Baker Hughes Reports Profit Growth on Strong LNG Demand
Oilfield service provider Baker Hughes reported higher-than-expected profit growth for the final quarter of last year attributing it to strong demand for its services from the LNG industry. Baker Hughes reported net income attributable to the company of $439 million for the three-month period, which was $257 million higher than a year earlier. The company also boasted free cash flow of over $2 billion at the end of 2023, noting it represented a 54% conversion rate from adjusted earnings before interest, tax, depreciation, and amortization. International revenues were the biggest contributor to the strong performance of the company, rising by 15% on the year while North American revenues only inched up by 1%. Baker Hughes competitors have reported similar trends, by the way, with international demand for their services much stronger than demand at home. One LNG project specifically made a massive contribution to Baker Hughes’ strong performance. This was the Ruwais LNG project in the UAE, where the oilfield service provider was awarded contractual service agreements worth $1 billion. The Ruwais project will be entirely powered by electricity and will have a capacity of 9.6 million tons of liquefied gas annually. LNG expansion at home also contributed to the company’s financial performance last year as several projects are at different stages of development, set to boost the United States’ LNG export capacity substantially over the next couple of years. Baker Hughes’ competitors SLB, formerly Schlumberger, and Halliburton, also reported forecast-beating figures for 2023, attributing the strong performance to international rather than domestic demand for their services. SLB said that its international revenue had gone up by 18% during the fourth quarter while domestic revenue remained flat. Halliburton, for its part, reported a 7% quarterly decline in North American revenues, which are the biggest contributor to its overall revenues.
Traders Turn Bearish on U.S. Oil
Traders are selling West Texas Intermediate futures in anticipation of further strong production growth. As a result, prices are weakening further despite the uncertainty of such an outlook. In fact, expectations from the industry and the EIA are for much slower U.S. oil production growth this year. But that has had no effect on trader behavior. The latter might be in for a surprise. Hedge funds and other institutional traders sold the equivalent of 24 million barrels of U.S. crude in the week to January 16, Reuters market analyst John Kemp reported this week. This compared with Brent buys equivalent to 18 million barrels, Kemp noted. Traders, then, expect even lower prices for U.S. oil later this year. And there is only one reason they expect this: more explosive growth like the one booked last year. Traders don’t want any more surprises, it seems. Yet they might still end up surprised. In its latest Short-Term Energy Outlook, the Energy Information Administration predicted that output this year could reach 13.2 million barrels daily. This would be a new record high but this is not the important part. The important part is that the projected 2024 figure is only about 200,000 bpd higher than the average daily for 2023. And that 2023 average daily represented an increase of over 1 million bpd over the 2022 average. Traders, however, have a good reason to expect more growth and that reason is that last year, the industry did not actively try to boost production so substantially. It happened kind of inadvertently as drillers continued to improve efficiency in a bid to extract more oil for the same money. A surprise for the industry itself was higher than expected productivity from many wells, which also contributed to the production growth that shocked the oil market and made traders bears overnight. The question this year would be whether the U.S. oil industry can and, more importantly, wants to repeat that stellar performance. The answer is likely to be “Not really.” The latest Dallas Fed survey, released in December, suggested that few companies in the oil patch have any major spending increase plans. Most in the industry appeared still cautious with their production growth plans and frugal with their cash. When asked about spending plans, most respondents said they planned to either keep spending at 2023 levels or increase it slightly this year. This, of course, does not mean that efficiency gains and well productivity could not still surprise to the upside. It simply means that it is not the most likely scenario: efficiency gains do not follow a linear upward curve and well productivity can surprise in both directions. So, after a year of strong gains, chances are this one may be quieter on that front. There is, then, a potential for weaker growth in U.S. oil output than expected. And this potential weaker growth would be materializing against the background of constrained supply from OPEC. Sure, Brazil’s Petrobras has big production growth plans, and Guyana’s output is growing steadily, but when analysts talk about non-OPEC supply growth, they invariably mean the U.S. first and foremost. The U.S. is the swing producer these days. And it is also the maker or breaker for oil bulls and bears alike. The problem is that the market appears to take uncertain developments for certainties. The expectation that U.S. oil output will continue growing as strongly as last year is a good example. And it appears to be an unshakeable expectation, for now. Perhaps it will materialize and shale drillers will exceed even last year’s growth rate. Or maybe growth will be as weak as the EIA and industry executives expect it and disappoint hedge fund bears.
Oil and Natural Gas Corporation Limited Approves Formation of Wholly Owned Subsidiary for Green Energy and Gas Business
The Board of Directors of Oil and Natural Gas Corporation Ltd. at its meeting held on January 23,2024 has inter-alia, considered and accorded approval for formation of a wholly-owned subsidiary company. The proposed name of the company is “ONGC Green Limited” subject to approval of the Ministry of Corporate Affairs, Govt. of India. The wholly-owned subsidiary company shall be engaged into the business of value-chains of energy business viz. Green Hydrogen, Hydrogen blending, Renewable Energy (Solar, Wind and Hybrid etc.), Bio-fuels/Bio-gas business and LNG.
India starts bidding for Jammu-Srinagar natural gas pipeline
India’s Petroleum and Natural Gas Regulatory Board (PNGRB) has started the bidding process for the 325-km Jammu-Srinagar natural gas pipeline. The pipeline’s initial capacity will be 2 million cu m/day (MMcmd). Bids for construction, operation, and future expansion work are due May 13, 2024. The Jammu-Srinagar pipeline will extend GAIL (India) Ltd.’s 2-MMcmd Gurdaspur-Jammu pipeline. GAIL last year won the license to build the 175-km pipeline linking Punjab with Jammu and Kashmir (OGJ Online, June 23, 2023)
China Takes Advantage of Lower Oil Prices to Build Inventories
China is taking advantage of the slide in oil prices, which began in October, to ramp up its stockpiling of cheaper crude. In December alone, China is estimated to have sharply boosted the volume of crude going to storage for the highest rate of stockpiling in six months, according to estimates by Reuters columnist Clyde Russell. China does not report commercial or strategic inventories, so analysts are trying to estimate the volume of stockpiling by deducting the amount of processed crude from all available crude coming from imports and domestic crude production. Per Russell’s estimates, China added in December the highest flows to storage since June 2023. The rate of stockpiling last month, estimated at around 1.39 million barrels per day (bpd), jumped from an estimated crude inventory build-up of about 20,000 bpd in November. Considering the time lag of around two months between crude purchases and nominations and the arrival of the crude in China, it could be concluded that Chinese refiners have continued to buy more oil when prices were falling. The imports and very low flows to stockpiles in November, for example, were likely the result of lower volumes of crude purchased in September, when oil hit its highest level for 2023 at over $95 per barrel Brent. With the drop in prices in the fourth quarter of 2023, China resumed the higher import levels and higher inventory builds, as evidenced in Russell’s estimates for December. Related: Tadawul Group’s Move Ignites Competition in Commodity Trading via DME Investment In the full-year 2023, flows to Chinese crude inventories are estimated at around 760,000 bpd, up from 740,000 bpd for the previous year. China imported a record-high volume of crude oil last year, beating the previous annual record from 2020, as fuel demand rebounded after the Covid restrictions were abandoned in early 2023. Chinese crude oil imports jumped by 11% year-on-year to 11.28 million bpd in 2023, according to data from the General Administration of Customs. The 2023 crude imports topped the previous record level of 10.81 million bpd from 2020 when China took advantage of the plunging oil prices to import large volumes of cheap crude. China’s crude oil imports in December 2023 alone rebounded from the low levels in November and averaged 11.39 million bpd. That was much higher than 10.33 million bpd of crude imports in November, when Chinese crude oil intake dropped by 9.2% year-over-year, marking the first annual decline in crude arrivals since April 2023. Imports in December accelerated as prices slid, and as a result, the rate of crude stockpiling also accelerated. China’s crude oil purchases and estimated inventory builds had slowed significantly in October and November in response to the 2023-high oil prices hit at the end of September. The high levels of the December stock builds are likely to continue early this year as demand and oversupply concerns keep oil prices below $80 per barrel. With oil prices now down by around 20% from the 2023 high of $98 per barrel, Chinese refiners could have more incentives to import larger volumes of crude at the start of this year, especially at prices around $75 a barrel. China’s refiners are looking to stock up on below-$80 crude early in the year in anticipation of a surge in fuel demand in the second half, analysts and trading sources told Reuters this week. “They snap oil from all over the world, except for the U.S. due to high freight rates,” an oil trader at a Chinese refiner told Reuters. New crude import and fuel export quotas allocated to refiners would also incentivize more crude imports, refinery throughput, and fuel exports to the rest of Asia early this year, analysts say. China has also just allocated a massive batch of crude oil import quotas to refiners, raising the allowances from early last year by around 60% and allocating full-year quotas to some. The early allocation of a large volume of import allowances would help refiners better plan their crude purchases in 2024, according to analysts.
Reliance to commission new energy giga complex this year
Billionaire Mukesh Ambani’s Reliance Industries Ltd will commission a new energy giga complex in Gujarat in the second half of 2024, the company said in an earnings statement and investor call. Reliance is building a giga complex spread over 5,000 acres in Jamnagar in Gujarat. The complex comprises five giga factories for photovoltaic panels, fuel cell system, green hydrogen, energy storage and power electronics.
Russia Tops List of China’s Oil Suppliers in 2023
Russia became China’s largest oil supplier last year, selling it a record 107.02 million tons of crude, according to Chinese customs data, as cited by Reuters. The total amount equaled a daily import rate of 2.14 million barrels, far ahead of Saudi Arabia, whose oil exports to China slipped to a daily average of some 1.7 million barrels last year, the data also showed. In June 2023, Russian exports to China hit an all-time high of 2.57 million barrels daily. The Western sanctions on Russian crude were instrumental in this development. The sanctions—in the form of a price cap on Russian oil shipments abroad—prompted previous buyers to shun Russian oil but China was only too happy to take more in, as was India. The price discount that the sanctions caused was a big reason for that, even though it narrowed with time, as Russian oil prices moved in sync with global prices. The same developments turned China into Russia’s largest oil customer last year. Deputy Prime Minister Alexander Novak said earlier this month that half of Russia’s crude oil exports went to China, which made it the biggest buyer of Russian oil. “The main partners in the current situation are China, whose share has grown to approximately 45-50%, and, of course, India,” Novak said, as quoted by VOA News. “Earlier, there basically were no supplies to India; in two years, the total share of supplies to India has come to 40%.” India was the other country that saw Russia turn into its largest oil supplier last year, while the share of Europe in Russian oil imports dropped from around 45% to about 4-5% as the European Union imposed an embargo on Russian oil and petroleum product purchases in December 2022 and February 2023. Together, China and India took in some 90% of Russia’s oil exports in 2023.
OIL, GMC sign MoU to convert municipal solid waste into CBG
In a move towards environmental sustainability and cleaner energy solutions, Oil India Limited (OIL) and Guwahati Municipal Corporation (GMC) have inked a memorandum of understanding (MoU) on Saturday to collaborate on the transformation of municipal solid waste (MSW) into compressed bio gas (CBG). The MoU has been signed by NRL’s Managing Director Bhaskar Jyoti Phukan representing OIL and GMC’s Commissioner Megha Nidhi Dahal (IAS) representing the Guwahati Municipal Corporation in the presence of OIL’s Chairman & Managing Director (CMD) Dr Ranjit Rath, Director (Operations) Pankaj Goswami and Director (HR) Ashok Das at the NRL Corporate Office, Guwahati.
India defers $602 million plan to fill parts of strategic petroleum reserve
India has deferred a 50-billion-rupee ($601.78 million) plan to fill parts of its strategic petroleum reserve, keeping in mind emerging trends in oil markets, the finance ministry said on Saturday. In the federal budget for 2023-24, the government had outlined a plan to purchase crude oil worth Rs 50 billion for caverns in the southern cities of Mangalore and Visakhapatnam India, the world’s third-biggest oil importer and consumer, imports over 80 per cent of its oil needs and has built strategic storage at three locations in southern India to store over 5 million tonnes of oil to protect against supply disruptions.
Petroleum exports fall in Jan on Red Sea tensions, may see steeper decline
India’s export of petroleum products to Europe has declined substantially in January so far owing to the rising tensions in the Red Sea, dropping to just 100 thousand barrel a day (kbd) from 350-400 thousand barrel a day in November and December. Many tankers have instead opted for the longer route via the Cape of Good Hope for the delivery which has resulted in increased shipping costs. “Even if they export to Europe, Indian refiners prefer circumnavigating Africa,” said Viktor Katona, lead crude analyst at Kpler. “In January so far, there have been three cargoes departing from India to Europe, one diesel seemingly will try the Bab el Mandeb strait, whilst two jet fuel cargoes (Doric Courage from Jamnagar and Pacific Julia from Nayara) have opted for the longer route around the Cape of Good Hope.” India’s export of petroleum products to Europe has declined substantially in January so far owing to the rising tensions in the Red Sea, dropping to just 100 thousand barrel a day (kbd) from 350-400 thousand barrel a day in November and December. Many tankers have instead opted for the longer route via the Cape of Good Hope for the delivery which has resulted in increased shipping costs. “Even if they export to Europe, Indian refiners prefer circumnavigating Africa,” said Viktor Katona, lead crude analyst at Kpler. “In January so far, there have been three cargoes departing from India to Europe, one diesel seemingly will try the Bab el Mandeb strait, whilst two jet fuel cargoes (Doric Courage from Jamnagar and Pacific Julia from Nayara) have opted for the longer route around the Cape of Good Hope.” The escalating threats to cargo vessels at the Red Sea has changed India’s export destinations of petroleum products as the country has started supplying more to East Asia and Africa now compared with its supplies to Europe. As per the Delhi-based Research and Information System for Developing Countries (RIS), India could see a nearly 7% drop in exports in FY24, amounting to around $30 billion as higher container shipping rates might prompt exporters to hold back on shipments, reports have suggested. India exports a variety of goods via the Red Sea including petroleum products. The country’s export of petroleum products fell by 7.5% in November last year to $7.48 billion compared to $8.08 billion in November 2022, as per the latest government data. The exports were 15% down during the first eight months of the current fiscal at $65.23 billion. “For standalone refiners such as RIL, MRPL, and CPCL, there could be some margin hit on the crude side, while on the product side, exports to EU could be impacted,” Madhavi Arora, lead economist with Emkay Global Financial Services Ltd had earlier said in a note. Arora noted that freight rates from Asia have spiked 53% in a month and container shipping giants including oil supermajor BP have halted transit via the Red Sea or the Suez Canal.