Fuel demand drops to two-year low in September
Fuel consumption in September fell by 1.6% year-on-year to 17.92 million metric tons, its lowest in two years, oil ministry data showed on Monday (October 7, 2024), as above-normal monsoon rains continued to weigh on diesel demand. WHY IT IS IMPORTANT: India is the third-largest consumer and importer of oil. The data is a proxy for the country’s oil demand. KEY QUOTE Above-normal monsoon rains likely weighed on agricultural demand, hence weakness in demand for diesel, said analyst Giovanni Staunovo of UBS. BY THE NUMBERS On a monthly basis, fuel demand was down 2.7% from 18.41 million tons in August, data from the Petroleum Planning and Analysis Cell’s (PPAC) website showed. Demand last month was at its lowest since September 2022. Sales of gasoline, or petrol, rose 3% from a year earlier to 3.15 million tons. Diesel consumption was down by 1.8% year-on-year to 6.37 million tons in September, also its lowest in years. Cooking gas or liquefied petroleum gas (LPG) sales increased 1.6% to 2.59 million tons on an annual basis, while naphtha sales rose 0.6% to 1.03 million tons. CONTEXT India is likely to receive above average rainfall in October after unusually high volumes for the past three months, a senior weather department official said last week, which could damage summer-sown crops ready for harvesting. An above-normal monsoon season decreases diesel demand as increased rainfall reduces the need for diesel-powered irrigation and farm machinery use.
India dominates global natural gas contracts in 2024, cornering 30% of market share
Globally, around 50 billion cubic meters (BCM) per year of natural gas contracts were inked with upcoming, or post-Final Investment Decision (FID), projects from January to August 2024, of which India cornered the highest share of 30 per cent. FID is the final stage in a project, where it is determined whether to proceed with it or close it down. Post-FID refers to projects that have been given the go-ahead and are in various stages of implementation. According to the International Energy Agency’s (IEA) global gas security review and Q4 2024 gas market report, the volume of contracts signed by India with post-FID projects is around 15 BCM annually during January-August in the current calendar year. “The volume of contracts signed with post-FID projects in the first eight months of 2024 was 50 BCM per year, representing a 65 per cent increase compared with the same period in 2023. Buyers in Asian countries accounted for 56 per cent of the volumes contracted, with India signing the highest proportion (30 per cent) by country,” the IEA said. On the export side, the Middle East accounted for the highest share of contract volumes signed in the first eight months of 2024 (56 per cent or 28 BCM per year), a similar trend to 2023. By country, Qatar showed the highest share (42 per cent or 21 BCM per year), it added. “On the import side, Asia accounted for the highest share of contract volumes signed in the first eight months in 2024 (56 per cent or 28 BCM per year). India accounted for a high proportion (30 per cent or 15 BCM per year), representing the largest share by country. China accounted for 1 BCM per year, decreasing by around 90 per cent compared with the same period in 2023,” the report added. For instance, last month, state-run Indian Oil Corporation (IoCL) signed a 15-year agreement with the Abu Dhabi National Oil Company (ADNOC) to supply 1 million tonnes per annum (MTPA) of liquefied natural gas (LNG), the third such contract signed in just over a year. IoCL and state-run GAIL previously signed long-term agreements for 1.2 MTPA and 0.5 MTPA, respectively, with ADNOC. The IEA report noted that India’s strong demand growth was supported by a 5 per cent increase in domestic production and a 25 per cent surge in liquefied natural gas (LNG) inflows. India’s LNG imports approached 3.5 BCM per month between May and July 2024, a level not seen since the 2020 LNG price collapse. This LNG surge was driven by increased gas-fired power generation amid high temperatures and delays in domestic gas production, supported by relatively low spot prices in H1. India’s total gas demand in 2024 is expected to increase by nearly 9 per cent Y-o-Y, driven by the country’s growing energy needs and rapid economic expansion, supported by an 18 per cent overall rise in LNG imports. Similarly healthy growth of 8 per cent Y-o-Y is projected for 2025, with most of the growth coming from the industrial sector and, to a lesser extent, a continued rise in power sector gas burn. The possible inclusion of natural gas in India’s goods and services tax (GST) regime could lower prices for industry and consumers, presenting further upside for 2025 consumption growth. A decision on GST is expected by the end of March 2025.
Oil Prices Tumble 4% as Demand Fears Override Middle East Risk
Oil prices slumped by more than 4% early on Tuesday as traders have yet to see an actual supply disruption in the Middle East while focusing on China’s underwhelming demand again. Both benchmarks, WTI Crude and Brent Crude, were down by about 3% as of 9:30 a.m. EDT on Tuesday. The U.S. benchmark fell below $75 per barrel, and the Brent price was down to the $78 a barrel handle, after breaking above $80 on Monday in an 11% total gain in oil prices since Iran fired missiles on Israel a week ago. The war premium has started to evaporate, especially after the recent rally and the return of business in China after the Golden Week holiday. As China returned from the holiday, the authorities said they were confident that growth in the world’s second-largest economy would hit their forecasts this year. The officials, however, refrained from unveiling additional measures to prop up the economy and oil demand, which disappointed traders and speculators. “China’s National Development and Reforms Commission (NDRC) failed to announce any new supportive measures. Without policy support, an economic slowdown could keep China’s oil demand subdued in the short to medium term,” ING commodities strategists Warren Patterson and Ewa Manthey wrote in a note on Tuesday. The return of Libya’s oil production and exports after more than a month of hiatus due to the political stalemate has also weighed on the prices. “Oil can keep ascending only for so long purely based on perceptions and not actual supply disruption,” oil brokerage PMV said in a Tuesday note. “The geopolitical risk premium has an obscure and unforeseeable expiry date. When that point arrives and is not replaced by genuine and supportive fundamental factors, in the case of the Middle East conflict by a palpable supply shortage, the move higher will not be sustainable.”
U.S. Natural Gas Consumption Soars
Natural gas-fired power generation in the United States has soared to a record high so far this year, driving up global gas demand. U.S. power producers generated a total of 55.6 million megawatt hours (MWh) from gas-fired power plants between January and September, according to data from LSEG quoted by Reuters’s columnist Gavin Maguire. This is up by 5% compared to the same period of last year. It’s also the highest power generation from natural gas since at least 2021. Moreover, the share of natural gas in the U.S. power generation has also jumped to record highs this year. Since June, gas has accounted for a record-high 46% of the nation’s power generation, according to LSEG data. The rising share of natural gas is undermining the Biden Administration’s goal of a ‘clean power’ grid by 2035. In recent years, power demand in the United States, the single largest portion of which is delivered by gas-fired power plants, has soared and is expected to continue to surge with rising electrification and more electricity necessary to power and cool data centers. U.S. power-generating companies are announcing plans for the highest volume of new natural gas-fired capacity in years as the AI boom is driving demand for electricity. During the first half of 2024, electricity-generating firms unveiled plans for the new gas-powered capacity equal to all capacity announced in 2020, according to data from Sierra Club cited by Bloomberg last month. Natural gas-fired electricity generation in the United States has jumped year-to-date compared to the same period last year, as total power demand rose with warmer temperatures and demand from data centers. After more than a decade of flatlining power consumption in America, the AI boom and the chip and other tech manufacturing are leading to higher U.S. electricity demand. For years, natural gas has accounted for the largest share of U.S. power generation, at around 40% of all electricity-generating sources.
GAIL India issues LNG tender for November delivery, sources say
GAIL (India) GAIL.NS, the country’s biggest natural gas distributor, issued a tender seeking a cargo of liquefied natural gas for delivery in November, two industry sources said on Monday. It is seeking the cargo on a delivered-ex-ship (DES) basis for Nov. 6-15 delivery to the Dahej terminal. The tender closes on Oct. 7.
GAIL partners with AM Green for sustainable energy solutions
GAIL (INDIA) informed that it has signed memorandum of understanding (MoU) with AM Green B.V. (AMG) to explore projects aimed at advancing sustainable energy solutions in India. The partnership will focus on the loterm supply of carbon dioxide (CO2) for eMethanol production and the exploration of hybrid renewable energy projects across India. According to the terms of the MoU, both companies will conduct studies for the loterm supply of around 350 KTA of CO2 generated by GAILs gas processing plants to produce eMethanol, an environmentally friendly fuel that can reduce carbon emissions and promote a circular economy. Under the agreement, GAIL will also have the option to invest equity in the proposed eMethanol project. Additionally, both parties plan to explore the establishment of solar and wind hybrid renewable projects totaling up to 2.5 GW across India. These hybrid projects, in conjunction with Greenkos upcoming Pump Storage Projects, are expected to provide round-the-clock power to end users, including the proposed eMethanol project. Rajeev Singhal, Director (business development), GAIL said The signing of this MOU with AM Green underscores our commitment to pioneering sustainable energy solutions. By facilitating the supply of CO2 for eMethanol production, we are taking a proactive approach to reduce carbon emissions and support alternative fuel development.
India does not see any shortage of crude oil supplies: Hardeep Singh Puri
Despite last week’s crude oil price spiral, the situation seems to be stabilising with analysts expecting the market to cool off in the coming days. Tensions between Israel and Iran led to a 13 per cent spurt in Brent crude prices in the past seven days, with the benchmark crude hitting $79.4 per barrel on October 7, up from $70.2 just a week earlier. The Indian government is confident of shielding the country from any fallout in case of crude oil supplies being hit by an escalation in the tensions. “Today there is more oil available in the world than there is consumption”, said Hardeep Singh Puri, Union Minister for Petroleum and Natural Gas, adding, “If some parties hold back on availability there are new suppliers on the market also, in the short to medium term I do not see any shortage of oil in the world. There is enough oil available and we have enough choices to exercise.” Currently, India imports 88 per cent of its crude oil requirements from 39 countries, leaving it exposed to the vagrancies of the market. According to energy market expert Narendra Taneja, the situation could get hairy for India only if tensions escalate in the Gulf. “If Israel attacks oil installations in Iran, the situation will get out of control”, said Taneja in a conversation with Business Today. He added that Iran in turn could block the Straits of Hormuz and create a “massive disruption in supplies causing prices will go through the roof.” Softening crude prices If the geo-political situation does not worsen in the coming days, crude prices are seen softening with experts of the opinion that Israel and Iran are likely to pull back from the precipice as neither can afford the results of an all-out war. “Benjamin Netanyahu has been very cautious about starting a war with Hezbollah”, says Ian Bremmer, President and Founder, Eurasia Group, because Hezbollah is far better trained and armed than Hamas. He adds the likelihood of an all-out war is low. “So, on one hand they want to get Hezbollah forces away from the Israeli border so that Israelis can come back to their homes and schools, on the other hand the likelihood of an all-out war is pretty low. That’s the reason oil prices haven’t moved since August and markets also do not believe that it is coming”, says Bremmer.
Middle East Unrest To Fuel Oil Inflation
The fight against Hamas by Israel has been intensified recently with recent move by it in target killing and ground advance in Lebanon and Iran joining the fight against the Jewish state by missile attacks. The current situation is tense and it may lead to full-fledged war in Middle East, which may lead to global forces joining the either side in escalation of war. Talking to Bizz Buzz, M Narendra, former Chairman and Managing Director, Indian Overseas Bank (IOB), said: “It is difficult to fully know the consequences of the ongoing disturbance and tension in the Middle East on the global economy. It is to be seen whether oil prices, which were so far in comfortable position, may rise, if so, it will affect the oil importing countries in terms of foreign exchange outflow and its impact on domestic commodity prices.” India in the recent past has widened its sources for importing oil and we are able to get oil from Russia at competitive prices. However, this will be one of the risks in acceleration in oil prices which will affect India, he said. The commodity prices, which were also softer on global markets, may go up temporarily, increasing the cost of imports. There may be impact on supply chains and shipping routes which will increase freight costs which can have impact on international trade. However, India has strong macro-economic fundamentals and highest forex reserves comfortable for more than 11 plus months imports which acts as cushion to absorb the temporary upheaval. These rapidly increasing geopolitical ‘hotspots’ will definitely impact all numbers factored into budgets adversely. MV Hariharan, ex-treasury head, SBI, said: “The sustained instabilities will extract higher costs for India, be it in education abroad, jobs and tourism too. Oil is always an ‘elephant in the room’. Banks can feel the pinch of their education loans coming under stress with students in no man’s land with the uncertainties which will get triggered by the political context in play.”
GAIL India issues LNG tender for November delivery, sources say
GAIL (India) GAIL.NS, the country’s biggest natural gas distributor, issued a tender seeking a cargo of liquefied natural gas for delivery in November, two industry sources said on Monday. It is seeking the cargo on a delivered-ex-ship (DES) basis for Nov. 6-15 delivery to the Dahej terminal. The tender closes on Oct. 7.
India’s Coal Output Surged in H1
India’s coal production from captive and commercial mines surged by 32% over the first half of this financial year, the country’s coal ministry said, with the total reaching 79.7 million tons. Captive and commercial coal production in September alone also rose by 32%, the ministry reported, from 10.4 million tons in September 2023, to 13.74 million tons last month. India’s financial year begins in April. India is the second-largest coal consumer of coal in the world and a sizeable producer as it seeks to satisfy more of its demand for the energy commodity with domestic production as demand keeps growing at a healthy pace. In the 2023-2024 fiscal year ending March 2024, India’s total coal production rose by 11.65% to 997.25 million tons, according to data from the Ministry of Coal. The above figures suggest that this fiscal year will also see considerable production growth despite climate pledges. Earlier this year, Bloomberg reported citing unnamed sources that India aimed to add as much as 15.4 gigawatts of new coal-fired power capacity this year, the most in nearly a decade. Coal is the biggest source of energy on the subcontinent, accounting for some 70% of the energy mix, even as the government works to expand wind and solar capacity. In the first quarter of the year, coal consumption for power generation surged to a record high amid a heatwave and droughts that reduced hydropower generation. As a result of efforts to boost domestic supply, in July the Indian Ministry of Coal said that the country saw a record decline in the share of imported coal in the past decade, noting that “medium and low-grade thermal coal are abundantly available domestically, making it imperative for the country to sufficiently produce to fulfill domestic demand.” Meanwhile, imports also rose earlier in the current fiscal year, following demand patterns. Over the first quarter, coal imports ticked 0.9%, with July imports alone up by 15.9%.