Russia’s Seaborne Crude Flows at Risk as India Shuns Key Grade
Russia’s seaborne crude shipments fell for a second week, with difficulties selling a key Pacific grade to India set to further snarl flows in the coming week. Moscow has been struggling to get its Sokol crude into India, the main market for the grade produced by the Sakhalin 1 project, with the Asian nation’s refiners wary of falling foul of US sanctions and complaining that the grade is too expensive relative to alternatives.
Russia’s crude oil delivery problems to India aren’t over yet
Nearly 15 million barrels of Russia’s Sokol crude — meant for delivery to India — are sitting on tankers idling off the coasts of Malaysia and South Korea. They show little sign of moving. Twelve tankers are anchored, holding the key Russian crude grade. Most haven’t moved far for more than a month, vessel tracking data compiled by Bloomberg show. The build-up started when ships carrying the crude to ports around the Indian coast came to a halt late last year and then turned back towards the South China Sea as December drew to a close. Since then, the stranded shipments have been added to at a rate of about two new cargoes a week. It looked like the situation was starting to ease earlier this month, with three cargoes heading back to the south Asian nation. While a fourth is now signaling its destination as the Indian east coast port of Visakhapatnam, most remain stuck. And more continue to arrive, with an average of one 700,000 barrels cargo loaded onto specialized shuttle tankers at the De Kastri export terminal every three to four days. Those shuttle ships are piling up off the South Korean port of Yeosu, where they normally offload their cargoes onto other vessels for onward shipment to India. The hold-up could soon start to curb the pace of exports, if the shuttle tankers aren’t freed up soon to take on fresh cargoes. The fleet of seven ships, the most recent of which were delivered to Russia’s Sovcomflot PJSC from South Korea’s Samsung Heavy Industries shortly after Moscow’s troops invaded Ukraine almost two years ago, were specifically designed for the job of hauling Sokol crude. Ice resistant, with a shallow draft and a bow-loading manifold that allows them to take on cargoes from the offshore terminal at De Kastri, they can’t be replaced with other ships. All seven of those ships are now holding cargoes. Four were anchored off Yeosu for at least a week, but three departed for Chinese ports over the weekend, as the need to free up the vessels becomes more acute. Three Sokol cargoes have already been delivered to ports in the north of China this month. That’s up from the normal level of one or two cargoes a month taken by the country’s refiners. Reopening India Indian sources have given different reasons for the disruption to supplies. Oil Minister Hardeep Singh Puri said in January that refiners reduced oil imports from Russia as discounts on cargoes weren’t attractive, dismissing the notion flows dropped because of payment-related challenges. That view has been echoed by refiners themselves, with a person familiar with the operations of one processor saying that it has no plans to purchase Sokol as there is a premium of $2-$3 barrel compared with Urals, which means it doesn’t make any commercial sense to buy. However, Puri subsequently said that enforcement of a price cap imposed on Russian oil exports by the Group of Seven nations, along with challenges with shipping, had hampered some deliveries of Sokol to India. With Sokol trading above $70 a barrel, shipments of the grade are being keenly tracked by the US Treasury, which has begun taking a tougher line on sales of Russian crude that breach the cap. Several, but not all, of the Sokol cargoes that turned away from India were carried on vessels that had either been named explicitly on US sanctions list, or were managed by SUN Ship Management D Ltd., a company owned by Sovcomflot that’s been sanctioned In the case of other cargoes, banks declined payment due to lack of clarity on ownership and the price exceeding the cap, according to market analytics firm Kpler and several Indian oil refinery officials. Recent deliveries of Sokol crude to India suggest that some of those difficulties have been overcome, at least for a handful of refiners. After Washington tightened sanctions, India’s banks have become much more cautious. They are demanding attestation from Indian refiners that the crude was purchased below the price cap and not carried on a sanctioned ship, according to a person with direct knowledge of the matter who asked not to be identified because of the sensitivity of the issue. Nayara Energy Ltd, part-owned by Russia’s Rosneft PJSC, received a cargo at its Vadinar import terminal on Feb. 6. Another was delivered on Feb. 15 to Hindustan Petroleum Corp Ltd’s refinery at Mumbai. The HCPL cargo was purchased through a trading company, rather than direct from the producer, according to a source familiar with the deal. A third tanker full of Sokol is now anchored off the port of Visakhapatnam, where HCPL also has a refinery and a fourth is heading to Sikka, the discharge location for Reliance Industries Ltd’s refinery. Sikka is adjacent to Vadinar and it’s not uncommon for ships to change their signals as they get closer. India is Sokol’s largest buyer and the grade accounts for about 10% of its total imports from Russia. Unless Sokol imports are normalized, India’s shipments from Russia are unlikely to hit the 2.1 million barrels a day reached last spring. There is still no clarity whether transferring cargoes onto unsanctioned tankers will unlock the Sokol trade to India. But one thing is clear, Indian refiners are in not rushing back yet.
Warm Winter Drags U.S. Natural Gas Prices to Three-Decade Low
One of the warmest winters on record in the United States has created a natural gas glut, dragging benchmark gas prices to their lowest levels in three decades and prompting producers, who were pumping at record rates, to scale back drilling activity. The front-month U.S. benchmark price at the Henry Hub settled on Friday at its lowest level since 1995 – except for a few days during peak pandemic in 2020. Record domestic natural gas production has also added to the glut, but now some of the major producers are hitting the brakes on drilling and completion activity and reducing rig numbers in response to unsustainably low natural gas prices. Despite the constant retirement of coal-fired power capacity, demand for natural gas for electricity and space heating has been lower this winter due to the warmer-than-normal temperatures, except for a cold snap in the middle of January. El Nino has been stronger than usual in the central and eastern Pacific this winter, leading to warmer temperatures across the United States, Reuters columnist John Kemp notes. As a result of warmer weather, withdrawals from underground gas storage have been lower than usual, leaving stocks at a higher-than-average level for this time of year. In the latest reporting week ending February 9, net withdrawals from storage totaled 49 Bcf, well below the five-year (2019–2023) average net withdrawals of 149 Bcf and last year’s net withdrawals of 117 Bcf during the same week, per EIA data. Working natural gas stocks totaled 2,535 Bcf, which is 16% more than the five-year average and 11% more than at this time last year. Total working gas in storage is also above the five-year historical range. The trend of low withdrawals has been present all winter, not just in early February. The average rate of withdrawals from storage has been 12% lower than the five-year average so far in the withdrawal season, November through March, per EIA’s estimates. If the rate of withdrawals from storage matches the five-year average of 10.9 Bcf/d for the remainder of the withdrawal season, the total inventory on March 31 would be 348 Bcf higher than the five-year average for that time of year, according to the EIA. The high storage levels suggest that weather could be a less important factor in driving up U.S. natural gas prices until the end of the winter and withdrawal season on March 31. Analysts and traders tell the Financial Times it would take a while for the glut to be flushed out of the market. “You’re starting to see the market really start to formulate an opinion that we need to be down here for a while to help solve this oversupply,” Charlie Macnamara, head of commodities at US Bank, told FT. Natural gas producers are already signaling they have taken steps to reduce activity and production rates in response to the glut and low prices. Antero Resources, for example, released one drilling rig in December 2023 and released one completion crew in February 2024 as a result of the low gas prices. The company is now down to a two-rig program from three rigs, and one completion crew. Comstock Resources, for its part, plans to reduce the number of operating drilling rigs it is running from seven to five. EQT Corporation, the largest U.S. natural gas producer, lowered earlier this year its production range guidance “as a response to the price environment we’re in and wanting to make sure there is flexibility,” CFO Jeremy Knop told the Q4 earnings call last week. “So EQT can respond and make sure that if price gives a signal for lower activity and in lower production, we stand ready to respond,” Knop said. “The market is asking for not only production curtailments, but also activity reductions.”
Mitsui OSK Lines: Steering India’s LNG supply
The $11-billion Japanese shipping major Mitsui OSK Lines (MOL) owns or operates over 800 vessels of all types, including oil and gas, dry bulk commodities, chemicals, and automobile freight carriers. Ajay Singh, a board member of the 140-year-old MOL, is based in Tokyo and responsible for the group’s businesses in the Indian subcontinent and West Asia, besides assisting with its energy transition and strategic transformation. He discusses with businessline the company’s LNG (liquefied natural gas) ship deal with Gas Authority of India Ltd (GAIL) and various issues related to Indian shipping. Edited excerpts from the interview: What is the nature of your LNG ship deal with GAIL? In December, MOL deployed its newly built LNG carrier to service GAIL’s transportation needs. Named GAIL Urja, its first laden voyage is from the US to India. It is our second LNG carrier for GAIL, and the 98th in our global fleet, which is the largest in the world. The first deployment for GAIL was GAIL Bhuvan in 2021. GAIL is also a shareholder in GAIL Bhuvan, and is among our top customers (or ‘charterers’) and partners. We are proud of our association with GAIL, as it is a leading LNG importer and trader globally. Both vessels were built at DSME (now acquired by Hanwha) shipyard in Korea and can each carry well over 170,000 cu m of LNG. What is the progress on the country’s LNG supply front? The LNG shipping business dedicated to India started in earnest with the import from Qatar by Petronet LNG at their Dahej terminal. MOL was part of this project, which continues as a joint venture with the Shipping Corporation of India and other companies. We have since been part of almost every LNG shipping project involving India. We are also investors in an upcoming LNG import terminal at Jafrabad, in Gujarat, where we helped build a floating storage and regasification (FSRU) ship, which we now operate. We are active participants in the growth of India’s gas industry, which is heavily reliant on imports. How is MOL helping increase India’s LNG supply? The role of shipping in LNG supply is evolving. It used to be mainly a matter of safe and time-bound shipping for uninterrupted supply. So ships were contracted on a long-term basis by the buyers or sellers, and operated on a so-called tram line basis between the same load and discharge ports for many years. The Petronet LNG shipping arrangement is one such model and remains key to maintaining energy security. Any change in the model now? Today, shipping has additionally become a key tool for LNG buyers and sellers in managing business risks and increasing profit. LNG sales and purchase contracts are more flexible; the LNG can be diverted to suit changes in demand and prices, and buyers and sellers have also become traders. They recognise that access to reliable shipping capacity is essential for this flexibility. So the vessels are called upon to operate across a wider set of ports. This makes safety management all the more important, and here our long experience is helpful. The LNG supply chain has little room for error, and there are financial penalties if the vessel does not arrive on time for cargo pick-up or delivery. How is the post-Covid scene? The world has been through major supply shocks due to the pandemic and [Russia-Ukraine and Israel-Hamas] war; there is uncertainty over cost and availability of future clean energy sources. LNG buyers have, at times, hesitated to contract for big volumes on a long-term basis; they have had to react at short notice to supply shocks or changing demand. Now it takes about three years to build a new LNG ship; it is capital-intensive at over $250 million per ship, and it takes years to recover the cost. So, matching shipping supply to changing customer demand is challenging. We continue to support India’s LNG supply through all these changes.
IREDA and PNB to co-finance green energy projects
Indian Renewable Energy Development Agency Limited (IREDA) and Punjab National Bank (PNB) have joined hands through the signing of a memorandum of understanding (MoU) aimed at advancing renewable energy initiatives across the nation. The agreement, signed at IREDA’s Registered Office in New Delhi on Monday, paves the way for joint efforts in co-lending and loan syndication for a diverse spectrum of Renewable Energy projects. IREDA’s General Manager Dr RC Sharma and PNB’s Chief General Manager Rajeeva signed the MoU in the presence of IREDA’s Chairman & Managing Director (CMD) Pradip Kumar Das PNB’s MD & CEO Atul Kumar Goel, IREDA’s Director (Finance) Dr Bijay Kumar Mohanty along with senior officials from both organisations.
Equinor signs 15-year LNG deal with India’s Deepak Fertilisers
Norway’s Equinor EQNR.OL said on Monday it had signed a 15-year agreement to supply liquefied natural gas (LNG) to Indian fertiliser and petrochemical company Deepak Fertilisers DPFE.NS from 2026. The agreement covers an annual supply of around 0.65 million tons (around 9 terawatt hours) and will be used mainly as a feedstock for production of ammonia at Deepak’s newly commissioned fertilisers and petrochemicals plant, Equinor said. “Deepak’s new ammonia plant has created new gas demand in the growing Indian market,” said Equinor’s head of Gas & Power, Helge Haugane in a statement. The LNG will come from Equinor’s global portfolio which is based on its plant at Melkoeya island just outside the Arctic town of Hammerfest, and supply sourced mainly from the United States, it said.
Fall in energy prices brings down India’s oil, gas import bill despite growth in volumes
India’s net oil and gas imports in value terms for April-January of fiscal year 2023-24 (FY24) declined by nearly a fifth on a year-on-year (YoY) basis to $101.3 billion due to relatively lower prices of crude oil, natural gas, and petroleum products in the international market, as per latest data from India’s Ministry of Petroleum & Natural Gas. This decline in the value of oil and gas imports came despite a rise in import volumes, suggesting that the fall in prices was significant enough to offset the volume growth. In the first 10 months of the previous financial year, 2022-23 (FY23), India’s net oil and gas import bill was $124.8 billion. Oil, natural gas, and refined petroleum products had seen extreme price volatility in the last financial year following Russia’s February 2022 invasion of Ukraine. In the initial few months of FY23, international prices of these commodities were overheated. Their prices in the current financial year have been relatively softer and far less volatile. The average price of the Indian basket of crude for April-January of FY24 was $82.4 per barrel, but in the first 10 months of FY23, it was $96. Oil and gas imports have the highest share in India’s overall merchandise import bill. Petroleum product exports are among India’s top merchandise exports in value terms. According to provisional data from the Petroleum Planning & Analysis Cell (PPAC) of the petroleum ministry, India imported crude oil worth $110.5 billion in April-January of the ongoing fiscal, against $136.2 billion a year ago. However, in volume terms, oil imports for the period were higher by 0.9 per cent at 194.2 million tonnes. Apart from generally lower prices of crude oil globally, India has also benefited from ramping up imports of discounted Russian crude. Although the discounts are not as high as last year, the volume of oil imported from Russia has gone up notably. In April-December of FY23, Moscow had a share of nearly 18 per cent in New Delhi’s overall oil imports (by volume), as per India’s official trade data. In the first nine months of the current fiscal, Russia accounted for a whopping 37 per cent of India’s oil imports. The government has so far not released country-wise trade data for January. As for natural gas, which is imported into India in the liquefied form, import value for the first 10 months of FY24 was $10.9 billion, down over 26 per cent from a year ago. On the other hand, liquefied natural gas (LNG) import volumes for the period were higher by 15.4 per cent at 25,305 million standard cubic metres (mscm). The country’s petroleum product imports in April-January declined almost 15 per cent year-on-year to $19.2 billion, while petroleum product exports were down nearly 20 per cent to $39.2 billion.
GAIL seeks four LNG cargoes for March-October delivery
India’s largest gas distributor GAIL (India) Ltd has issued a tender to buy four cargoes of liquefied natural gas for delivery between March to October, said two industry sources on Monday. The cargoes are sought on a delivered ex-ship (DES) basis to the Dahej and Hazira terminals, with delivery windows of March 1-10 or 26-31, June 4-11, Aug. 21-28 and Oct. 21-30. The tender closes on Feb. 19.
Adani-Total Gas betting big on LNG to fuel growth
With quicker adoption of liquified natural gas (LNG) becoming a centre point in government’s gas policy and to control greenhouse gas (GHG) emissions, leading city gas distributor (CGD) Adani Total Gas Ltd has identified this super-chilled fuel to fuel its growth. Adani Total Gas Ltd (ATGL) is aiming to increase the adoption of LNG as the primary fuel for long-haul commercial vehicles, replacing diesel, through an ecosystem approach, a senior company official said. This includes strategic tie-ups with various stakeholders like auto ancillaries, Original Equipment Manufacturers (OEMs), fleet operators, end-use industry, and retrofitment players to advocate for quicker adoption of the fuel. “The biggest challenge of LNG is distribution. Currently we have only a handful of LNG dispensing stations and hence it is a chicken and egg situation. Fleet operators are unwilling to invest in switching over till the distribution network comes up, and till the demand builds up, oil marketing companies (OMCs) are not expanding the number of LNG outlets. “To address this, we are engaging with all stakeholders in the ecosystem for a quicker adoption of this green fuel,” said Suresh P Manglani, CEO, ATGL. Over the last two months, ATGL has signed MoUs with alternative fuel system manufacturer Shigan, cryogenic liquid storage, distribution and re-gas solutions provider INOX CVA, and Adani Cement, which engages a large number of fleets for logistics. The company said over the coming months, more such partnerships will be stitched up. ATGL, which already has a network of over 500 CNG retail outlets nationwide, plans to set up 50 LNG dispensing stations across national highways over the next couple of years, and is already in the process of setting up five stations in the vicinity of Adani portfolio companies in cement and mining sector to make their logistics greener, he said. The first LNG station is expected to be commissioned at Dahej in Gujarat by the first quarter of the next financial year, he said. Of India’s total diesel consumption of around 80 million tonnes in a year, roughly 50 million tonnes is consumed by the medium and heavy commercial vehicle (M&HCV) segment. Given fuel accounts for the lion’s share – up to 60 per cent – of a truck operator’s cost, LNG offers about a 20 per cent cost advantage over diesel. Additionally, natural gas engines run at lower vibration and do not require diesel exhaust fluid (mandatory for emission control), all of which results in lower overall operating cost. As LNG is stored in high pressure, a specialized cryogenic tank needs to be fitted, which is the single biggest retrofit cost. The company hopes that with increased demand, and an ecosystem approach, retrofit costs will come down in the future. “A fully-loaded truck with a tankful of LNG can cover 600-700 kms, similar to diesel. Hence the ‘range anxiety’ can be overcome by placing filling stations every 400 kms on highways, which is our plan,” Manglani said. A report recently published by the Energy Transition Advisory Committee, formed by the Ministry of Petroleum and Natural Gas, has strongly recommended LNG as a transition fuel for replacing diesel over the next 10 to 15 years. LNG has higher calorific value and burns much cleaner than diesel. Using LNG results in reduction of CO2 emission by 30 per cent, particulate matter (PM) by 80 per cent, and SOx by 100 per cent. “What differentiates us is as a CGD (city gas distribution) entity, we have the required expertise in handling LNG, which has very specialized storage, transportation and dispensing requirements. “And unlike for PNG and CNG, which require us to operate in our license areas only, LNG is license free, which means we can set up dispensing units anywhere we want,” he added.
Iraq follows Russia as second largest oil supplier to India
Data issued by the Indian Ministry of Commerce and Industry revealed that Iraq was the second-largest oil supplier to India, after Russia, in December 2023. According to the figures, the cost of Russian crude oil exported to India decreased to $77.82 per barrel, compared to $79.34 per barrel for oil shipments imported from Iraq. Iraq and Russia are considered the largest suppliers to India, which is the third largest oil-consuming country in the world. Oil refineries in India have been rushing to buy low-priced Russian oil since early 2022, when the invasion of Ukraine caused some buyers to avoid buying Russian oil. Oil shipments exported from Russia have become relatively more expensive since the middle of 2023, trading at levels very similar to shipments exported from Iraq. Oil imported from Saudi Arabia, the third-largest supplier to India, is considered the most expensive among these countries. The average price of crude oil exported from Saudi Arabia reached $87.19 per barrel in December 2023.