IOC corners more than a third of D6 gas in latest Reliance auction
State-owned Indian Oil Corporation (IOC) has cornered more than a third of natural gas that Reliance Industries Ltd and its partner bp of the UK offered in the latest auction of the KG-D6 gas, sources said. IOC got 1.45 million standard cubic meters per day out of the 4 mmscmd of gas auctioned last week. The oil refining and marketing company, which was the top bidder even in the previous two auctions of gas from the eastern offshore KG-D6 block of Reliance-bp, bid the volumes as an aggregator on behalf of fertilizer plants. City gas companies including Torrent Gas and Gujarat Gas secured a total of 2.21 mmscmd of gas for turning into CNG for sale to automobiles and piped to household kitchens for cooking purposes, two sources with direct knowledge of the matter said. Gujarat Gas won the tender to buy 0.5 mmscmd, Torrent Gas 0.45 mmscmd, Adani Total Gas Ltd 0.29 mmscmd, IndianOil-Adani Gas Pvt Ltd 0.17 mmscmd and Indraprastha Gas Ltd and Mahanagar Gas Ltd 0.30 mmscmd each, they said. The auction saw participation from across the gas consuming sectors – fertilizer, city gas distribution, refineries and aggregators. A total of 38 successful bidders secured gas through the auction process, which concluded on November 24, they added. Reliance and bp last week auctioned 4 mmscmd of gas from the Krishna Godavari basin block starting December 1, 2023. They asked users to quote a price indexed to Brent crude oil price, according to the tender document. This was a departure from the previous two previous auctions, the last being in May this year, where gas was sold indexed to international gas benchmark, JKM. In the latest auction, Reliance-bp asked bidders to quote a premium ‘v’ they are willing to pay over and above 12.67 per cent of dated Brent crude oil price. The starting bid price for ‘v’ has been kept at USD 1.08 per million British thermal unit. Sources said the value of ‘v’ in the auction came to USD 1.98 per mmBtu. At the current Brent crude oil price of USD 80 per barrel, the gas price comes to USD 12.11 per mmBtu (USD 10.136 per mmBtu plus ‘v’ of USD 1.98). But the bidders will have to pay a lesser price as according to the tender document the sale price would be the lower of the government-dictated maximum rate payable for gas from difficult fields like deepsea, and the price arrived through the bidding process. The ceiling price payable for gas from difficult fields for a six month period starting October 1 is USD 9.96 per mmBtu. This means that even if Reliance-bp finds buyers for 4 mmscmd of gas are willing to pay USD 12.11 per mmBtu, the users will have to pay only USD 9.96 till March 31, 2024. The government bi-annually fixed ceiling price for gas produced from difficult fields such as deepsea and high-pressure, high-temperature (HPHT) fields, effective from April 1 and October 1. Natural gas, a cleaner-burning, efficient fuel, is being seen as a transition fuel for nations to move from polluting hydrocarbons to zero-emission fuels. In the last auction in May, IOC, the nation’s largest oil firm, had walked away with half of the 5 mmscmd of gas Reliance-bp had offered. In that auction, Reliance-bp had asked users to quote a variable ‘v’ over and above the JKM price, the spot market benchmark for liquefied natural gas (LNG) delivered to Japan and South Korea. At the end of that e-auction, gas was sold to 16 buyers at a price of JKM + (plus) USD 0.75 per mmBtu for 3 years. At the prevailing JKM price of USD 9.2 per mmBtu, the price for KG-D6 gas came to around USD 10. Reliance-bp had in April 2023 sold 6 mmscmd of gas. In that auction too, the final bid price came at USD 0.75 per mmBtu premium over the JKM price (JKM + USD 0.75 per mmBtu). The duo had a couple of years back used Dated Brent as the benchmark to sell KG-D6 gas before switching to JKM when international gas prices soared starting 2021. Gas produced from wells drilled below the seabed is used to produce electricity, make fertiliser, or turned into CNG for powering automobiles or piped to household kitchens for cooking as well as in industries. Reliance-bp produces about 29-30 mmscmd of gas from three sets of gas fields in the KG-D6 block.
Does the Natural Gas Industry Have a Future?
The natural gas industry’s domestic sales pattern over the past two decades makes one wonder whether the industry has much of a future. Okay, sales volume has gone up, at a slow pace, but most of that growth is due to increasing sales to wholesale electric power generators. The rest of the market has shown barely any growth. Table 1 shows annual rates of growth for major customer classifications as well as an estimate of the growth in propane usage. The table calculates growth using both compound annual and average annual growth rates. Either way, the numbers are dreadful. But not out of line with other energy growth rates, generally above the rate of population growth and below the rate of real economic growth. What does the future look like? Warmer winter weather means lower sales. So do more efficient appliances. And so do more efficient competitive products that use electricity like heat pumps. The Energy Information Administration projects that growth in overall demand will hover just below zero, although slightly higher for industrial use and lower for electric generation. Could be worse. What does the stock market think of that grim outlook? Presumably, investors have priced gas utility stocks as potential losers, selling at low ratios of price to earnings and paying ultra-high dividends, because they want immediate returns before the growth fizzles and the companies disappear. But not so. These stocks sell in line with what one might expect for reasonably safe, slow-growth utilities, not companies in terminal decline. What did the company’s senior management tell investors to convince them to take an optimistic view? The companies have a simple strategy. They invest in rate base, having convinced regulators that—like a perpetual motion machine—they must continuously spend money on plant expansion and on refurbishing of the network and strengthening connections to pipelines. A larger rate base requires higher earnings to cover costs, including cost of capital. The old regulated utility game is fairly straightforward. Expand rate base (i.e. assets) in order to grow earnings. As an aside, this is the same policy adopted by electric companies a few years ago, when they could anticipate little growth but they spent money on capital expansion anyway and got away with it. The difference, however, is that electric companies can now look forward to acceleration in demand, but gas companies cannot. Our question, then, is how long can gas utility managers continue with this strategy of making consumers pay more for a commodity when they keep using less of it? Especially when the sale of the product produces carbon dioxide which governments are attempting to limit. That does not sound like a sustainable business model to rational people, so why invest more money in such an industry? Okay, but consider this. Gas industry executives claim in response that their customers typically save $1000 per year over the alternatives. That’s not much of a sales pitch at a time when both residential and major business customers will pay more to get low carbon or no carbon alternatives, whether to be virtuous or to satisfy corporate “green” initiatives. What sensible marketer promises a low price for an inferior product? Now, technical developments offer the possibility of a cleaner (non carbon emitting) product. Renewable natural gas (from agricultural and municipal waste) could provide about 15% of end user needs. Hydrogen injected into the network might displace. another 15%. And gas derived from municipal wastewater treatment could displace another 15% of natural gas consumption. But here is the message for the gas distributors. The municipal wastewater plants will likely sell directly to generators of electricity, not inject the gas into the networks. The 30% reduction in total natural gas usage (through use of renewable gas and hydrogen) translates to a 40-50% replacement of natural gas within the networks of the distributors, the companies we are talking about, some of which, by the way, are making significant investments in renewable gas producers, opening up another avenue of growth for their stockholders. It means that gas companies could sell carbon-free gas to a large part of their customer base. That gives the companies time to figure out how to replace the rest of its gas supply, if possible. The smart companies are already telling shareholders that their networks can carry anything. So, to answer our opening question, the domestic gas industry does have a future, we think, at least over the medium term, despite stagnant sales, as long as it takes advantage of an opportunity to transform itself from a purveyor of carbon dioxide emitting products into a smart marketer of something else that’s cleaner and greener.
Regulator adds Mizoram to the bidding round
Oil regulator PNGRB has added Mizoram to the areas it has offered for bidding for a licence to retail CNG and piped cooking gas in the latest city gas bid round. In a notice, the Petroleum and Natural Gas Regulatory Board (PNGRB) said in continuation of the bids invited on October 13 for the development of the city gas distribution network for seven geographical areas, electronic bids are invited for the same in the state of Mizoram. Last date of bidding is February 23, it said.
India mandates biogas blending in CNG, piped gas
India plans mandatory blending of compressed biogas (CBG) in domestic compressed natural gas (CNG) and piped natural gas (PNG) to cut its reliance on expensive imports of LNG. Blending will initially be voluntary at 1pc for automobiles and households from the April 2024-March 2025 fiscal year and become mandatory from 2025-26, the oil ministry said on 24 November. Natural gas is mostly used in India’s gas distribution network through PNG in households and CNG for automobiles. The CBG blending obligation (CBO) will promote production and consumption of CBG in the country, oil and gas minister Hardeep Singh Puri said, adding that it will encourage investment of around 375bn rupees ($4.5bn) and help to establish 750 CBG projects by 2028-29. The CBO is to increase to 3pc during 2026-27 and to 4pc during 2027-28, after which it will rise to 5pc. A central repository body will monitor and implement the blending mandate based on operational guidelines approved by the oil minister. The government last month launched its 12th city gas distribution bidding round offering areas in Jammu and Kashmir, Ladakh, Arunachal Pradesh, Meghalaya, Manipur, Nagaland and Sikkim states to connect to the natural gas pipeline network. “At present about 23,500km-long gas pipeline network is under operation in the country and around 12,000km pipeline is approved/under construction,” Puri had said. India had 300 city gas distribution networks under the Petroleum and Natural Gas Regulatory Board as of August, covering 88pc of the country’s geographical area and 98pc of the population. The country has outlined plans to make India a gas-based economy, with the share of natural gas in its primary energy mix targeted to rise to 15pc by 2030 from around 6pc in 2022. The government also aims to have 1pc sustainable aviation fuel (SAF) in jet fuel by 2027, which will double to 2pc in 2028, it said on 24 November. This would be done initially for international flights, as part of the country’s effort to achieve net zero by 2070. Delhi initially targeted to have 1pc SAF blending in jet fuel by 2025, saying it would need 140mn litres/yr.
TAPI project gets special concessions
The caretaker government of Pakistan is said to have exempted Turkmenistan Afghanistan-Pakistan-India (TAPI) Gas Pipeline project from the Open Access Regime, OGRA Gas (Third Party Access) Rules 2018 and the Pakistan Gas Network Code, besides standard waiver of immunity in line with international precedents to be included in the Host Government Agreement (HGA), sources close to Secretary Petroleum told Business Recorder. These special concessions were approved by the Cabinet Committee on Energy (CCoE) headed by caretaker Minister for Power and Petroleum, Muhammad Ali last week of last month but its minutes were approved by the caretaker Minister three weeks after the meeting by incorporating desired changes. Sharing the details, sources said, Petroleum Division briefed the CCoE about the TAPI project. It was stated that TAPI Gas Pipeline project was aimed to bring natural gas from the Galkynysh and adjacent gas fields in Turkmenistan to Afghanistan, Pakistan and India. In order to strengthen the common understanding made by the TAPI parties and further to implement the project, Inter-Governmental Agreement (IGA) and Gas pipeline Framework Agreement (GPFA) were signed on December 11, 2010. The GPFA had provided certain protections and facilitation to the project company for the execution, implementation and operation of the pipeline for the life of the project. Moreover, given that TAPI was a trans-national pipeline project, Government of Pakistan (GoP) had agreed, under the GPFA, to adopt and implement uniform legal and regulatory framework for the project. As per the GPFA, Afghanistan and Pakistan are required to execute Host Government Agreements (HGA) with TAPI pipeline company Limited (TPCL), the project company. The Heads of Terms of the Host Government Agreement were signed between the GoP and TPCL on March 12, 2019.
India’s appetite for Russian oil reduces, share slips to lowest in 9 months as OPEC gains
OPEC’s share in India’s oil imports in October hit a 10-month high as refiners bought more crude from Saudi Arabia and the United Arab Emirates after discounts narrowed for Russian oil that month, trade data showed. Russia’s share of the Indian market in October slipped to the lowest in nine months, according to Reuters calculations based on ship tracking data from trade sources. India, the world’s third-biggest oil importer and consumer, typically relies on producers in the Middle East for most of its oil needs and has encouraged refiners to diversify to cheaper alternatives to cut costs. The South Asian nation has emerged as the top buyer of the Russian seaborne oil sold at a discount after Western nations stopped buying from Moscow following its invasion of Ukraine. India imported about 4.7 million barrels per day (bpd) of crude in October, up 8.4% from the previous month as refiners increased purchases to meet higher local fuel demand during the festive season, the data showed. Imports from Saudi Arabia and the United Arab Emirates jumped to a 7-month high, up about 53% and 63% respectively in October from the previous month, the data showed. That helped lift the share of the producers in the Organization of the Petroleum Exporting Countries to 54% in October, up from 50% in September, according to the data. India imported on average 1.56 million barrels per day (bpd) of Russian oil in October, up 1.2% from the previous month, the data showed. Despite the increase, Russian oil’s share in India’s October imports slipped to 33% from 35% in September. Russia was the top oil supplier to India in April to October, the first seven months of this fiscal year to March 2024, followed by Iraq and Saudi Arabia. Higher intake of Russian oil boosted the share of the Commonwealth of Independent States (CIS) in India’s oil imports to the highest during April-October, the data showed.
Indian Oil to double Ennore LNG terminal’s capacity to 10 mln tpy
Indian Oil Corp, the country’s top refiner, aims to double the capacity of its liquefied natural gas (LNG) import terminal at Ennore in southern India, Sandeep Jain, the company’s executive director for gas business, said on Friday. The company plans to expand capacity to 10 million metric ton per year (tpy) amid the growing demand for gas in the country, Jain told reporters at an industry event. He did not elaborate the details. India wants to raise the share of gas in its energy mix to 15% by 2030, up from the current 6.2%, as part of an effort to cut emissions. Jain said IOC hopes to boost local sales of gas to 20 million tpy by 2030, a substantial increase from the current 6.3 million tpy. Aside from the Ennore terminal, IOC has leased capacity in at least two local projects operated by other companies to import gas. Jain said India needs to sign more long-term LNG import contracts to ensure price stability. IOC recently signed two agreements for 14-year LNG import contracts worth $11 billion, he said.
India seeks to build strategic reserves by storing gas in depleted wells
India is looking at building its first strategic natural gas reserves by using old, depleted hydrocarbon wells to store the fuel and hedge against global supply disruption, a senior executive of natural gas company GAIL (India) Ltd said on Friday. The strategic facilities would be built in phases in India’s western and northeastern regions with an initial capacity to store three to four billion cubic meters (bcm) of gas, Sumit Kishore, an executive director at GAIL, told reporters at an industry event. India has five million tonnes of strategic petroleum reserves but no storage facilities for natural gas. Indian companies together currently hold two bcm of gas in pipelines and liquefied natural gas tanks for commercial use. Kishore said the first strategic gas storage facility would take three to four years to build after government approval. India aims to raise the share of natural gas in its energy mix to 15% by 2030 from about 6.2% now. The nation consumes around 60 bcm gas annually.
Petroleum Minister Hardeep Puri inaugurates floating re-fueling (CNG station for boats at Ravidas Ghat
In a significant step towards a pollution free Varanasi, the city’s second floating Compressed Natural Gas (CNG) Mobile Refueling Unit (MRU) station at Ravidas Ghat was inaugurated today by Minister of Petroleum and Natural Gas & Housing and Urban Affairs Shri Hardeep Singh Puri. This is the country’s second such station built to fill CNG in boats, after the Namo Ghat CNG station here. Both the stations have been developed by GAIL (India) Limited, a Maharatna PSU under the Ministry of Petroleum & Natural Gas. GAIL Chairman & Managing Director Shri Sandeep Kumar Gupta, Director (Human Resources) Shri Ayush Gupta, Director (Marketing) Shri Sanjay Kumar and a host of dignitaries were present on the occasion. With this, floating CNG stations for boats are now operational on both sides of the main Ghats of Varanasi. The floating stations have been developed by GAIL at a cost of approx. Rs 175 million. In a world grappling with environmental challenges and the urgent need to transition to cleaner, more sustainable energy sources, the inauguration of the second floating infrastructure in Varanasi is a significant step towards viable sustainable energy solutions, Shri Puri said. “The decision to set-up this floating CNG station is a testament to our belief in the transformative power of clean energy,” the Minister said. Speaking about the significance of CNG station at Ravidas Ghat, Shri Puri noted that this will provide great convenience to boatmen as they will not have to go all the way to NaMo Ghat for refueling, thus saving time and money. “On an average, it is estimated that each boatman can potentially save over Rs.36,000 per year by using CNG as fuel”, said the Minister.
IOC, GAIL fined for second straight quarter for failing to meet listing norms
State-owned oil and gas giants including IndianOil and GAIL (India) Ltd have been slapped with fines for the second quarter in a row for failing to meet listing requirements of having the requisite number of independent directors on board. Stock exchanges have fined oil refining and fuel marketing giant Indian Oil Corporation (IOC), explorers Oil and Natural Gas Corporation (ONGC) and Oil India Ltd, gas utility GAIL, refiners Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), and Engineers India Ltd Rs 5,42,000, stock exchange filings showed. In separate filings, the companies detailed the fines imposed by the BSE and NSE but were quick to point out that appointment of directors was done by the government and they had no role in it. The fines were for not having the requisite independent directors in the second quarter. They had faced fines for the same reason in the first quarter as well. While the companies have now been slapped with a uniform Rs 5,42,800 fine, ONGC was previously slapped with Rs 3,36,000 fine, IOC Rs 5,36,000 and GAIL Rs 2,71,000 fine. HPCL and BPCL were each asked to pay Rs 3,60,000 fine, while Oil India had faced a penalty of Rs 5,37,000. Listing norms require companies to have independent directors in the same proportion as executive or functional directors. They are also required to have at least one woman director on the board. In its filing, IOC said it has informed the BSE and NSE that “being a government company, the power to appoint directors (including independent directors) vests with the Ministry of Petroleum and Natural Gas (MoPNG), Government of India and hence the non-appointment of women independent director on the Board during the quarter ended September 30, 2023 was not due to any negligence/fault by the company.” IOC said it “should not be held liable to pay the fines and the same should be waived-off.” Stating that it has been regularly taking up with MoP&NG for appointment of requisite number of independent directors (including woman independent director) to ensure compliance with corporate governance norms, the company said it had received similar notices from the stock exchanges in the past imposing fines and its waiver request was considered favorably by the exchanges. GAIL said “the non-compliance with regard to the composition of the Board was neither due to any negligence/default by the company nor within the control of GAIL’s management and continuous efforts were also made to meet the compliance requirements.” “GAIL (India) Limited is a ‘Government Company’ under the administrative control of the MoP&NG, Government of India. All the Directors on the Board of GAIL (including Independent Directors) are nominated/ appointed by the Government of India.