Europe becomes top spot for India’s exports of petroleum products
Europe became the top destination for India’s export of petroleum products such as petrol and diesel, supplying $18.4 billion worth of these products this fiscal, from April to January 2024. According to the commerce ministry data, India exported refined petroleum product the most, $10.9 billion, to the Netherlands, followed by $5.7 billion to Singapore, $5.4 billion to the UAE, $5 billion to the USA, $3.5 billion to Australia, and $3.2 billion to South Africa for the same period. Overall, India exported petroleum products worth $70.13 billion. In terms of crude oil imports, India received the largest quantity from Russia, followed by Iraq, Saudi Arabia, the UAE, and the USA from April to January 2024. The country imported crude worth $38.9 billion from Russia, with Iraq as the second-largest supplier at $23.4 billion. From Saudi Arabia, India imported crude worth $17.7 billion, and from the USA, it imported $4.7 billion worth of crude. Despite decreasing discounts on oil and sanctions from G7 nations due to its actions in Ukraine, Russia remained dominant supplier of oil to India in 2023-24. Initially, Russian crude was sold at a discount of $30/barrel to the international benchmark Brent, but now the discount has narrowed to $2-3 per barrel. As per the commerce ministry data, India’s imports from Venezuela also began. India imported $0.179 billion worth of crude from the South American country in January. India’s imports from Venezuela also began. India imported $0.179 billion worth of crude from the South American country in January. India, which resumed importing Venezuelan crude oil in December 2023 after a hiatus of more than three years, emerged as the largest buyer in January 2024 for the South American nation that has the world’s largest proven oil reserves. India exports petroleum products of $70 billion Overall, India exported petroleum products of $70 bn. In terms of crude oil imports, India received largest quantity from Russia, followed by Iraq, Saudi Arabia, the UAE, and the USA from Apr 2023 to Jan 2024.
Natural Gas should be subject to GST, says GAIL Chairman
The government would need to undertake major policy changes if the country is to meet its objective of more than doubling natural gas’s share in the energy mix to 15% by 2030, according to GAIL chairman Sandeep Kumar Gupta. Sanjeev Choudhary, the former finance chief of Indian Oil Corporation who will take over as CEO of India’s largest gas marketer and transporter in 2022, said in an interview that the government should mandate the use of natural gas in refineries and steel production, as well as make emissions a factor in the merit order for electricity dispatch, to help gas-based power compete with coal-based supply. He also stated that natural gas should be subject to the GST regime, the production-linked incentive (PLI) should be extended to LNG-powered vehicles, and the GST on CNG-powered vehicles should be reduced from 28% to 5%, on par with electric vehicles (EVs). The global gas market is well supplied, and there are no concerns regarding LNG prices. The arbitrary production limits imposed by OPEC+ have an impact on LNG prices, which are related to crude oil. The situation can be corrected if the production group reconsiders its judgment and takes proper action. Global LNG export capacity is expected to grow dramatically over the next few years, putting pressure on pricing. Is domestic gas demand rising? There is no significant increase, particularly in the power or fertiliser sectors. However, there has been an increase in city gas prices. Domestic demand would not increase significantly unless refineries, steel, and power plants made significant shifts to gas. What can be done to increase gas consumption? Some policy changes would be required if we are to attain our target of 15% gas in the domestic energy mix by 2030. Gas must be subject to GST, which will solve the issue of stranded input credit claims. The lack of input credit makes gas more expensive than competing liquid fuels. The gas should attract no more than 5% GST. The 14% central excise duty on compression should be removed because it is not a manufacturing activity. If we get tax relief, we can lower CNG pricing or offer incentives to drivers who switch to CNG. Approximately 80% of our gas-based power facilities are inactive because they cannot make it to the merit order. When a government has established a goal to increase the amount of gas in its energy mix and there is a climate challenge, the merit order should consider not just the cost of production but also the emissions. When emissions are taken into account, gas-based power will begin to displace other sources. To protect the environment, the government will need to compel the use of natural gas in refineries, steel plants, and other businesses. It should be mandatory for industries to adopt lower-emitting natural gas for a portion of their fuel needs. Refiners have a great capability to use natural gas, but their fuel decisions are now dictated solely by economic considerations. Are you concerned that EVs will grab part of your markets? The Centre is strongly supportive of electric vehicles. States are likewise at full throttle. This will reduce the need for CNG in such locations. LNG and CNG vehicles should be eligible for incentives similar to those provided to EVs. PLI for LNG cars should be provided. GST on CNG vehicles is currently 28%, but GST on EVs is only 5%. India’s energy grid is essentially grey today, hence gas should be supported as a transition fuel. What are your wider goals for GAIL? Our objective is to transform GAIL into a fully integrated gas value chain corporation with worldwide significance. We are seeking additional approval for pipes to complete the national gas grid. We also intend to add large gas or ethane-based petrochemical operations. Petrochemicals have enormous potential in India because we import a lot of them. However, the margins are not there. As a result, we would want tariff protection and budgetary incentives from the governments to invest in new facilities.
Gas Glut? Not for Long.
Natural gas prices are falling all over the world. There is abundant supply, and demand has been lukewarm this northern hemisphere winter, which was relatively mild. Indeed, the global gas market is in oversupply. This prompted Morgan Stanley to recently forecast a gas glut that we have not seen in decades. It was going to materialize as a result of strong growth in LNG production capacity, the bank’s commodity analysts said. They cited numbers showing that there was 400 million tons in such capacity to date, but another 150 million tons were under construction—“a record wave of expansion”. It appears the forecast was based on an assumption of not very strong demand growth—but it may be the wrong assumption. Because natural gas demand is set to grow, and grow quite robustly. At the same time, some producers, notably in the United States are already starting to withhold production, because of the low price of the commodity. Asia imported record volumes of liquefied natural gas last month, data from Kpler showed recently. The biggest buyers were China, India, and Thailand, with India’s LNG purchases up by 30% from a year earlier and China’s 22% higher than in March 2023. That record would not have been possible had prices not fallen—and prices had fallen because Europe was buying less LNG. The reason Europe was buying less LNG were its full gas storage sites. Winter was once again mild in Europe and it never got to exhaust the gas it had purchased in anticipation of the heating season. In fact, Europe saw record gas in storage as of the end of this heating season, and that contributed to the weakness of natural gas prices—along with the depressed industrial activity on the continent. The fact that demand for LNG immediately rebounded as prices fell suggests that the longer they stay low, the stronger demand will get, especially among countries that have been trying to reduce their consumption of coal in favor of gas. There are a lot of these, under pressure from transition-focused governments that, though no fans of any hydrocarbons, acknowledge that natural gas has a lower emissions footprint than coal. Two years ago, Europe priced these countries out of the market. Now, with prices so low, they may well consider returning to it, driving higher demand. Supply, on the other hand, may not grow as much as Morgan Stanley expects. The bank’s analysts point to U.S. gas exporters that are planning a lot of new LNG capacity. But whether all of this capacity would end up getting built is another question. Tellurian’s Driftwood LNG project is one example. The facility has been in the works for years, but it has kept failing to secure the necessary long-term buyer commitments to proceed. The future of Venture Global’s second LNG plant is also uncertain—as is the future of all new LNG plants as the federal government paused new capacity approvals. Demand, meanwhile, may be set for even stronger growth, thanks to artificial intelligence. Data centers, which already consume substantial amounts of electricity, are about to become an even bigger drain on the grid as AI gets incorporated in more services. This will automatically mean stronger demand for natural gas for generation—because wind and solar will not be able to handle the surge. “Gas is the only cost-efficient energy generation capable of providing the type of 24/7 reliable power required by the big technology companies to power the AI boom,” the founder of Energy Capital Partners, an investor in both alternative and hydrocarbon sources of energy, told the Financial Times recently. Doug Kimmelman added that gas will be critical for the power supply of data centers in the AI era. Demand for electricity from data centers, according to the International Energy Agency, is set to swell twofold from 2022 by 2026, potentially topping 1,000 TWh. This is a lot of electricity consumption and for all the pledges that Big Tech has made for using low-carbon energy to power its data centers, most of its actual energy comes from hydrocarbons, simply because there is no low-carbon energy that is available around the clock without interruption—and carbon credits can and are bought separately from the electricity they are tied to. All this means that the outlook for natural gas demand in the coming years is quite bullish. Low prices invariably stimulate stronger demand and in this case the ambition for lower emissions helps gas demand specifically grow even more strongly. Then there is the question of supply. It may look abundant now, but in a few months, U.S. drillers’ move to curb supply by drilling but not completing new wells will begin to be felt. Besides, no one can say how the next winter in the northern hemisphere will turn out. It may be mild, but it may be harsh. It is a little bit ironic that if the milder winters of the last two years were driven by climate change, Europe has climate change to thank for its lower use of hydrocarbons.
Work On Brahmapuram CBG Plant To Begin Soon
The work on compressed biogas (CBG) plant proposed at Brahmapuram will soon be started. The private firm which was awarded the work has started bringing the machineries to the site. Kochi corporation officials said that preliminary works like preparation of ground is expected to start by next week. As per schedule, the work will be completed within a year. The civic body will facilitate various requirements like power and water for the CBG plant. Around 100 million litre per day (MLD) of water will have to be provided to the BPCL Kochi Refinery for the trial run of the plant. Corporation has suggested the BPCL Kochi Refinery to draw water from Kadambrayar which flows by the solid waste treatment plant premises at Brahmapuram. At the same time, shortage of water in Kadambrayar is an issue. The BPCL Kochi Refinery had approached the city corporation authorities for setting up a CBG plant at Brahmapuram a couple of years ago. At that time, the local body authorities turned down the offer citing that a waste to energy plant was to come up at Brahmapuram. In the aftermath of the fire outbreak at the solid waste treatment plant premises on March 2, 2023, corporation and state govt were forced to cancel the proposal for waste to energy plant. It was then that the BPCL Kochi Refinery again approached the govt with the CBG plant project. The city corporation has to hand over ten acres of land at the solid waste treatment plant premises to the BPCL Kochi Refinery for setting up the CBG plant. The plant will have a capacity to treat 150 tonne of biodegradable waste every day.
OPEC+ Faces Fork in the Road
OPEC+ once again extended its oil production cuts this month. The decision was anything but unexpected and, unlike previous production policy announcements, it had the desired effect on prices. However, it could only work for so long. Soon, OPEC will need to make a decision. Last year, oil traders were almost exclusively focused on demand and threats thereof, especially in China. This year, they are beginning to understand that withholding 2.2 million barrels of oil daily while global demand actually rises will, at some point, start eating into supply. Oil prices are on the rise. True, some OPEC+ members have been producing more than their assigned quota, and they have been asked to take steps to compensate, which normally means temporary deeper cuts. But it seems that overproduction—and the rising output of quota-exempt Iran, Venezuela, and Libya—has not interfered with the purpose of the cuts. Only they cannot continue forever. Some analysts have noted in the past few months that OPEC+ will have to start unwinding the cuts at some point, especially if Brent crude tops $100 per barrel. The argument made by these analysts is that at that point, prices will start destroying demand as they usually do. Yet OPEC+ may decide to stick with the cuts until oil is well above $100, according to the CEO of Dubai-based consultancy Qamar Energy, Robin Mills. In a recent opinion piece for The National, Mills suggested sticking with the cuts is one of the two roads ahead of OPEC, with all foreseeable consequences, such as higher inflation and higher U.S. production. The other road Mills describes as OPEC believing its own strong demand forecasts and unwinding the cuts. This is definitely one way of framing the road ahead. In the same vein, however, one could argue that sticking to the cuts is also a sign of belief in OPEC’s strong demand expectations: if demand is so resilient and prone to expand, it will expand even in a higher-price environment. This is precisely what happened in 2022 when the start of the Russia/Ukraine conflict pushed oil above $100 per barrel and held it there long enough for the annual average to come in at close to $95 per barrel. Demand during that year of high oil prices rose by over 2.5 million barrels daily. And that was before China came roaring back from the pandemic lockdowns, which only ended in late 2022. So, while it would make sense to expect OPEC+ to start thinking about putting an end to its production cuts, it might make more sense to keep them in place—not least because an unwinding of the cuts would have about the same effect on prices as the news that U.S. shale output grew by over 1 million bpd last year. OPEC expects oil demand this year to grow by 2.2 million bpd. With the cuts in place, this rate of demand growth is certain to push the global market into a deficit. Estimates of the size of this deficit vary, with the IEA seeing a “slight” deficit as a result of the OPEC+ cuts and stronger demand prompted by the Red Sea situation. Qamar Energy’s Mills, however, sees a deficit of as much as 4 million barrels daily developing later in the year. Should this happen, there would be nothing easier for OPEC than announcing an end to the cuts, or at least a tweak, to avoid a price slump. And a deficit environment would be the best time to make these tweaks—with prices high and demand resilient, the effect of such an announcement on prices would be mitigated by the fundamentals. Because the cuts can’t go on forever, not when some OPEC members are already grumbling against the quotas.
China Surpasses India as Largest Importer of Russian Crude
China has surpassed India as the primary importer of Russian crude oil via sea routes, with China importing 1.82 million barrels per day (bpd) in March compared to India’s 1.36 million bpd. This shift is attributed to India’s slowdown in imports due to sanctions and rising prices. China’s Rising Imports In March, China imported 1.82 million bpd of Russian crude by sea, exceeding India’s 1.36 million bpd. This trend marks a significant shift, as China has become the largest buyer of Russian seaborne crude. India’s Changing Import Dynamics India’s recent slowdown in Russian crude imports is linked to various sanctions and escalating prices. Despite a 7% month-on-month increase in March, India’s imports fell short of China’s, indicating a strategic shift in its oil procurement. India’s Oil Import Portfolio Urals sour-grade oil remains India’s primary import from Russia. However, India has also diversified its sources, with increased imports from Iraq and decreased imports from Saudi Arabia in March. Geopolitical Implications India’s increased reliance on Russian crude stems from geopolitical tensions, particularly since Russia’s invasion of Ukraine in 2022. Prior to this conflict, Russia accounted for only a small fraction of India’s total crude oil imports. OPEC+ Dynamics and India’s Strategy Despite pressure from Western nations and OPEC+’s efforts to stabilize crude prices, India continues to purchase oil from Russia due to significant demand and Moscow’s discounted offerings. Indian officials argue that this strategy contributes to stabilizing global crude prices.
The Energy Sector Is A No-Brainer, but There’s More to Come
Historically, different market sectors and investments have responded differently as the economy moves from one stage of the business cycle to the next. Understanding how various financial assets have historically performed at various points in the business cycle can help investors identify opportunities and risks and adjust their portfolios accordingly. Shifts from one phase of the business cycle to the next have historically taken place every few months or years on average. With the global monetary tightening cycle almost over, many major economies, including the U.S., have advanced into the late stage of the business cycle. According to Fidelity Investments, technology, financials, and consumer discretionary sectors tend to outperform during the early and mid-stages of the business cycle while energy and commodity stocks tend to be late-stage winners. Well, the U.S. stock market appears to be largely playing out along those lines, with tech lagging while oil and gas stocks have emerged as some of this year’s best performers. The energy sector has managed to post a 17.1% return in the year-to-date, the second highest sector return and nearly double the 9.1% return by the S&P 500 and 7.1% gain by the tech sector. Interestingly, not even a red-hot labor market and diminished prospects for interest rate cuts have slowed the energy sector. Last week, energy and communication were the only sectors to finish in the green while the S&P 500 dropped nearly a percentage point, its biggest weekly loss so far in 2024, following a healthy jobs report. A report released by the Bureau of Labor Statistics revealed that the country added 303,000 new jobs in March, way higher than the 205,000 consensus call among economists surveyed by FactSet or 231,000 jobs added in March 2023. The unemployment rate slipped to 3.8% from 3.9%, marking the 26th consecutive month unemployment has remained below 4%, the longest streak since the 1960s. The markets, however, reacted negatively to the solid jobs report because it’s likely to make the U.S. Federal Reserve even more hesitant to be urgent or aggressive with interest rate cuts. Indeed, some economists now say recent data has pushed a summer cut completely off the table while others are saying to expect zero cuts in 2024. “Personally, I wouldn’t be surprised if we saw less rate cuts and pushed more towards the end of the year. This is a strong economy. Make no mistake, it is backed by debt and somewhat by overburdened credit cards, but it is a strong economy. So the Fed will struggle to find the case to cut rates soon,” George Lagarias, chief economist at Mazars, told CNBC on Monday. According to the CME’s FedWatch tool, the market is pricing a less than 50% probability of a rate cut in June and July, significantly lower than a month ago. Whereas high interest rates tend to hurt many sectors of the economy, clean energy companies are much more sensitive to interest rates than oil and gas companies. It’s the reason why the iShares Global Clean Energy ETF (ICLN) has returned -11.2% vs. 17.0% YTD gain by the Energy Select Sector SPDR Fund (XLE). Robust Fundamentals Another interesting development: even the bears now recognize the energy sector’s momentum. To wit, Morgan Stanley remains pessimistic about the U.S. stock market overall; however, MS has upgraded energy stocks to overweight from neutral, noting that energy companies have lagged the performance of oil, and the sector remains favorably valued. With a PE ratio of 13.4, the U.S. energy sector is the cheapest of the 11 market sectors. However, the most important catalyst working in favor of the energy sector is robust market fundamentals. Commodity analysts at Standard Chartered have reported that fundamentals in the oil markets remain strong and can support Brent prices in the $90s. According to StanChart, there’s ample room for OPEC to increase output in Q3 without either causing inventories to rise or prices to weaken. According to StanChart, the U.S. market swung into a deficit of over 1.7 mb/d in both February and March, with the seasonal recovery in demand offsetting the recovery in U.S. output from its January low. The analysts estimate there was a counter-seasonal Q1 inventory draw of 1.12 mb/d, which led to a significant tightening compared with the inventory build recorded in Q1-2023. StanChart attributes the ongoing oil price rally to the 3 mb/d relative improvement from Q1-2023, and sees further price gains coming in Q2-2024.
India’s fuel consumption shrinks 0.6% in March as petcoke use falls
Fuel consumption in India, a proxy for oil demand, fell by a marginal 0.6 per cent on an annual basis in March due to reduced petroleum coke use, as data released by the Petroleum Planning and Analysis Cell (PPAC) has shown. Consumption of fuel totalled 21.09 million tonnes (mt) in March, down from 21.22 mt in March 2023. For FY24 (2023-24), fuel consumption rose by 4.6 per cent. However, this was lower than the 10.57 per cent rise seen in FY23. Oil demand usually picks up from late February onwards and rises in tandem with the temperature in India. For instance, consumption rose by 13.7 per cent in March, on a sequential basis. Sales of diesel, the most used fuel in the country, rose 3 per cent to 8.03 mt in March. In the last 12 months, sales had reached an all-time high of 8.21 mt in May 2023 Petrol sales also reached a four-month high, rising 5.1 per cent to 3.14 mt in October. Sales had stood at 2.99 mt in the same month of the previous year. Other major categories also saw rising sales. The monthly numbers were pulled down by the lower consumption of petcoke, a by-product created by the refining of bitumen into crude oil. Used in the manufacturing of steel, glass, paint, and fertilisers, petcoke usage fell 16.8 per cent in March to 1.63 mt.
Are Oil Prices Heading To $100 This Summer As A Global Shortage Takes Hold?
When oil jumped above $90 a barrel just days ago, military tensions between Israel and Iran were the immediate trigger. But the rally’s foundations went deeper — to global supply shocks that are intensifying fears of a commodity-driven inflation resurgence. A recent move by Mexico to slash its crude exports is compounding a global squeeze, prompting refiners in the US — the world’s biggest oil producer — to consume more domestic barrels. American sanctions have stranded Russian cargoes at sea, with Venezuelan supply a potential next target. Houthi rebel attacks on tankers in the Red Sea have delayed crude shipments. And despite the turmoil, OPEC and its allies are sticking with their production cuts. It all adds up to a magnitude of supply disruption that has taken traders by surprise. The crunch is turbocharging an oil rally ahead of the US summer driving season, threatening to push Brent crude, the global benchmark, to $100 for the first time in almost two years. That’s amplifying the inflation concerns that are clouding US President Joe Biden’s reelection chances and complicating central banks’ rate-cut deliberations.
Biden’s LNG export pause will hobble Asia’s energy plans
As Japanese Prime Minister Fumio Kishida arrives in Washington this week to meet with Joe Biden, it is worth reflecting on the American president’s decision in January to pause approvals for new liquefied natural gas exports. First, it is important to understand how critical gas from the U.S., the world’s biggest exporter of LNG, is for Asia. Asia is a net importer of energy and depends on other parts of the world to keep industry going and households powered. Second, much of Asia relies on high-emitting coal for electricity generation, particularly fast-growing Southeast and South Asia where lifting people out of poverty remains a primary goal. Of total coal demand worldwide last year, three of every four tons were consumed in China, India or Southeast Asia. In Japan, South Korea, Singapore, Taiwan and Thailand, LNG has an established role ensuring energy security and economic stability, while also providing the foundations for a low-carbon future. Massive volumes of coal must be displaced through the 2030s and beyond across emerging Asia to achieve the region’s net-zero aspirations. This inevitably will mean substantial gas imports As the sole realistic coal alternative in terms of affordability and energy density, LNG from the U.S. offers a much cleaner option for always-available power generation that, in partnership with renewables, can meet growing energy demand while facilitating climate progress. India, Vietnam and the Philippines are among the fast-growing Asian nations that plan to increase the role of gas in their economies through LNG imports as a reliable complement to renewable energy investment. Therein lies the concerning disconnect between Asia’s energy realities and the U.S. government’s LNG pause. National energy plans and research from regional experts who know Asia best, including The Institute of Energy Economics, Japan, indicates natural gas demand in the region over the next 30 years will be much higher than implied by the projections the Biden administration used to justify the export pause. These higher forecasts are driven by crucial differences in economic and demographic outlooks and the country-specific feasibility of scaling renewables at speed. Optimism is a positive attribute, but reality has no substitute. Utilization of the full export potential of U.S. LNG — which would be 52% higher than the level currently approved — will be required by 2040 to meet Asia’s demand during energy transition, according to a report last year by energy research company Rystad Energy commissioned by the Asia Natural Gas and Energy Association.