Retail investors can make orders until March 1. Two years ago, just as oil markets began recovering after the pandemic hit they suffered in 2020, ADNOC announced spending plans of $127 billion for the period between 2022 and 2026. The money, the company said, would go towards expanding the UAE’s oil and gas production capacity and building a greater presence in low-carbon energy. LNG capacity expansion is among the priorities, with ADNOC eyeing an annual export capacity of 15 million tons.
Saudi Arabia’s Oil Revenues Hit $326 Billion In 2022
Saudi Arabia received as much as $326 billion in oil revenues for 2022, its biggest oil sales haul in the era of Crown Prince Mohammed bin Salman, although monthly revenues have been lower in recent months after oil prices slid to around $80 per barrel at the end of last year. Saudi Arabia recorded its highest-ever oil revenues back in 2012. The rise in oil prices last year, especially the spike in the first half to over $100 a barrel after the Russian invasion of Ukraine, raised the revenues for the world’s largest crude oil exporter. The value of oil exports accounted for more than 70% of all Saudi exports last year. In December 2022, oil exports increased by 11.1% year over year to $22.8 billion (85.5 billion Saudi riyals), but fell compared to November, according to data released by Saudi Arabia’s General Authority for Statistics on Tuesday. The share of oil exports in total exports increased from 71.9% in December 2021 to 79.0% in December 2022, the authority said. China, Japan, and India were Saudi Arabia’s main trading partners for exports in December 2022, due to the oil sales. According to flash estimates, real GDP in the fourth quarter of 2022 grew by 5.4% compared to the same period of 2021, and the real GDP during the year 2022 rose by 8.7% compared to 2021, the General Authority for Statistics said last month. Saudi economic growth was the highest among the G20 group of countries. Thanks to rising oil income, Saudi Arabia also booked its first annual budget surplus in nearly a decade. Analysts believe that the Kingdom needs oil prices at $75-80 per barrel to balance its budget.
Levy 5% GST on natural gas to reduce fertiliser subsidy
Finance minister Nirmala Sitharaman has said that the tax rate for five petroleum goods – crude oil, natural gas, petrol, diesel and aviation turbine fuel (ATF) – can be fixed under the Goods and Services Tax (GST) as soon as the states give their consent at a GST Council meeting. GST is a ‘single tax’ applied all over India with a set-off provision for tax paid on inputs. The Constitutional Amendment Act, 2016 on GST while providing for the inclusion of petroleum products under its ambit, had kept them ‘zero-rated’. These goods continue to attract central excise duty and state-level value-added tax (VAT). When will the ‘zero-rated’ tag go? The Act has given the power to the GST Council to decide. Rate setting for natural gas under GST – a major input used in the manufacture of fertilisers – has been on the Council’s agenda ever since the tax regime was adopted on July 1, 2017, but a decision was deferred. Will the Council follow up on FM assurance at its next meeting? Meanwhile, let us assess the cost of keeping natural gas zero-rated. At present, natural gas attracts ‘nil’ central excise duty on supplies to fertiliser plants and VAT varying from a high 24.5 percent in Andhra Pradesh to a low 5 percent in Rajasthan. This not only leads to wide variations in the price of natural gas supplied to plants from state to state but also has a cascading effect on its delivered cost. The fertiliser industry gets nearly two-thirds of its natural gas requirement from imported liquefied natural gas (LNG). During October-December 2022, India paid around $35 per million British thermal units (mmBtu). After adding import duty of 2.75 percent (basic 2.5 percent and 10 percent social welfare surcharge), the cost of re-gasification and other charges such as terminal charges, vessel-related charges and port charges, the price rises to $37 per mmBtu. There are other additional costs such as charges for transportation of re-gasified LNG, marketing cost and marketing margins of around $ 2 per mmBtu. The price comes to $39 per mmBtu at the delivery point in a state. The share of imported LNG in total gas supply being two-thirds, its weight in price comes to $26.1 per mmBtu.