With oil prices over $90, is demand at risk?
Even though in their latest meeting, OPEC+ ministers agreed to maintain the planned monthly increase of 400,000 barrels per day in March, prices remained firm while crude prices continued their backwardation. Bullish market sentiment is likely to continue, thanks to persisting supply outages and low oil inventories while the US-Russia tensions continue to add a risk premium to crude prices. Some signs are now emerging, however, that suggest a turning point in prices may be on the horizon. Oil prices could soften since some temporary drivers that are supporting high prices are falling away as we head into the second quarter of the year when refineries worldwide start their maintenance, leading to a lower demand for crude Winter is drawing to a close, which will lower demand for natural gas and, in turn, demand for diesel and fuel oil as cheaper alternatives for power generation and industrial use. The arrival of spring will also lower demand for heating oil. As for consumer sentiment, it is currently in the doldrums, falling to its lowest level since November 2011. This does not bode well for sustained demand under high prices. Furthermore, a US-Iran agreement could be reached earlier than the market anticipates, which could allow for the gradual lifting of sanctions as soon as April. Crude oil prices were supported by the EIA weekly report showing a draw in US crude oil and distillates stocks. Refining margins are recovering as demand continues to recover faster than supply, providing a boost for US refiners who just two years ago were struggling to break even on a barrel of oil. Crude exports from Russian seaports are poised to dip by almost 120,000 bpd in February. Capacity constraints will become more limiting in the coming months, raising concerns in the market. Genuine risks have already raised demand for inventory. India’s gasoline and diesel sales slumped in January as the third COVID-19 outbreak pushed people back to their homes, slowing consumption. Oil markets will be vulnerable to disruptions, capacity constraints and geopolitical risks, but supplies will be increasing in 2022, leading to an expected build-up of surplus in the market as it is projected by industry sources, which will likely put pressure on prices. US shale crude and condensate growth accelerated to 0.7 million bpd this year, after two years of decline. Global gas markets are painting distinctly different pictures as supply uncertainty in Asia supports prices but European markets are starting to see downside potential on the horizon. Mild weather in Europe and frigid forecasts for the US will drive price behavior in the coming days. With no sign of a diplomatic breakthrough to a potential conflict in Ukraine, Europe is engaged in diplomacy to see where it could acquire LNG supplies if Russian piped gas flows are cut off. Speculators are betting on higher prices because they see strong demand while supply struggles to keep up. Some experts argue that oil is on its way to $100 or higher, but there is no guarantee that this will not lead to demand destruction. Higher oil prices can have an indirect impact on oil demand by stalling the economic recovery from the pandemic and fueling inflation. Elevated levels usually take a toll on household and business budgets, ultimately slowing economic growth.
Air quality panel issues fresh directions to industries in NCR to switch to PNG
The Commission for Air Quality Management (CAQM) has reiterated its push for industries in the National Capital Region (NCR) to switch to Piped Natural Gas (PNG) or biomass fuel. In an order issued recently, the CAQM said that industries in the NCR which have not shifted to PNG or biomass fuel, despite the availability of natural gas infrastructure and supply, are to switch over completely by September 30, “failing which such industries shall be closed down and not permitted to schedule operations thereafter.” Early in December, the commission had restricted operations of such industries not running on PNG or cleaner fuel to eight hours per day for five days a week, on account of deteriorating air quality in the NCR. These restrictions were in place till Friday, when the CAQM lifted them. In its order, the commission noted that apart from those in Delhi, a majority of industries in the industrial areas across the NCR, where gas infrastructure and supply are available, are still not fully operating on PNG or cleaner fuels and continue to run on coal or high-speed diesel. The commission also noted in its order that in those industrial areas where PNG infrastructure and supply is not available, industries shall plan and switch over to running on biomass fuel at the earliest. In August last year, the commission had directed Haryana, Uttar Pradesh and Rajasthan to prepare a time-bound action plan to supply gas in the industrial areas within the NCR districts to ensure that industries run on PNG in all industrial areas. It also noted then that out of 1,469 industrial units identified for switching to gas in Haryana, only 408 had made the shift, while in Uttar Pradesh, the figure was 1,161 industrial units that had shifted to gas out of 2,273 identified in the NCR districts.
Oil And Gas Will Keep Meeting India’s ‘Baseload’ Energy Demand- Oil Minister
Oil and gas will continue to meet the ‘baseload’ energy demand of India in the “foreseeable future” even as the world’s third-biggest crude importer takes steps to move to cleaner sources to cut emissions, oil minister Hardeep Sing Puri said on Friday. India has set a goal to achieve net-zero carbon emissions by 2070. “As our economy grows to $5 trillion by 2025, and towards $10 trillion by 2030, our burgeoning energy needs will take shape and in turn, the global energy markets will be shaped by India’s requirements,” Puri told the World Energy Policy Summit. Imports cover about 85 per cent of India’s overall crude needs, but it’s per capita energy consumption is just a third of the global average. Hit hard by a rally in global oil prices, India is taking steps to boost its oil and gas output while accelerating energy transmission to cut emissions. However, Puri said, “the oil and gas will continue to meet the baseload energy demand for the foreseeable future.” India’s top oil explorer Oil and Natural Gas Corp is scouting for partnerships with global companies to boost oil and gas output, its chairperson Alka Mittal said at the online event. ExxonMobil Gas (India) chief executive Monte Dobson said his company would help ONGC in boosting oil, gas output from ONGC’s difficult and challenging fields in India’s east and west coasts. India Oil Corp, the country’s top refiner, is expanding into low carbon businesses, by expanding its gas sales business and building infrastructure to help boost the role of electric vehicles in India’s transport fleet. “IOC is leveraging the surplus hydrogen capacities available at its refineries as a potential source for promoting fuel cell mobility,” its chairman S.M. Vaidya said.
Panel to choose new chairman of ONGC
Eight months after its headhunter failed to find any suitable candidate for top job at ONGC, the government will deploy a sparingly used committee approach to find a new chairman and managing director of India’s top oil and gas producer. Most board level appointments at public sector companies are done on the basis of recommendations of the Public Enterprise Selection Board (PESB) but the government headhunter had in June last year did not find anyone suitable from nine candidates, including two serving IAS officers, to head Oil and Natural Gas Corporation (ONGC). “Keeping in view the strategic importance and vision for the company and its future, the Board did not recommend any candidate and decided to constitute a Search Committee,” PESB had said in a notice after interviews on June 5, 2021.
Shell swings into huge profit as oil price recovers
Energy giant Shell surged back into profit last year as oil prices rocketed on recovering demand with economies reopening from pandemic lockdowns. Net profit stood at US$20.1 billion following a loss after tax of US$21.7 billion in 2020, Shell said in a statement on Thursday. “2021 was a momentous year for Shell,” said chief executive Ben van Beurden, noting that the group also simplified its name and structure and outlined plans to slash greenhouse gas emissions. Following the bumper earnings, Shell said it planned a share buyback programme totalling US$8.5 billion (7.5 billion euros). As lockdowns spread in 2020, oil prices dropped off a cliff, even briefly turning negative. Prices have since rebounded sharply, with the benchmark Brent North Sea oil contract trading at almost US$90 per barrel. Gas and electricity prices have also seen massive gains over the past year, boosting income for energy majors but weighing on business costs and individuals’ spending power. Also last year, Shell shareholders backed plans to switch the oil giant’s headquarters from the Netherlands to Britain after a century and to drop Royal Dutch from its name. That has meant also a switch of its tax residence to Britain as well as top executives including Beurden to London. Shell is however keeping 8,500 staff in the Netherlands.
Abu Dhabi’s ADNOC announces a new offshore gas find
Abu Dhabi’s state-owned oil and gas company announced Thursday the discovery of between 1.5 to 2 trillion standard cubic feet of raw gas in an offshore area located in the emirate’s northwest. The discovery comes as Gulf Arab states continue to rely heavily on profits from oil and gas exports, despite rising global temperatures and climate change from burning fossil fuels. The United Arab Emirates, where Abu Dhabi is capital, was the first Gulf Arab state last year to join other countries around the world in pledging “net-zero” emissions targets within its borders — while maintaining fossil fuel exports abroad. The Abu Dhabi National Oil Company, also known as ADNOC, said the discovery came about in partnership with a consortium led by Italy’s Eni and Thailand’s PTT Exploration and Production Company Limited, which were awarded concession rights in the area. The 2019 agreement saw Eni and PTTEP vowing to invest $230 million to explore for oil and gas and appraise existing discoveries in two blocks spanning a total of 8,000 square kilometers (3,000 miles). For their natural gas discovery, the companies relied in part on insights from a massive 3D seismic survey underway in Abu Dhabi, according to ADNOC. ADNOC Managing Director and CEO Sultan Ahmed al-Jaber hailed the discovery. He said it speaks to the company’s commitment to partnerships that help Abu Dhabi explore and develop its untapped hydrocarbon resources. In December, ADNOC announced the discovery of up to 1 billion barrels of oil in another block of Abu Dhabi. The U.S. Energy Information Agency cites figures estimating the UAE holds the seventh-largest proven reserves of natural gas in the world at over 215 trillion cubic feet. The country, which lies on the eastern coast of the Arabian Peninsula along the Persian Gulf, has some 98 billion barrels of proven oil reserves, with about 96% of that located in Abu Dhabi. The United Arab Emirates is among the world’s 10 largest oil producers, with most of the country’s oil and gas wealth concentrated in Abu Dhabi. Despite its large natural gas fields, the UAE also imports natural gas due to its extensive domestic use in operating power plants and desalination plants.
Petroleum Minister blames decisions during Congress Govt for high fuel prices
Amid protests by the Opposition, Hardeep Singh Puri, Petroleum and Natural Gas Minister, replied, “Between 1979-86, prices rose by 126%, 2000-2007 prices went up 60%, last seven years prices have gone up by only 30%.” He further added, “Prices are determined by international price. During the lockdown, prices went down, but when economic activity picked up, the prices also rose.” Talking about the international production cost, he said, “The amount of crude available in the market is less than the demand thus the price is high. Crude oil price is decided by exchange rate, freight rate and dealer price. Government reduced the prices by Rs. 5 and 10 recently.” Dayanidhi Maran, DMK leader asked, whether the government has decreased the fuel prices with the U.P. election in mind. Mr. Puri replied that the State governments should reduce vats to reduce the fuel prices. “We are increasing ethanol blending. Petrol and diesel prices were deregulated by the Congress government. They floated oil bonds, which have resulted in huge repayments we made last year.”
Clarity sought for budget levy on unblended fuel
The announcement came close to the end of the finance minister’s budget speech on February 1, and it now has stakeholders in the petroleum & gas industry seeking more clarity from the government on its decision to levy an additional excise duty of Rs 2 per litre on unblended fuel. The minister said the levy would become effective from 1 October 2022. While the finance minister says the levy aims to make oil & gas companies to further push the levels of ethanol blending, it will enhance the retail price of most of petrol and diesel currently sold in India. Reacting to the budget proposal, Dr Pramod Chaudhari, Founder-Chairman of Praj Industries, a biofuel technology company said, “Tax on unblended fuel is a great start to promote the transition to greener fuels which is in line with the global practice of differential pricing for ethanol-blended fuel. The budget outlines concerted efforts to conserve the environment by sustainable climate action with a focus on carbon intensity reduction to achieve net zero targets.” A senior executive at a PSU, requesting anonymity, said that while blended petrol is relatively easily available in ethanol-producing states such as Maharashtra, Gujarat, Uttar Pradesh amongst others, it becomes difficult to source in certain other states including in Rajasthan, Bihar where sugarcane production is low or negligible. This also includes the south. Also, logistics-related issues play an important part in its availability at the retail stations. “It will certainly push OMCs to work harder towards achieving its blending goals” the executive added, emphasizing that the increase in excise duty will most likely get passed on to the consumers. The central government, through the National Policy on Biofuels, 2018, aims to increase usage of bio-fuels in the transportation sector towards energy security and climate change mitigation. During the period of 2020-2021 (December-November), 302 crore litres of ethanol was supplied to oil marketing companies by distillers thereby reaching a pan-India average blending level of nearly 8 percent. The government’s mandate is to increase the blending levels to 10 percent this year before doubling it by 2025. The development comes months after a cabinet committee of economic affairs increased the ex-mill price of ethanol to incentivise the millers to divert higher cane towards ethanol and increase its production. Also, the government in December slashed the GST on ethanol meant for blending under the Ethanol Blended Petrol (EBP) programme to 5 per cent from 18 per cent. Even as the ethanol blending program for petrol is on way up, a similar blending in diesel seems to be far behind in comparison. As per industry estimates, the biofuel blending of diesel currently stands at just about 0.1 percent.
Former oil secretary Tarun Kapoor to be new oil regulator
Former oil secretary Tarun Kapoor was on Thursday selected to head India’s oil and gas regulator PNGRB, sources said. Kapoor, who superannuated as secretary of the Ministry of Petroleum and Natural Gas on November 30, 2021, was selected to be chairman of the Petroleum and Natural Gas Regulatory Board (PNGRB) after interviews of over a dozen candidates. His candidature will now go to the Appointments Committee of the Cabinet for ratification and once approved, he would take over. Sources said as many as 13 candidates, including former chairmen of ONGC and a former director of IOC, had applied for the top job at PNGRB. Out of these, the ministry shortlisted seven candidates. Interviews were held by a search-cum-selection committee headed by V K Saraswat, Member (S&T), Niti Aayog on Thursday and Kapoor was picked for the top job. Former Oil and Natural Gas Corporation (ONGC) chairmen Subhash Kumar and Shashi Shanker as well as G K Satish, who superannuated as director for planning and business development from Indian Oil Corporation (IOC) a couple of months back, had applied for the top job. Numaligarh Refinery Ltd (NRL) Managing Director Saumendra Kumar Barua and Indraprastha Gas Ltd (IGL) Managing Director Asit Kumar Jana were among those who had applied. The shortlisted candidates for interview included Kumar, Satish, Barua, Jana, Virendra Nath Datt, OSD to chairman of GAIL (India) Ltd and former CPCL MD Surendra Nath Pandey. Shanker was not shortlisted. Kapoor was selected in response to the government re-advertising the post of chairman, PNGRB, in November. The committee — which also comprises secretaries to the ministries of oil and commerce, secretary legal affairs and economic affairs secretary — had in June 2021 picked up former power secretary Sanjeev Nandan Sahai. But, that appointment was not confirmed and so the post was re-advertised. Other candidates interviewed on June 2 included retired bureaucrat Avinash Kumar Srivastava, former ONGC chairman Shashi Shanker and former ONGC director Sanjay Kumar Moitra. The post of chairman, PNGRB, has been lying vacant since December 4, 2020, when Dinesh K Sarraf completed his three-year term. The Board, which comprises four members besides the chairman, is almost defunct with just one serving member. Former GAIL directors Gajendra Singh and A K Tiwari are currently the two members of the PNGRB.
GAIL starts India’s maiden project of blending hydrogen into CGD network
State gas utility GAIL (India) Ltd on Monday said it has commenced India’s first-of-its-kind project of mixing hydrogen into the natural gas system at Indore, Madhya Pradesh. The hydrogen blended natural gas will be supplied to Avantika Gas Ltd, one of GAIL’s joint venture with HPCL, for retailing of CNG to automobiles and piped natural gas to households in Indore, the company said in a statement. ”In line with the National Hydrogen Mission, GAIL has started hydrogen blending as a pilot project to establish the techno-commercial feasibility of blending hydrogen in City Gas Distribution (CGD) network. This project marks the stepping stone of India’s journey towards hydrogen-based and carbon-neutral future,” it said. GAIL started injection of grey hydrogen at the city gate station (CGS), Indore. ”This grey hydrogen would subsequently be replaced by green hydrogen,” it said. GAIL has already obtained the necessary regulatory permissions to commence the project. Zero-emission hydrogen is the latest buzzword around the world. Depending on the source, the hydrogen is classified as blue, green or grey. Blue hydrogen is when natural gas is split into hydrogen and CO2. The CO2 is captured and then stored. Grey hydrogen is a similar process to blue hydrogen but the CO2 is not captured and is released into the atmosphere. Green hydrogen is hydrogen produced by splitting water by electrolysis using electricity from renewable energy sources such as wind or solar. This produces only hydrogen and oxygen. The hydrogen is used and oxygen is vented into the atmosphere with no negative impact. GAIL said it has also engaged domain experts to carry out the impact assessment of blending hydrogen in natural gas. India has committed to achieving net-zero carbon emissions by 2070 and hydrogen together with renewable energy is seen as key to achieving that goal. For the transition, natural gas is the fuel and the government is looking to raise its share in the primary energy basket to 15 per cent by 2030 from the current 6.2 per cent. ”GAIL has always been committed to the growth of a gas-based economy in India and to India’s vision of a greener and cleaner environment. As our country is moving forward with the ambitious goal of achieving a carbon-neutral and self-reliant future, this project is a significant step in that direction,” the statement said. It is expected that this pilot project would help in the creation of a robust standard and regulatory framework in India to cover the aspects of injecting hydrogen into natural gas. This will pave the path for carrying out more similar projects in India.