BPCL plans an oil trading desk in Singapore, Dubai
Bharat Petroleum Corporation (BPCL) is planning to open a trading desk in Singapore or Dubai to expand its global reach, sourcing, and trade in crude oil as well as finished products, according to industry officials aware of the development. BPCL will set up the desk this year, sources added. The Singapore desk, sources said, would also help the company trade in energy derivatives and facilitate international financing. In the international oil market, products are bought and sold through trading desks. The desk is manned by a licensed trader and trades take place instantly. BPCL did not reply to an email sent. “BPCL is planning to set up a trading desk as being in the center of action and knowing the ecosystem, helps you clinch better commodity deals,” said an industry official aware of the talks. A trading desk helps companies procure crude oil from the international market on a real-time basis, helping cut import prices by locking in the best price and quality. Officials added that the Russia-Ukraine war disrupted the supply of crude oil in the market, forcing Indian refiners to look for crude sourcing options beyond the Middle East, which has been the major source of oil supplies to Indian refiners.”A trading desk will give BPCL the flexibility to enter and exit markets faster as operations are 24/7. This will enable faster turnaround on crude oil trading and ensure flexibility,” the official added. Last fiscal, BPCL procured 38.2 million metric tonnes per annum of crude for its three refineries in Mumbai, Bina (Madhya Pradesh), and Kochi. The refineries processed five new grades of crude oils which were procured for the first time by BPCL, according to the company’s FY2023 annual report. India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85% of its requirements. India’s public sector refiners Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) source 70% of crude oil on term contracts and the rest on a spot basis. This helps companies diversify their crude supply basket and address market volatility. Term contracts are long-term oil purchase deals with fixed volumes and pricing and spot contracts are immediate purchases from suppliers.
India fuel demand surges, refiners’ margins to stay strong, mid-single-digit growth in India’s petroleum products: Fitch
India’s demand for petroleum products is expected to increase by a mid-single-digit percentage in the financial year ending March 2024, following a 10 per cent post-pandemic recovery in 2022-23, according to Fitch Ratings, as reported by ANI. Both petrol and diesel sales saw robust 4-6 per cent increases in the first nine months of 2023-24, driven by heightened economic activities in the agriculture and power sectors, as well as a surge in holiday travel and auto sales. Fitch anticipates that Indian refiners’ gross refining margins (GRM) will moderate during 2024-25 from the strong levels expected in 2023-24 but will remain above mid-cycle levels. By 2025-26, a shift closer to mid-cycle levels is foreseen, with resilience bolstered by the escalating demand for end-products. “The gradual normalisation of the crude supply mix away from Russian imports is likely to narrow GRMs, although we expect margins to stay strong, supported by the rising demand for end-products,” the rating agency said. In the upstream segment, domestic oil and gas production has modestly increased, driven by a 5 per cent rise in gas production in the first nine months of 2023-24. “We expect production to continue to rise moderately as technological investments in enhanced oil recovery techniques will offset natural declines,” the rating agency added. Fitch forecasts that the oil and gas sector’s high capex intensity will continue in the medium term, particularly with upstream companies investing in production enhancement.
India and Russia in talks over long-term oil deals – Bloomberg
State oil refiners in India are negotiating long-term agreements for supplies of crude with Russian energy giant Rosneft, Bloomberg reported this week, citing people with knowledge of the matter. According to the report, Indian Oil, Bharat Petroleum, and Hindustan Petroleum are taking part in the discussions, aiming to sign deals for a steady supply instead of one-off purchases, which is expected to make them less exposed to competition. The refiners reportedly want to secure deliveries of around 500,000 barrels per day of Russian oil in the contracts. They also plan to include clauses that would protect them from penalties in case of payment issues and delivery delays. Indian Oil already has a contract with Rosneft from 2020, under which the refiner was to import 2 million tons of Urals grade crude from the Russian company per year. The deal was extended in 2023, with the two companies agreeing to substantially increase oil deliveries and diversify oil grades shipped to India. The other two state refiners do not have existing long-term contracts with Rosneft. Neither company has so far responded to requests for comment. India, the world’s third-largest crude oil importer, has been ramping up imports of Russian oil over the past two years despite Ukraine-related sanctions on Moscow, taking advantage of discounts that Russia offered to secure new markets after losing buyers in the West. Last year, Russia exported an average of 1.75 million barrels of crude to India per day, according to Kepler data analyzed by The Independent, dominating the Indian market as the primary supplier. While there was a drop in India’s imports of Russian oil at the end of last year, reportedly due to payment issues linked with the sanctions, analysts say that Indian demand remains strong. Speaking to RT on the sidelines of India Energy Week on Thursday, Oil Minister Hardeep Singh Puri said that Russian oil currently accounts for 30%-34% of India’s total imports of oil, up from just 0.2% before the start of the Ukraine conflict in February 2022. He pledged that India will continue to buy Russian crude as long as the prices are favorable.
PSU Three more LNG terminals to be set up in Bangladesh
The government has a plan to establish three additional liquefied natural gas (LNG) terminals alongside the existing two for re-gasifying imported gas. Two of these will be situated in Moheshkhali and Matarbari in Cox’s Bazar, while the third will be at Payra, with two being floating and one land-based. The capacity of the existing Floating Storage and Regasification Units (FSRU) will be expanded from 500mmcft to 630mmcft per day. The total re-gasification capacity of the proposed LNG terminals is set to reach 2,000mmcft per day. The initial two FSRUs, one from Summit Group and the other from Excelerate Energy, are expected to commence operations in 2026 and 2028, respectively. For the floating terminals, Excelerate Energy will set up one in Payra, while Summit Group will establish another in Moheshkhali. The land-based terminal, with a production capacity of 1,000mmcft, will be situated in Matarbari. The FSRU in Cox’s Bazar is anticipated to supply a minimum of 600 million cubic feet per day (mmcfd) of gas, extendable to 800 mmcfd. This facility will be approximately five kilometers off Moheshkhali island in the deep seas of the Bay of Bengal. In June 2023, the Cabinet Committee on Economic Affairs provisionally approved a proposal to award Summit. Oil and Shipping Company Ltd the task of setting up the third floating LNG terminal in Moheshkhali, Cox’s Bazar, with a capacity of 600mmcft LNG per day. The LNG terminals are being established based on unsolicited offers from both local and foreign companies. Petrobangla has plans to further increase gas regasification capacity by setting up additional LNG terminals at Payra and Matarbari. Currently, there are two FSRUs (LNG terminals) in Bangladesh-one operated by Excelerate Energy in Moheshkhali and another by the Summit Group in the same area. With the operation of three new terminals and the expansion of existing ones, the country’s LNG production is projected to rise to 3,200mmcft per day.
Oil Markets Are Much Tighter Than Oil Prices Suggest
Oil prices have continued trading in a narrow range in the new year with fears about weak fundamentals and the threat of a recession outweighing geopolitical risks. Last week, Commodity analysts at Standard Chartered argued that oil fundamentals were in better shape than the market was giving it credit for, and the market is heavily discounting geopolitical risks. This week, Standard Chartered is back again, noting a sharp improvement in oil balances in the current year compared to 2022, suggesting the market is much tighter than current prices might imply. According to StanChart, the global oil surplus we are currently witnessing is due to seasonal weakness in the month of January; however, the surplus this time around is much smaller than the average over the past two decades. StanChart notes that there’s been a January inventory draw in only three years since 2004, with the first month of the year averaging a build of 1.2 million barrels per day (mb/d). January 2023 recorded a mega-surplus to the tune of 3.4 mb/d; the third largest surplus in any month over the past 20 years with only two months at the start of the pandemic posting bigger numbers. This year’s surplus appears to be significantly smaller than the average, with StanChart putting it at just 0.3 mb/d. Even better for the bulls, StanChart has predicted that this surplus is transitory and will flip into a 1.6 mb/d deficit in February. The Energy Information Administration (EIA) is even more bullish and has forecast a 2.3 mb/d deficit. The improvement in the global oil balance is reflected in U.S. weekly data. StanChart points out that the first five readings from its proprietary oil data bull-bear index in 2023 had two that were ultra-bearish while three were highly-bearish. In contrast, the first five readings of the current year have run neutral, mildly bullish, bullish, highly bullish and mildly bullish with the four-week average showing a strong upwards trend. The latest EIA release is mildly bullish, while StranChart’s bull-bear index has improved +22.4. The commodity experts have reported that U.S. crude output has fully recovered to 13.3 mb/d after the recent freeze-related fall; however, the analysts have predicted there’s little scope for further increases for the rest of the year. Standard Chartered says there will be very limited incremental growth in U.S. crude oil supply in 2024, with growth expected to sharply decelerate and even turn negative in December 2024 from above 1.2 million barrels per day (mb/d) in December 2023. The EIA is even more pessimistic on U.S. crude production, and has predicted U.S. supply growth will turn negative as early as September. JP Morgan: Crude oil to rise another $10 by May There’s more good news for the oil bulls. A growing number of analysts are saying oil prices have limited downside at this juncture and have forecast an oil price rally as the months roll on. According to J.P. Morgan, the oil market outlook “continues to project a tightening market with prices rising from here by another $10 by May.” The JPM forecast assumes that OPEC+ leaders will unwind 400K bbl/day of cuts from April and has assigned no risk premium from the Middle East turmoil. JPM says whereas OPEC’s implementation has been “ambiguous” in the first month of new cuts, crude shipments on a 30-day moving average basis are down 1.3M bbl/day from the October peak. Meanwhile, current data suggest an improving global economy, with observable crude inventories having steadily drawn down over the last month in pivotal markets in the U.S., Europe, Japan, China and Singapore. Meanwhile, data at the beginning of the current week showed larger than expected drawdowns in gasoline and distillate inventories, further supporting the bullish thesis.
Indian Biogas Association pitches for ₹300 bn investment for compressed biogas plants
Indian Biogas Association has recommended an investment of ₹300 billion for machinery and equipment required for biomass supply to compressed biogas plants to ensure 12 MMTA of LNG import reduction. “Utilising agricultural residues like paddy straw for bioenergy production and soil enrichment instead of burning those offers a dual benefit as it provides renewable energy sources while enhancing soil health,” said Indian Biogas Association Chairman Gaurav Kedia. However, he pointed out that there are obstacles to procurement, such as unappealing economics, which makes farmers prefer to burn rather than sell off the field straw promptly. Due to the low density of straw, which increases the expenses associated with its collection, storage, and transportation, he stated, “Improving logistics is not a feasible solution. Government intervention is essential to encourage the adoption of necessary equipment, such as subsidising combine harvesters capable of efficiently gathering straw”. Additional support for balers and storage units will make efficient transportation and storage possible, Kedia noted. He suggested that the government should also release the operational guidelines for crop residue management to provide financial assistance for the procurement of crop residue management machinery, establish custom hiring centres, create a supply chain for crop residue/ paddy straw and promote awareness on crop residue management. As per the ASCI (Administrative Staff College of India) study on the assessment of biomass potential in India, India has a total crop production area of 198 MHa with a total crop production of 775 million tonnes, generating 754 million tonnes of total biomass and 230 million tonnes of surplus agricultural residue. Most of this surplus biomass is burnt because farmers lack proper collection equipment and motivation. In the first phase, the government should prefer the states with the largest share in biomass generation — Punjab (10.6 per cent), Uttar Pradesh (9.8 per cent), Gujarat (9.3 per cent), Maharashtra (9.2 per cent), Madhya Pradesh (8.8 per cent) and Andhra Pradesh (7 per cent). The estimated machinery and equipment worth more than ₹300 billion will be required to address the issue in these states.
After LPG and PNG now get uninterrupted LNG
The world’s largest deal for liquefied natural gas (LNG) has been signed between India and Qatar. With this, India will continue to get uninterrupted LNG for the next 20 years. Petronet’s renewal of 7.5 million tonnes per annum liquefied natural gas (LNG) purchase contract from Qatar for 20 years from 2029 is possibly the largest deal for the purchase of this fuel in the world. This will help India achieve clean energy goals. The officials have said this. Top Petronet officials said the original 25-year agreement was signed in 1999 and supplies began in 2004. Since then, Qatar has never defaulted on a single consignment nor has it imposed any penalty under the ‘buy or pay’ provision for the Indian company not taking supplies when prices were very high. The supplies under the extended contract will commence after Petronet takes delivery of 52 cargoes which it had failed to take in 2015-16 due to price surge. Although the contract volume has never changed, the price has changed four times. This also includes the latest case, in which there have been fresh negotiations on contract extension. Apart from this, the composition of the gas that was promised to be supplied has also changed. Big revolution will come in these areas RasGas (now QatarEnergy) originally held the contract to supply ‘rich’ gas containing ethane and propane elements, which is used at petrochemical complexes. It has supplied 5 million tonnes (MT) of LNG annually which includes methane (used for power generation, fertiliser, production of CNG or cooking fuel) as well as ethane and propane containing gas. The price is lower under the revised contract signed last week. In this, QatarEnergy will supply ‘Lean’ or gas without ethane and propane. However, Petronet officials said Qatar will continue to supply ‘rich’ gas until they have the facilities to use ethane and propane. “We will continue to receive ‘rich’ LNG,” a top company official said. So many billion of rupees were spent in Gujarat Public sector Oil and Natural Gas Corporation (ONGC) has spent Rs 300 billion on building a petrochemical complex at Dahej in Gujarat to use ethane and propane from LNG coming from Qatar. With this, such products can be made which are used in plastic and detergent manufacturing. According to ‘Wood Mackenzie’, the sale and purchase agreement between QatarEnergy and Petronet extends for 20 years ‘covering’ volumes of about 150 million tonnes. This is a bigger contract than the two 108 million tonne agreements QatarEnergy signed with China National Petroleum Corporation and Sinopec in the last two years.
Tapping into Earth’s Natural Hydrogen Reserves
Many climate experts and energy industry insiders believe that hydrogen will be an essential part of achieving global climate goals because of its utility in hard-to-decarbonize heavy industry. Hydrogen can be burned at high heat like fossil fuels, but unlike coal, oil, or natural gas, it leaves behind nothing but water vapor when combusted. This makes it a very attractive alternative for industries that rely on hot-burning fuels like thermal and coking coal, and could potentially transform the steelmaking and shipping industries, just to name a couple of heavy hitters. The potential benefits of a wide-scale replacement in high-heat industrial applications are difficult to overstate. “Replacing the fossil fuels now used in furnaces that reach 1,500 degrees Celsius (2,732 degrees Fahrenheit) with hydrogen gas could make a big dent in the 20% of global carbon dioxide emissions that now come from industry,” Bloomberg Green wrote in a report titled “Why Hydrogen Is the Hottest Thing in Green Energy.” There’s just one problem. Creating hydrogen for these kinds of industrial applications is energy intensive, and the resulting hydrogen is only as green as the energy source used to make it. Hydrogen is already widely used in heavy industry today, but the vast majority of it is produced using fossil fuels (known as ‘gray hydrogen’), which defeats the purpose of using it for decarbonization. ‘Blue hydrogen’, which refers to hydrogen produced using natural gas, yields lower emissions than other fossil fuels and is seen by some as a stepping stone to full decarbonization. But the real buzz is around green hydrogen, which is produced using renewable energy and is therefore seen as a clean energy source that could be integral to the global clean energy transition. There is a serious downside to green hydrogen, however. A 2022 report from the International Renewable Energy Agency (IRENA) warned against the “indiscriminate use of hydrogen,” arguing that extensive use of hydrogen “may not be in line with the requirements of a decarbonised world.” In particular, the report argues that producing green hydrogen requires vast amounts of clean energy that may be better used in other applications, making the mass production of green hydrogen counterproductive for reaching climate goals. But now a new color has been added to the hydrogen rainbow, and it could completely sidestep the issues faced by existing forms of hydrogen production. Gold hydrogen (also sometimes referred to as white hydrogen) is the name being used to refer to hydrogen which is naturally occurring in certain geological areas of the world (subsurface geologic accumulations, to be exact), sometimes in vast quantities. It’s produced underground when water chemically reacts with iron-rich rocks or radioactive minerals. And it’s the new holy grail of hydrogen exploration. This kind of hydrogen was previously dismissed as fictional at worst or untappable at best, but in the last few years “reservoirs have been discovered in the United States, Canada, Finland, the Philippines, Australia, Brazil, Oman, Turkey and Mali, leading would-be gold diggers to believe that there are numerous sources waiting to be discovered,” Reuters recently reported. According to one estimate published in Earth-Science Reviews back in 2020, we could be extracting 23 million tons of hydrogen from the ground each and every year. And there’s already a new wave of startups looking to do just that. One such startup, Natural Hydrogen Energy (NH2E), was founded by Viacheslav Zgonnik, the chemist who wrote the 2020 Earth-Science Reviews paper. Zgonnik thinks that the potential for gold hydrogen extraction is even greater than his paper, which is based on a conservative estimate of existing tappable reserves, suggests. “That is the currently available estimate of generation of geologic hydrogen from the ground but, in my opinion, the real number should be two to three orders of magnitude higher because we still don’t know a lot about the hydrogen system and have very scarce measurements of hydrogen on the planet,” he told Reuters. Not everyone is as optimistic as Zgonnik, however. Reporting on gold hydrogen is couched in caveats, and while there is a lot of excitement about the fuel’s potential, it’s just far too early to declare that gold hydrogen will be a silver bullet for the climate. It’s almost completely untested – at present, the village of Bourakébougou in Mali has the only place in the world with a functioning hydrogen well already being used as a fuel source. Furthermore, there needs to be a whole slew of studies conducted to determine exactly how clean this underground hydrogen is. Many scientists are concerned that when we extract this stored hydrogen, we will release greenhouse gasses along with it. Others worry that hydrogen exploration will lead to the discovery – and use – of new fossil fuel reserves. Still others think that gold hydrogen will be misused for greenwashing purposes á la carbon capture.
OPEC+ Oil Output Books Steepest Decline Since July
Oil production by the members of the OPEC+ group fell by the most in six months in January, an S&P Global Platts survey has shown. Cuts agreed last year and field outages in Libya contributed to a combined 340,000-bpd monthly decline in OPEC+ production, the survey revealed, with the total at 41.21 million barrels daily. Of this, OPEC output stood at 26.49 million barrels daily and its partners’ output stood at 14.72 million barrels daily. The Platts figures confirm a Reuters survey from the end of January, which also found that OPEC+ production for the month had fallen by the most since July last year. That survey, however, pegged the decline in production at 410,000 bpd compared with December. In December, the extended cartel’s output actually increased, earlier surveys showed, but it seems that this year members have decided to take their reduction pledges more seriously. Some, however, posted higher production, including Saudi Arabia, where survey figures showed an increase of 40,000 bpd in January from December. Libya, however, did not reduce its production voluntarily in January. In its case, the output decline was the result of field blockades by protesters who demanded a change in social policies. The blockades affected Libya’s largest field, El Sharara, which can produce up to 300,000 barrels of crude daily. Meanwhile, a month earlier, Angola left OPEC because it was unwilling to surrender any more of its output. On the contrary, the West African producer has been itching to start boosting its production, which was incompatible with the OPEC goals for this year. Saudi Arabia, meanwhile, suspended work on its oil production capacity expansion plan. Said plan was supposed to boost its maximum sustainable capacity from 12 million barrels daily to 13 million bpd in three years. The order for the suspension came earlier this month from the Saudi government.
Net-Zero Targets Face Reality Check
Back in 2021, the International Energy Agency published what it called a landmark report titled “Net Zero by 2050: A Roadmap for the Global Energy Sector”. The report made quite a splash, not least because of the assumptions it involved about oil, gas, and coal use. Many companies, however, especially in the financial services world, took the report at face value and made it a basis, or at least a reference point, for their net-zero plans. Now, they have to revise these. Because it turned out the IEA’s assumptions were quite far-fetched. And they weren’t the only ones. Bloomberg reported this week that banks are among those busy adjusting their net-zero plans, which were based on assumption-rich forecasts such as the IEA’s original net-zero roadmap. And with good reason. That roadmap included statements such as an end to “investment in new fossil fuel supply projects, and no further final investment decisions for new unabated coal plants.” Several months after the publication of the roadmap, the IEA was calling on the oil and gas industry to invest more in oil supply because a shortage was looming. And that was before the war in Ukraine even started, offering transition advocates a much-needed reality check and reasserting the primary importance of energy security. “We can’t stay in the 2021 view of the world,” Celine Herweijer, HSBC chief sustainability officer, told Bloomberg. “We can’t choose a pathway that is several years out of date and just stick to it. We will need to keep looking at how the net zero-aligned scenarios are evolving.” Indeed, HSBC’s chief sustainability officer is right. Just last year, the IEA was forced by energy realities to publish an update of its net-zero roadmap where coal and oil demand were revised significantly—upwards. Even so, the IEA also projected in its latest report that demand for oil and gas will peak before 2030—when demand has been breaking record after record, contrary to the IEA’s and others’ regular forecasts of demand and supply trends. It’s not only oil demand, either. Coal demand is rising, driven by China and India. The latter recently said it would slash transition funding for state oil firms and double down on coal generation capacity. Oddly enough, Germany is building new gas-power plants. The poster child of the transition, the country with some of the highest capacity of both wind and solar power that has recently boasted about breaking records in output, is building gas power plants. The motivation for that is to “guarantee electricity supply security as the share of intermittent renewable energy increases and coal is phased out,” per Clean Energy Wire. Yet coal was phased in last year, rather than out after the ruling coalition in Germany closed the country’s last three remaining nuclear power plants—despite half of Germans being against it. Neither the IEA nor anyone else could have predicted that, perhaps. Yet it happened, along with other seemingly unpredictable things, such as the slowdown in EV demand in key markets. It happened right when sales were starting to take off, too. Meanwhile, despite massive government support for wind and solar, both sectors are struggling in both Europe and North America. This was not supposed to happen, according to those upbeat transition scenarios that the IEA and other advocates fed the investor world. Indeed, wind and solar capacity were supposed to grow without restraint. Yet it has emerged recently that government support is not enough to ensure this unrestrained growth on its own. Factors such as inflation and borrowing costs, as well as technological challenges and competition, asserted themselves as valid for even the wind and solar industries—as they are for all other industries. The upbeat forecasts and roadmaps ran headlong into reality. Now it’s time to rush to adjust those net-zero targets that so many companies based on those forecasts.