Indraprastha Gas Targets LNG Trucking Amid EV Shift. Here’s What Morgan Stanley Makes Of It
Indraprastha Gas Ltd.’s tie-up with Container Corp. to boost liquefied natural gas as trucking fuel will benefit the city gas distributor when it faces a risk from electric vehicle transition in Delhi, its largest market, according to Morgan Stanley. LNG trucking is a nascent market in India, unlike in China or the U.S., according to the international broking firm. While various stakeholders like Retailers and Petronet LNG Ltd. have been attempting to develop the ecosystem, there has been limited success to date, it said. If successful, LNG trucking would provide a new demand growth area, which is not yet priced in by market, Morgan Stanley said. While Indraprastha does stand to benefit, oil retailers Bharat Petroleum Corp., Hindustan Petroleum Corp. and Indian Oil Corp. could be bigger beneficiaries. Indraprastha Gas signed a memorandum of understanding for using LNG in trucks, which have 990-litre cryogenic gas tanks with a 1,400-kilometre mileage. The deal is an attempt to diversify from gas consumer base as EV adoption can hurt demand for the fuel.
Brent crude futures jump over 2 per cent due to fears of supply cuts in Opec+ production
Brent crude futures climbed more than 2 per cent, gaining $2 a barrel on Monday as further supply cuts in Opec+ production are expected in the coming weeks. Brent crude futures were up $2.00 to $82.61 a barrel by 1539 GMT. US West Texas Intermediate crude was up $1.65, or 2.17 per cent at $77.54. The front-month December WTI contract expires later on Monday. The more active January futures gained $1.79 to $77.83. Both contracts settled 4 per cent higher on Friday after three Opec+ sources told Reuters that the producer group, comprising the Organization of the Petroleum Exporting Countries (Opec) and allies, including Russia, is set to consider whether to make additional supply cuts when it meets on November 26. Oil prices have dropped almost 20 per cent since late September while prompt inter-month spreads for Brent and WTI slipped into contango last week. In a contango market, prompt prices are lower than those in future months, signalling sufficient supply. “In light of last week’s obliteration of oil bulls, some kind of response was forthcoming from the (OPEC) producer group,” said Tamas Varga of oil broker PVM.
The Dramatic Downfall of ESG Investing
Investors are withdrawing money from sustainable funds as the ESG enthusiasm of the past few years is waning amid high interest rates, poor returns, plunging renewable energy stocks, tightened SEC rules, and political backlash. Over the past year, investors have withdrawn a total of $14.2 billion from U.S. sustainable funds in four consecutive quarters of net withdrawals, data from Morningstar showed. Green Energy Stocks Battered Globally, renewable energy funds saw record outflows of money in the third quarter of 2023 as stocks of wind and solar developers and suppliers crashed amid rising costs, higher interest rates, and supply-chain challenges. Renewable energy exchange traded funds (ETFs), tracking the performance of clean energy companies, suffered a total of $1.4 billion of outflows in the third quarter, the highest outflows of any previous quarter, according to data from LSEG Lipper cited by Reuters. The record outflows between July and September only partially offset net inflows of $3.36 billion for the first half of 2023, the data showed. A perfect storm of soaring costs, supply chain delays, rising interest rates, and low electricity prices at auctions have been hurting renewables-related companies in recent months. “There’s a dark cloud hanging over green stocks,” Martin Frandsen, a portfolio manager at Principal Asset Management, told the Financial Times last month. Investors Pull Billions From U.S. Sustainable Funds It’s not only the recent flop in renewable energy stocks that’s keeping Wall Street away from sustainable investments. The high interest rates and politicians targeting sustainable investing have also played a role in investor decisions, industry executives and analysts say. In the third quarter of 2023 alone, investors pulled $2.7 billion from U.S. sustainable funds, continuing a trend of net withdrawals that started in the fourth quarter of 2022, per data from Morningstar Direct. “Although the motivations behind outflows cannot be perfectly quantified, many factors are in play. These include rising energy prices, high interest rates, concerns about greenwashing, and political backlash,” Alyssa Stankiewicz, an associate director of sustainability research for Morningstar, wrote in an analysis last month. All U.S. funds also saw net withdrawals in the third quarter of 2023, but the demand drop in sustainable funds was steeper compared to conventional funds, according to Morningstar. As a result of net withdrawals and poor performance, assets in sustainable funds dropped back below the $298.8 billion mark at the end of the third quarter—falling by 17% from the record-high of $358.2 billion at the end of 2021 but up by 10% from the recent low of $272.2 billion in the third quarter of 2022, Morningstar data showed. Moreover, for the first time ever, more sustainable funds closed in the third quarter than the number of funds launched. Three new sustainable funds launched, and one existing fund was added to the sustainable funds landscape in Q3, while 13 sustainable funds closed and four funds moved away from ESG mandates, Morningstar said. Columbia Threadneedle, Hartford, and BlackRock liquidated the largest sustainable funds in terms of assets in the third quarter. As a result, the total number of sustainable open-end and exchange-traded funds in the United States were 661 at the end of the quarter. After the third quarter, the list of the top 12 worst-performing ETFs in October was packed with thematic funds in the clean energy space, according to Morningstar Direct research from early November. Electric Vehicle Charging Infrastructure UCITS ETF, First Trust Nasdaq Clean Edge Green Energy UCITS ETF, and the Invesco Solar Energy UCITS ETF were the biggest ETF losers. New Rules And Political Backlash Discourage Sustainable Fund Investors In recent months, the Biden Administration’s rule allowing employee retirement plans to consider ESG factors in investment decisions has been challenged by Republican-led states. Fund managers say the rule may have impacted the popularity of sustainable funds. “We found that the demand for ESG investing, by financial professionals working with retirement-plan participants, was more limited than we anticipated,” Ron Rice, vice president of marketing at Pacific Financial, told The Wall Street Journal. In addition, the Securities and Exchange Commission (SEC) has been stepping up efforts to combat the greenwashing of labeling funds as sustainable. The SEC updated in September the so-called Names Rule, requiring 80% of a fund’s portfolio to match the asset advertised by its name. “The updated rule will apply not only to funds whose names suggest a focus in particular investments, industries, or geographies—but also to funds whose names suggest a focus in investments with particular characteristics. This includes names suggesting an investment focus on Environment, Social, and Governance (ESG)-related factors through names such as “sustainable,” “green,” or “socially responsible,” SEC chair Gary Gensler said. In addition, sustainable investing in the U.S. has been criticized by Republican states, most notably Texas, which says that ESG standards are harming America’s energy industry and threatens millions of jobs. Texas prohibits state contracts and investments with companies that boycott energy companies. At the end of last year, the Florida Treasury said it would divest $2 billion worth of assets under management by BlackRock because of the ESG investing by the world’s largest asset manager. “If Larry, or his friends on Wall Street, want to change the world – run for office,” Florida Chief Financial Officer (CFO) Jimmy Patronis said at the time. “Using our cash, however, to fund BlackRock’s social-engineering project isn’t something Florida ever signed up for.”
Galileo produces first LNG for India’s GAIL
Global engineering and manufacturing company Galileo Technologies (Galileo) has marked a milestone in Asia’s energy development having produced the first batch of liquefied natural gas (LNG) for Indian natural gas company GAIL. To produce the LNG, Galileo uses its compact and modular Cryobox units which are connected to state gas pipelines. According to the company, these units condense all the capabilities of a large-scale LNG plant into a transportable, low-weight module. Carried out by GAIL, the operation will see LNG supplied to Indian industry and public transport in the country. “We are proud to be pioneers in the first LNG production in India and appreciate GAIL’s trust in our technology,” said Emilio Weber, International Commercial Director of Galileo. According to S&P Global seaborne data, India’s LNG imports rose to 2.02 million metric tonnes in April 2023 from 1.94mmt in March and from 1.7mmt in April 2022. India’s natural gas consumption for 2023 was revised upwards in May by the International Energy Agency (IEA), when it predicted a 4% year-on-year increase due to a modest recovery in the power sector and continued growth in industrial activity and city gas sectors.
JP Morgan Expects Brent Crude to Average $83 in 2024
JP Morgan has forecast an average price for Brent crude of $83 per barrel next year amid a stable market. The forecast is based on the analysts’ expectations of resilient demand for oil in the United States, strong demand growth in emerging markets, and stability in European markets. For 2025, JP Morgan analysts said they expected an average Brent crude price of $75 per barrel. As with many others, the forecast is based on expectations of substantial energy efficiency gains and growth in EV sales at the expense of internal combustion engine vehicles, leading to lower demand for fuels. At the same time, the bank also expects a weakening of jet fuel demand after the recent surge. In terms of total demand, for this year JP Morgan analysts expect growth of 1.9 million bod, weakening to 1.6 million bpd in 2024. “Despite sustained economic headwinds, we see demand … underpinned by robust EM, resilient US and weak but stable Europe,” the bank’s analysts wrote. “Demand composition will likely flip, with two-thirds of demand gains set to come from the overall economic expansion, while continued normalization of jet fuel would contribute the rest.” On the supply side, JP Morgan expects growth in non-OPEC production, which could undermine the cartel’s efforts to keep prices above a certain level. If non-OPEC supply growth is strong enough, it could push Brent below $70 per barrel. In this context, JP Morgan’s analysts said they expected OPEC+ to keep the lid on production to support prices. Meanwhile, prices fell earlier today, reversing gains made on Monday after a report saying OPEC+ was considering additional production cuts to push prices higher. Despite these plans, traders appear focused on demand uncertainty once again. Goldman Sachs had said on Monday that it was reasonable to expect deeper OPEC+ cuts when the cartel meets next, on November 26.
Plans afoot to build strategic natural gas reserve
India is drawing up a plan to build a strategic natural gas reserve with a capacity to store up to 4 billion cubic metres (BCM) of imported gas, which can be used in case of supply emergencies and to smoothen the domestic market, according to people familiar with the matter. After oil minister Hardeep Singh Puri recently gave a green signal to the idea of setting up the gas reserve, the oil ministry directed Oil and Natural Gas Corp (ONGC), Oil India and GAIL to jointly prepare a detailed feasibility report on the same, people said. The companies are expected to submit the report in three months. India has evaluated building strategic gas storage in the past as part of its energy security plan but didn’t go ahead with it due to its prohibitive costs. The geopolitics-driven frenzy in the global gas market last year, which disrupted India’s gas imports and forced some factories to cut production, has brought a strategic policy rethink, people said. The 3-4 BCM gas storage capacity being targeted now can cost $1-2 billion to build, the person cited previously said. India, which consumed 60 BCM of natural gas last fiscal year, aims to increase the share of gas in its energy mix to 15% by 2030 from the current 6%. A large multi-location storage, a well-laid pipeline network, and a mature gas exchange can help develop the domestic gas market. Large gas storage can also help India become the regional hub and supply to neighbouring countries like Sri Lanka, Bangladesh and Myanmar in the future, the person said. The feasibility report will present cost estimates, probable locations, construction timelines, and the business and financial models for the reserves, he said. Depleted wells of ONGC and Oil India could be used for the storage, he said, adding that ONGC has already identified two such wells in Gujarat while Oil India is aiming to do the same in the North East. The report is expected to suggest the most optimal storage model and answer questions on whether a strategic or commercial model or a mix of both would be suitable for the country. It would also offer details on the commercial model and the government support needed to make it financially viable, the person said. Who can be permitted to invest in such storage and how they can recover their investments will also be part of the report. India aims to become a gas-based economy, and, with gas consumption expected to balloon in the future, it would need storage to tide over the short-term market challenges. The country imports about half the gas it consumes. Major gas-consuming economies like Europe and China have large artificial gas storages, which help manage domestic demand.
Supreme Court upholds gas power plant’s entitlement to fixed charges
The Supreme Court of India (“Supreme Court”) in the case of Maharashtra State Electricity Distribution Company Limited v. Ratnagiri Gas and Power Pvt. Limited & Ors. upheld the decisions rendered by both Central Electricity Regulatory Commission (“CERC”) and the Appellate Tribunal for Electricity (“APTEL”) that Ratnagiri Gas and Power Pvt. Limited (“RGPPL”) is entitled to fixed charges for the duration the Maharashtra State Electricity Distribution Company Ltd. (“MSEDCL”) did not schedule electricity from RGPPL. MSEDCL did not schedule power from RGPPL (for a certain duration) as RGPPL executed an alternate arrangement with Gas Authority of India Ltd. (“GAIL”) for supply of Recycled Liquefied Natural Gas (“RLNG”), without taking MSECCL’s permission. RGPPL declared capacity for its gas power plant based on RLNG (to be) supplied by GAIL. The issue before CERC, APTEL and Supreme Court was whether MSEDCL should pay fixed charges to RGPPL for capacity declared based on RLNG (to be) supplied by GAIL. CERC and APTEL recognized that this alternate arrangement was executed due to shortage of domestic gas supply since September 2011. Both CERC and APTEL held that provisions of the power purchase agreement (“PPA”) between MSEDCL and RGPPL allowed RGPPL to declare capacity based either on liquid gas or RLNG and it was only for payment of variable charges that MSEDCL’s permission was required for executing agreements for gas supply/transport.
CONCOR ties up Indraprastha Gas to explore possibility of LNG/LCNG infra at terminals
Railway PSU Container Corporation of India Ltd has signed an agreement with Indraprastha Gas Ltd to explore the possibility of setting up LNG or LCNG infrastructure at its terminals in Uttar Pradesh and Gujarat. This strategic partnership aims to revolutionise the logistics sector replacing diesel with natural gas, the Container Corporation of India Ltd (CONCOR) said in a statement. “CONCOR and IGL have signed a memorandum of understanding (MoU) to explore the possibility of setting up LNG/LCNG infrastructure within the premise of CONCOR terminals. Initially, both LNG and LCNG facilities shall be installed at Dadri (Gautam Budh Nagar) terminal of CONCOR,” the statement said. CONCOR and IGL also agree to explore the possibility of transportation of LNG in future through railway rakes from LNG terminals near sea ports like Dahej in Gujarat to the desired locations within India. The MoU signifies the commitment of both CONCOR and IGL to reduce carbon emissions and promote a cleaner, greener future for the transportation industry. LNG trucks emit significantly lower levels of greenhouse gas emissions compared to conventional diesel trucks, contributing to a cleaner environment and aligning with global sustainability goals. As part of the MoU, both entities shall jointly examine the possibility of using LNG-fired engines in place of existing diesel-fired engines, in various terminals of CONCOR. Sanjay Swarup, Chairman & Managing Director CONCOR said, “CONCOR is dedicated to embracing innovative solutions that not only enhance operational efficiency but also align with our responsibility towards the environment. The partnership with IGL for LNG truck refuelling is a testament to our commitment to a greener future. K K Chatiwal, Managing Director, IGL, stated, “This collaboration marks a significant step forward in our commitment to environmental sustainability. By creating the required LNG infrastructure, we aim to set new benchmarks for eco‐friendly transportation in the industry.”
ONGC Set To Resume KG Basin Production In Boost For India’s Energy Self-Reliance
The state-owned Oil and Natural Gas Corporation will start production of crude oil from its flagship deep-water project in Krishna Godavari Basin next week. The production will help India save nearly Rs 110 billion per year. India imports 85% of its crude oil requirements and about half of its natural gas needs. ONGC also plans a capital expenditure of Rs 1000 billion for petrochemical projects by 2028-2030. The investment would be used for two separate projects. The movement in KG Basin is considered very significant, say top officials of the Ministry of Petroleum and Natural Gas. The production from its much-publicised, deep-sea asset is expected to be a shot in the arm for the explorer and help reverse the low productions bothering the state-owned hydrocarbon behemoth. The increase in domestic output will also help save outflow of precious foreign exchange on import of crude oil. At current Brent crude price of $77.4, this output alone will save Rs 290 million every day (at Rs 83.29 to $1) or a staggering Rs 106 billion on an annual basis. Initially, oil production from the basin was scheduled to start from November 2021, but the deadline was delayed several times. In short, this will be ONGC’s first significant oil producing asset on the East Coast. The KG-DWN-98/2 block has a number of discoveries that have been clubbed into clusters. It is situated 35-km off the coast of Andhra Pradesh in Bay of Bengal with water depths up to 3,200 metres. The discoveries in the block are divided into three clusters — 1, 2 and 3. Cluster 2 is being put to production first. Besides crude oil output, 7-8 mmscmd (million metric standard cubic metres per day) of gas will start to flow from the middle of calendar 2024. The hydrocarbon giant, it is reliably learnt, will press in service as many as 75 rigs. ONGC plans to start producing from 3 to 4 wells in the initial phase, when the production could be 8,000 to 9,000 barrels per day. The company actually aims to drill 541 oil wells in FY24, up from 461 wells drilled in the last fiscal. The production from the KG-DWN-98/2 block will add to India’s domestic production and help reduce the dependence on imports to some extent. India currently produces approximately 600,000 barrels of oil per day. Thus, at peak, the cluster-2 project will account for 7% of India’s output. This is the start and peak oil production of 45,000 barrels per day is expected sometime in financial year 2024-25, said a top ministry official. At the peak output of 45,000 barrels per day, this will be the third most prolific offshore asset for ONGC after Mumbai High and Bassein & Satellite fields, both on the West Coast, the official said. With a combination of fresh output and enhanced recoveries, ONGC group’s oil production is likely to rise to top 25 million tonnes in FY25 compared to 21.5 million tonnes in FY23. ONGC has seen a fall in its crude oil output as most of the assets are mature and natural decline has set in. Even as ONGC is investing in technology for enhanced oil recovery and improved oil recovery, the commencement of output from new assets like the KG block will certainly reverse the trend of falling output. In Q2, ONGC’s consolidated net profit soared 142.4% at Rs 165.53 billion. Earlier, ONGC had announced that it will bring in an equity partner in ONGC Petro additions Ltd. or OPaL by financial year 2026-2027. ONGC had then said it wants to infuse Rs 183.65 billion in OPaL, and make OPaL a joint venture. OPaL is a joint venture between ONGC, GAIL (India) and Gujarat State Petroleum Corporation Ltd.
India sets first benchmark price for biomass pellets
India has rolled out its first benchmark price for biomass pellets to promote capacity additions and encourage co-firing with coal. November 21, 2023: India’s power ministry has announced a benchmark price of 2.27 rupees/1,000 kcal ($0.027/1,000 kcal) for non-torrefied biomass pellets applicable to northern India excluding the national capital region. The pellets should have moisture content below 14pc and a gross calorific value between 2,800-4,000 kcal/kg. The price excludes goods and services tax and transportation costs, the ministry said recently. The price, set up on the recommendations of a price benchmarking committee, is set for a year effective 8 November. Thermal power plants in the region are advised to adhere to this benchmark price. The ministry amended a policy for the country’s utilities to co-fire biomass with coal in June, by delaying the start date and announcing the setting up of a committee to implement price benchmarking and biomass purchases. Indian utilities in the original policy, announced in October 2021, were told to co-fire 5pc biomass from October 2022, in a move aimed at reducing coal consumption and curbing pollution. Co-firing was originally set to increase to 7pc from October 2023 for two categories of power plants — those with a bowl mill or with a ball and race mill. The revised policy, announced by the power ministry on 16 June, requires all coal-based thermal power plants with bowl mills to use a minimum 5pc blend of biomass pellets made primarily from agricultural residue with effect from the start of India’s 2024-25 fiscal year from 1 April, increasing to 7pc from the start of 2025-26. Plants with ball and race mills should co-fire the same percentages of torrefied biomass pellets made from agricultural residue during the same timeframe. The policy for co-firing will be valid for 25 years or until the useful life of a power plant, whichever is earlier, the power ministry previously said. The extent of co-firing will be reviewed periodically. India has surplus biomass supplies of about 230mn t/yr, largely from agricultural residue, the power ministry previously said. The surplus has prompted the country to look at the potential for exporting biomass. The government amended its trade policyin February this year to allow exports of biomass, as the country eyes more investment in biomass manufacturing capacity and technology.