India raises windfall tax on crude by Rs 1,000; removes taxes on diesel, ATF
Windfall tax: India has sharply raised the windfall profit tax on crude oil to Rs 2,300 per tonne from Rs 1,300. However, New Delhi removed the tax on diesel and aviation turbine fuel, and it will also continue with no windfall taxes on petrol The windfall tax on diesel, ATF have been removed, as against windfall taxes of 50 paise per litre and one rupee per litre earlier. The new rates are effective from January 2, 2024. On December 18, the tax, levied in the form of Special Additional Excise Duty or SAED, on domestically produced crude oil was cut to Rs 1,300 per tonne from Rs 5,000 a tonne. Further, the SAED on the export of diesel was reduced to 50 paise per litre from Rs 1 a litre. India first imposed windfall profit taxes on July 1, 2022,, joining a growing number of nations that tax supernormal profits of energy companies. At that time, export duties of Rs 6 per litre (USD 12 per barrel) each were levied on petrol and ATF and Rs 13 a litre ($26 a barrel) on diesel. The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks. A windfall tax is levied on domestic crude oil if rates of the global benchmark rise above USD 75 per barrel. Export of diesel, ATF and petrol attract the levy if product cracks (or margins) rise above USD 20 per barrel.
India dials Saudi as Russian oil purchases hit 11-month low in December
India increased imports of Saudi oil in December as payment problems drove its Russian oil buys to an 11-month low, with at least five cargoes of the sweet Sokol variant heading to other locations, data from vessel tracking agencies showed. Indian Oil Corp, which was set to get the Sokol oil, had to withdraw from its inventory and buy from the Middle East to make up the shortfall, sources told Reuters last month. Top refiner IOC is the only state-run firm with an annual deal to buy a variety of Russian grades, including Sokol, from Russian oil major Rosneft. India’s oil imports from Russia in December declined between 16% and 22%, according to Reuters calculation on the basis of data from flow tracking agencies Vortexa, Kpler and LSEG. Its imports of Saudi oil, rose by about 4%, however, data from Kpler and Vortexa showed. LSEG data shows India’s monthly Russian oil imports declining by 22% to 1.21 million barrels per day (bpd) in December, while Kpler shows a drop of 16% to 1.39 million bpd. “Perhaps it’s still too early to write off India’s appetite for the Sakhalin grade (Sokol),” said Viktor Katona, lead crude analyst at Kpler, adding that three new Sokol cargoes on the NS Antarctic, Jaguar and Vostochny Prospect were heading for India. Aframax ships NS Century, NS Commander, Sakhalin Island, Lityny Prospect and Krymsk; and a very large crude carrier Nellis carrying Russian Sokol oil for IOC were sailing for the Strait of Malacca, Kpler and LSEG ship tracking data showed. The NS Century faced sanctions imposed by the United States in November for the sale of Russian oil at a price above the cap of $60 a barrel fixed by the G7 grouping of nations and had been floating near Colombo since. “China appears to be the final solution for some cargoes,” said Katona.
U.S. Now World’s Largest LNG Exporter
The United States is now the world’s LNG exporter, after overtaking Australia and Qatar, according to new data compiled and shared by Bloomberg on Tuesday. The United States exported 91.2 million metric tons of LNG last year, after the country’s primary export facility, Freeport LNG, resumed operations after an eight-month hiatus following a fire in June 2022. Meanwhile, EU countries were looking to reduce their reliance on Russian gas and compensate for Russia’s curtailment of pipeline gas into Europe. Australia was the second-leading LNG exporter in 2023, while Qatar, the leading LNG exporter in 2022, reduced its exports by 1.9% in 2023, came in third. This year is shaping up to be another banner year for U.S. LNG. Venture Global LNG Inc. is set to start up a new Plaquemines LNG facility in Louisiana, and ExxonMobil and QatarEnergy are set to start up Golden Pass, an LNG facility in Texas. In the Energy Information Administration’s (EIA) latest edition of its Short Term Energy Outlook (STEO), U.S. LNG exports are set to increase to 12.36 billion cubic feet per day, up from an estimated 11.81 billion cubic feet per day in 2023, and 10.59 billion cubic feet per day in 2022. The Netherlands, the UK, and France were the main destinations for U.S. LNG exports in the first half of 2023, according to the EIA. In the first six months of 2023, Europe and the UK’s LNG imports exceeded imports by pipeline for the first time on record, data from Refinitiv Eikon shows. In December, Europe remained the main destination for U.S. LNG at 61% of the total exported. Asia is the second-largest export market for U.S. LNG.
What Will Influence Oil Prices in 2024?
The last couple of years have seen a series of extraordinary events, most notably the invasion of Ukraine by Russia on 24 February 2022 and the Hamas attacks on Israel on 7 October 2023. This year may well see more equally extraordinary things, with the widening out of the Israel-Hamas War a distinct possibility, as is a ratcheting up of tensions between China and Taiwan, and between North Korea and South Korea. All three would involve the U.S., China, and Russia in one way or another, and all three scenarios carry with them the threat of a sudden spike in all prices. Other events, less predictable, may also emerge that would do the same. That said, as extraordinary as these events have been, the benchmark Brent oil price began 2023 trading at a high of around US$85.88 per barrel (pb) and closed this year lower – at a high of about US$77.96 pb. These numbers mark an extraordinary achievement for those countries that are biggest net consumers of oil at the expense of those that are biggest net producers of oil. This is exactly the opposite of what happened just over 50 years ago after an Arab coalition invaded Israel on 6 October 1973, marking the beginning of the Yom Kippur War. That war directly led to the 1973/74 Oil Crisis, as analysed in full in my new book on the new global oil market order. The Crisis came as OPEC members – plus Egypt, Syria, and Tunisia – placed an embargo on oil exports to the U.S., the U.K., Japan, Canada, and the Netherlands in response to their collective supplying of arms, intelligence resources, and logistical support to Israel during the War. By the end of the embargo in March 1974, the price of oil had risen around 267 percent, from about US$3 per barrel (pb) to over US$11 pb. This, in turn, stoked the fire of a global economic slowdown, especially felt in the net oil importing countries of the West. As highlighted by the then-Saudi Minister of Oil and Mineral Reserves, Sheikh Ahmed Zaki Yamani – widely credited with formulating the Saudi and OPEC strategy – the embargo definitively marked a dramatic shift in in the balance of power in the global oil market from the big consumers of oil (mainly in the West at that time) to the big producers of oil (mainly in the Middle East at that point). Yamani was not the only one to think this – the late U.S. geopolitical strategist Henry Kissinger did too, and this realisation formed the basis of all the U.S.’s energy-related foreign policy from that point to now. After the 1974/74 Oil Crisis had ended, Kissinger – who served as U.S. National Security Advisor from January 1969 to November 1975 and Secretary of State from September 1973 to January 1977 – told every president he advised (virtually all of them in one way or another) of the three conclusions he had reached as a result of the Crisis, as also analysed in depth in my new book on the new global oil market order. The first was that Saudi Arabia and its fellow OPEC members could never be trusted again by the U.S. as the Crisis had seen the Kingdom break the foundation stone agreement between the two countries made back on 14 February 1945 between the then-US President, Franklin D Roosevelt, and the then-Saudi King, Abdulaziz bin Abdul Rahman Al Saud. This deal was simply that the U.S. would receive all the oil supplies it needed for as long as Saudi Arabia had oil in place and, in return for this, the U.S. would guarantee the security both of Saudi Arabia and its ruling House of Saud. Kissinger’s second conclusion was that the U.S. needed to expedite its efforts to become self-sufficient in energy resources as soon as possible. Third, Kissinger concluded that the best course of action for the U.S. to keep obtaining all the oil and gas it needed to retain its top global economic and political position was to ensure that the Middle Eastern countries did not band together again in the future against the U.S. The optimal way for the U.S. to ensure this, he successfully argued, was to use the ‘divide and rule’ principle between the region’s major oil and gas producers, which in turn was a variant of the ‘triangular diplomacy’ he had advocated and used to great effect in the U.S.’s dealings with Russia and China at that time. In short, this involved playing one side off against the other by leveraging whatever fault lines ran through the target countries at any given time, be they economic, political, or religious, or any combination thereof. Kissinger lived to see the balance of power in the global oil markets begin to swing back away from the Middle East’s oil producers and towards the net consumers of the U.S. and its allies, with the inexorable rise of the U.S.’s shale oil sector. This started in earnest in 2010 (shale gas from 2006) and by 2013 the rise in output was virtually a straight vertical line. By 2014, Saudi Arabia believed that the U.S.’s shale oil and gas posed an existential threat to its place in the world and to continued rule of the Al Saud royal family. In an attempt to destroy – or at least significantly disable – the then-nascent U.S. shale sector, Saudi Arabia led its OPEC brothers into the 2014-2016 Oil Price War, as covered in depth in my new book on the new global oil market order. The OPEC tactic was to enormously oversupply the market, pushing oil prices down to levels that would bankrupt the U.S.’s shale oil producers. However, the Saudis and OPEC had seriously underestimated the ability of the U.S. shale sector to adapt and then thrive on much lower oil prices than even the Saudis or its OPEC brothers could endure. From that point, the U.S. began to put into place an informal
India mulls import duty concessions on some petroleum, plastic items in FTA with Oman
India is mulling import duty concessions on certain petroleum products and plastic items as part of the proposed Foreign Trade Agreement (FTA) with Oman, talks for which are likely to close by the end of January, 2024, an Indian official told Moneycontrol. “India may offer some tariff cuts on certain petroleum products, as well as items such as plastics. These are some of the important items for which Oman would want concessions,” the official, who spoke on the condition of anonymity, said. With talks on the India-Oman Comprehensive Economic Partnership Agreement (CEPA) largely concluded, authorities are expected to sign a deal before the general elections scheduled for April-May 2024, Moneycontrol had reported on December 29, 2023. The first round of negotiations took place in New Delhi on November 27-29, 2023, while the second was held in Muscat on December 9-14, 2023.
State-owned oil stocks have more juice left in the barrel
Few stocks can claim to have juice left as markets hit staggering heights as 2023 bid goodbye. Public sector unit or PSU oil stocks like ONGC, OIL and GAIL are a rare few which still hold value. Thanks to production expansions, regulatory consistency and more the government owned companies are set to better days ahead. Most of the oil stocks have given over 60% returns in the last one year, with the exception of BPCL and ONGC. Yet, the upstream companies especially are trading at a discount, claim brokerages. Thus, going ahead, Antique Stock Broking believes that ONGC and Oil India remain among the cheapest upstream stocks globally despite a rally in the last six months. “We believe the current valuations do not fully reflect the jump in realization of both oil and gas over the last 6-18 months and the resultant cash flow,” it said. Both the companies are expected to see significant free cash flows starting FY24, after the gas prices increased via Administered Pricing Mechanism by the government. Not only will it improve margins, but improved price realization would lead to much more attractive returns on their annual capex. “We believe positive momentum in the upstream sector would be led by a shift towards companies with undemanding valuation, while we find fundamental support led by steady earnings and cash flows on the back of regulatory consistency, stable commodity prices, and margins and triggers in the core production outlook,” said a report by Emkay.
India raises C heavy molasses ethanol price by 14pc
The Indian government has increased prices of ethanol derived from C heavy molasses by 14pc on the year to 56.28 rupees/litre ($0.68/l) for the ethanol supply year between November 2023 and October 2024. This is up from the Rs49.41/l that state-controlled Indian oil marketing companies (OMCs) paid for ethanol derived from C heavy molasses in the previous year. This is also the highest price increase in more than five years since the government split ethanol purchase prices into those derived from C heavy molasses, B heavy molasses and sugarcane juice. The latest purchase price hike is to maximise ethanol production from C heavy molasses and boost overall ethanol availability for India’s national Ethanol Blended Petrol (EBP) programme, Delhi said on 29 December. The EBP programme has set a target of 20pc ethanol blending in gasoline by 2025, from 10pc currently. An earlier government directive in December eased restrictions on the use of sugarcane juice to produce ethanol and stated that all molasses-based distilleries should also endeavour to make ethanol from C heavy molasses. Of the total ethanol used for blending in gasoline, around 61pc comes from B heavy molasses, 20pc from sugar syrup, 11pc from surplus rice, 6pc from damaged foodgrains and maize and the remaining 2pc from C heavy molasses, government data show. Indian fuel retailers buy ethanol from ethanol producers like sugar mills and distilleries to blend with gasoline. Only domestically produced ethanol may be used for the EBP programme, with fuel ethanol imports restricted. Erratic rains, especially in key growing regions, are likely to cut India’s sugarcane production to 435mn t in the July 2023-June 2024 crop year from 491mn t the previous year, according to government estimates. OMCs issued tenders to buy around 8.25bn l of ethanol for November 2023-October 2024 and received offers for around 5.6bn l. Sugarcane-based ethanol comprised 2.7bn l of the offers and around 2.9bn l was grain-based ethanol, according to sources in the sugar industry.
Windfall tax on petroleum crude oil raised, cut to nil on diesel and ATF
India has hiked the windfall tax on crude oil while reducing the tax on diesel and aviation turbine fuel, according to a government notification. The government hiked the windfall tax on petroleum crude oil to 2,300 Indian rupees ($27.63) a ton from 1,300 rupees, it said. A tax on diesel of 0.5 rupee per litre was eliminated, it said as was a one rupee per litre windfall tax on aviation fuel. The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks. A windfall tax is levied on domestic crude oil if rates of the global benchmark rise above $75 per barrel. Export of diesel, ATF and petrol attract the levy if product cracks (or margins) rise above $20 per barrel. Product cracks or margins are the difference between crude oil (raw material) and finished petroleum products. Concerns over demand due to a weaker global economy and rising crude inventories in the US have led to lower crude prices in November and December. Experts believe that only geopolitical tensions in the Middle East could drive up oil prices. Lower demand and higher oil output are expected to weigh on crude oil prices in early 2024. Demand from China, which is the largest energy consumer in the world, has not recovered amid the economic slowdown in the country.
Gujarat Gas – Softness In LNG Prices Obscures Murky Long-Term Prospects: ICICI Securities
We downgrade Gujarat Gas Ltd. to Reduce, from ‘Hold’, as we turn increasingly worried about the company’s growth trajectory beyond FY25. The recent weakness in liquefied natural gas prices is a positive (assuming it is not passed through) and drives a material 6/19.1/15.3% upgrade in FY24E/25E/26E earning per share, but does not detract from structural worried Growth from areas ex-Morbi remains murky, with limited traction observed from the ~Rs 43 billion capex over FY19-23 and a further Rs 36 billion estimated over FY24-26E. (volume/Ebitda compound annual growth rate over the same period at 8/14%); Margins remain volatile and dependent on propane price vagaries; Gujarat Gas guidance on margins is cautious, topped with limited visibility on volume growth; and The company’s valuation is still at >20 times FY26E EPS, leaving room for more downside risks. Key upside risks: Sharper recovery in liquified petroleum gas (propane) prices, Faster execution of expansion plans in new areas, Sharp drop in LNG prices. Key downside risks: Longer sustained weakness in propane prices, Slower ramp up of volumes from new areas,
Natural gas price slashed to $7.82 per mmBtu for January
The government has lowered the price of domestic natural gas for January to $7.82 per million British thermal units (mmBtu) from $8.47 per mmBtu last month. This marks the lowest domestic gas price since July 2023 and reflects a continued downward trend since August 2023. The price revision would be applicable on gas produced from difficult fields, operated by private players. However, the price of gas from the nomination fields of state-run ONGC and Oil India remained unchanged at the capped price of $6.5 per mmBtu. Nomination fields are areas the government granted to state-run ONGC and Oil India before 1999, when auctions became the basis for awarding oil and gas blocks. Considering that the city gas distribution (CGD) sector, the largest consumer of natural gas, including piped natural gas, and compressed natural gas), receives top priority in gas procurement from nominated legacy fields, this decline in the price of difficult fields may help sectors such as fertilizers and gas-based power plants. Since April last year, after the union cabinet approved the new gas pricing regime, domestic natural gas prices have been linked to the Indian crude oil basket. The new guidelines were recommended by the Kirit Parikh-led committee on natural gas pricing, paving the way for linking domestic natural gas prices in India to global crude prices. Following the change, the price of natural gas is calculated at 10% of the monthly average of the Indian crude basket, which is a weighted average of Dubai and Oman (sour) and Brent Crude (sweet) oil prices. The decline in gas prices comes amid the cooling down of global crude prices. The Indian basket of crude oil averaged at $77.42 per barrel in December, against $83.46 per barrel in November. The March contract of Brent on the Intercontinental Exchange closed at $71.65 per barrel on Friday lower by 0.17% from its previous close. The February contract of West Texas Intermediate (WTI) on the NYMEX fell 0.17% to $71.65 a barrel on Friday.