Russia Removes Gasoline Export Ban As Domestic Market Stabilizes
Russia has lifted its gasoline export implemented in mid-September, citing a supply surplus of some 2 million metric tons, Reuters reports. The lifting of the export restrictions follow a similar move to suspend restrictions on diesel exports by pipeline during the first week of October. Reuters cited the Russian energy ministry as saying on Friday that domestic market saturation had been ensured over the past two months, creating a surplus of motor gasoline. The ministry said it could reimpose export bans if that surplus vanished. Russia restricted diesel and gasoline exports on September 21 in an effort to stabilize domestic fuel prices in the face of soaring prices and shortages as crude oil rallied and the Russian ruble weakened. Prior to implementing the bank, Russia had raised mandatory supply volumes for motor gasoline and diesel fuel to deal with a supply crunch. The ban on diesel was lifted on the condition that at least 50% of producer supplies went to the domestic market. Russia’s diesel exports had been redirected from the European Union following the bloc’s embargo in February this year, to markets in Turkey, the Middle East, Africa and South America. In the meantime, Russia will continue its voluntary oil output cuts through the end of this year in coordination with OPEC+; however, the gasoline and diesel bans had made that commitment more challenging. Data from the first week of November showed that Russia’s seaborne diesel exports had fallen by 11% in October, compared to September. According to the Carnegie Endowment for International Peace, Russia’s gasoline and diesel bans were “partly the result of efforts to protect domestic fuel prices from the vagaries of the market, and partly a consequence of government infighting. It’s also a stark demonstration of how the stresses of the war in Ukraine are revealing themselves in unexpected places.” Also on Friday, the Russian State Duma (parliament) formally reinstated damper payments subsidies to oil refineries, Reuters reported, in an effort to further encourage sales on the domestic market over higher-priced exports.
India’s crude oil imports to rise in November, December due to festival season, industrial activity
India’s crude oil imports are expected to grow from October level during the remaining two months of the calendar year in line with the ongoing festival and marriage season, which also witnesses an uptick in industrial, construction and farm activities. Analysts and trade sources said that domestic oil marketing companies (OMCs) have increased refinery runs for the remainder of 2023 to meet the growing demand for auto fuels, bitumen, fuel oil and other refined petroleum products. A top official with a public sector OMC explained, “Traditionally, consumption rises during October-March in line with the festival and marriage season as well as industrial and construction activity. Besides, agricultural activity for Rabi season also picks up. This coupled with some exports will push demand.” Energy intelligence firms Kpler and Vortexa also expect crude imports by the world’s third largest energy consumer to grow in November and December this year. Similarly, OPEC in its latest monthly oil market report for November said, “India’s crude imports fell further to an average of 4.3 million barrels per day (mb/d) in September, the lowest in a year, although are expected to recover with the start of Q4 2023.” Rising imports Kpler’s Lead Analyst (Dirty Products and Refining) Andon Pavlov said considering that maintenance season is now starting to wane and seasonally demand at home starts to pick up, following the monsoon season and as visible in the latest Petroleum Planning and Analysis Cell (PPAC) data, refinery runs are also going to increase gradually over November and December, pushing import requirements higher as well. India imported 4.66 mb/d of crude in October, which is almost flat compared to September, Kpler data show. “In our books, we see (refinery) runs standing at 5.3 Mb/d and 5.45 Mb/d in November and December, respectively, some 500,000 barrels per day (b/d) and 130,000 b/d higher Y-o-Y over said months, (respectively), mainly due to a baseline effect from last year,” he told businessline. However, Pavlov said, considering that discount on Russian imports has diminished somewhat over the past months and in light of seasonal tightening of the Russian crude balance towards the end of year, as refinery runs seasonally increase, it seems like the share of Russian crude is going to remain in check at best. Discount on Russian crude to India continues to be lower at around $4-5 per barrel in May-August 2023 against $6-10 earlier. Vortexa’s chief analyst for Asia Pacific, Serena Huang said, “I expect India’s crude imports to continue rising through to December, with demand supported domestically by the festive season and exports.” India’s oil demand outlook in Q4 2023 should continue to benefit from strong annual GDP growth in 2023, combined with robust manufacturing activity and a proposal by the government to increase capital spending on construction, OPEC said. Besides, the post-monsoon harvesting season and construction activity are also expected to support oil demand growth. In addition, the forward-looking indicators show strong manufacturing and services PMIs, suggesting prospects for healthy oil demand in the near term, it added. “In Q4 2023, oil demand is projected to grow by 243,000 b/d, Y-oY. Distillates are expected to be the driver of oil demand growth, supported by harvesting, construction and manufacturing activity. Additionally, traditional festivities are expected to support mobility and boost gasoline demand, while increasing air travel is expected to support jet/kerosene demand,” OPEC projected. Similarly, S&P Global Commodity Insights said, “Overall, India’s oil demand is expected to grow by 258,000 b/d in 2023, revised higher by 9,000 b/d from last update on strong diesel sales. Middle distillates, gasoil, and kerosene/jet fuel combined will account for more than 50 per cent of the growth, with gasoline and naphtha together to contribute 27 per cent of the growth.” The demand for petrol and diesel rose to a four-month high in October, while jet fuel sales surged to their highest in the current financial year and calendar year as rising industrial and construction activity coupled with the onset of the festival season boosted sales.
Gas Infrastructure Needs to be Ready for Clean Hydrogen
As green hydrogen becomes an ever more important clean energy source, governments and energy companies must prepare for a steep incline in production in the coming years and ensure they have the correct infrastructure to transport it. Some regions of the world are already establishing major hydrogen corridors, such as the Spain – Netherlands link in Europe. Adapting new natural gas developments to be suitable for hydrogen transportation could save companies money and time in the long term, as well as support the transition away from fossil fuels to renewable alternatives. This month, the CEO of Italgas, Paolo Gallo, emphasised the importance of constructing gas infrastructure that is capable of transporting hydrogen as a means of meeting decarbonisation goals. Gallo stated, “Today we are moving around natural gas, but tomorrow we will have biomethane [and] clean hydrogen that will be used to decarbonize the system… So, it’s extremely important that the infrastructures are ready to accept different kinds of gases in [a] blending situation.” Green hydrogen, produced using renewable energy sources rather than fossil fuels to power electrolysis, is being viewed as increasingly important for accelerating the global green transition. Unlike wind or solar power, green hydrogen is a versatile carrier that can be used in a range of ways, such as in fuel for transportation. While most hydrogen is produced using fossil fuels at present, favourable government policies and increased pressure on energy companies to decarbonise are expected to lead to a boom in green hydrogen production over the coming decades. Gallo is not the first to suggest the repurposing of existing infrastructure, with several energy companies around the globe exploring ways to adapt existing pipelines to make them suitable for transporting hydrogen. Many European countries are aiming to use existing gas infrastructure to transport hydrogen, with several recent studies and pilot testing phases showing positive results. The use of existing pipelines can reduce hydrogen transport costs but pipelines must be assessed to see whether they’re suitable for hydrogen transportation, taking into account issues such as leakage, leakage detection, effects of hydrogen on pipeline assets and end users, corrosion, maintenance, and metering of gas flow. The potential use of gas pipelines for transporting hydrogen is becoming an increasingly popular topic as many governments accelerate plans to increase their natural gas production and infrastructure. This is being seen in the U.S., which, controversially, has an LNG project pipeline of 13 facilities along the US Gulf Coast in Louisiana and Texas. Canada is also constructing its first LNG transport facility, after years of pressure from energy companies. This reflects the global sentiment that natural gas will be critical for achieving the green transition. The EU ruled last year that natural gas will be used as a transition fuel in the mid-term shift to green alternatives as a means of moving away from more polluting fossil fuels, such as oil and coal. This has driven many energy companies to announce new gas projects for the next decade. This regional production drive was further accelerated by gas shortages in Europe and North America following the Russian invasion of Ukraine and subsequent sanctions on Russian energy last year. As companies develop new natural gas projects with support from state governments – potentially at odds with national climate policies – they should consider the potential for new pipelines to be used for transporting alternative energies, such as green hydrogen and ammonia, to ensure new infrastructure does not go to waste as the demand for gas eventually wanes. In the U.S., the Department of Energy’s Hydrogen and Fuel Cell Technologies Office (HFTO) launched the HyBlend initiative in 2021 to address technical barriers to blending hydrogen in natural gas pipelines to support the DoE’s H2@Scale vision for clean hydrogen use across multiple sectors in the economy. The U.S. has around three million miles of natural gas pipelines and more than 1,600 miles of dedicated hydrogen pipelines. The HyBlend team will test gas pipelines across the country to see their suitability for transporting hydrogen in different blends. This year, Open Grid Europe (OGE) announced that the first long-distance gas pipeline in Germany is being converted for hydrogen use. The 46km pipeline in the northwest of the country will be ready to transport hydrogen from 2025. The project is part of the GET H2 Nukleus project and is being funded by the EU’s Important Project of Common European Interest (IPCEI) initiative. The adaption of the pipeline is expected to help companies in heavy industry and medium-sized businesses connect to the hydrogen supply. Several new natural gas facilities are being constructed to support mid-term energy security en route to a green transition. At the same time, many companies around the globe have announced plans to develop their green hydrogen production over the coming decade, with demand expected to rise significantly over the next few years. Energy companies and governments must now use this opportunity to develop pipelines that can be used for the transport of both natural gas and green hydrogen to save money and time in the future and better support a green transition.
Has the Energy Transition Hit a Wall?
Wind power stocks are tanking. So are solar power stocks. Germany’s government just agreed to underwrite a 15-billion-euro bailout for Siemens Energy after its wind power subsidiary booked massive losses. The list could continue. The movers and shakers in the energy space are finding it increasingly hard to move and shake. It was easy to anticipate this development, yet, many choose to ignore the signs, and now the sector may suffer more before the growing pains ease. One common theme in the wind, solar, and EV space is the theme of rising costs. This was perhaps the easiest development to anticipate in the progress of the energy transition. After all, everyone was forecasting a massive surge in the demand for various raw materials and technology to enable that transition. There is one guaranteed thing that happens when demand for something rises: prices also rise before the supply response kicks in. This is a universal truth for all industries and there was no reason to expect that the transition industry would be an exception. Indeed, demand for raw materials necessary for solar panels, wind turbines, and EV batteries rose, but supply was slow to catch up, which led to higher prices. For a while, many pretended this was not the case, possibly hoping the cost inflation would blow over before investors noticed it. Denmark’s Orsted, which suffered some of the worst market cap losses in the transition space, just this June published an upbeat outlook for the year and the medium term, expecting strong capacity additions growth and a return on capital employed rate of an average 14% for the period 2023 to 2030. The same month the head of the company complained loudly about the rising costs of building offshore wind in Britain and asked for more subsidies. Five months later, Orsted had booked $4 billion in impairment charges from its U.S. business and had canceled two offshore projects there. CEO Mads Nipper called the situation in wind power “a perfect storm”. Many have blamed the higher costs on the legacy of the pandemic lockdowns—broken supply chains, delays, and other obstacles to the smooth movement of goods and materials. Yet when it comes to the transition, the current state of affairs is more likely part of the same vicious circle that is holding back the EV revolution that fans of Tesla keep predicting. This circle is best illustrated in the case of EV chargers. Since range anxiety is one of the biggest concerns of prospective buyers, there must be enough chargers for this anxiety to subside. But charger companies wouldn’t build chargers unless they are certain there will be enough EVs on the roads to make these chargers profitable. The situation is similar in copper mining—perhaps the most fundamental industry for the energy transition. After all, the transition is conceived of as a shift to almost full electrification and you cannot have electrification without a lot of copper. Instead, copper miners are reluctant to splurge on new exploration. Miners don’t have enough certainty about future demand, despite all the upbeat forecasts. Whatever market prices show, if the transition gains momentum as planned, the copper shortage will only be a matter of time. Another obstacle is demand. There seemed to be an assumption among transition planners that demand would be given; but it hasn’t been. EV makers now find themselves revising their plans as demand falls short of targets. In June, forecasts for Germany were that demand for solar installations would surge by double digits in 2023. Two months later, an inverter maker warned that demand had actually dropped in the third quarter, and the outlook for Q4 was not particularly encouraging. In wind, projects are being canceled because project leaders are asking for much higher prices than previously agreed with funding governments. Many are blaming higher interest rates for the cost inflation that sank their shares. But interest rates are something that all industries have to deal with, and those other industries don’t have the privilege of counting on generous government subsidies. Yet wind, solar, and EVs can’t take off even with those subsidies. This puts the future of the transition in a new perspective: something that many observers foresaw but were dismissed as climate deniers. The transition will be neither as fast nor as smooth—or as cheap—as initially expected. It will take a long time; it will be uneven, and it will be expensive. “There’s this notion that it is going to be a linear energy transition,” Daniel Yergin, S&P Global vice chairman and a veteran energy chronicler, told the Wall Street Journal. “It’s going to unfold in different ways in different parts of the world.”
“I am waiting for Thank You”: S Jaishankar On India Softening Oil Markets
Asserting India’s role in stabilising global oil and gas markets through its strategic purchase policies amid the Russia-Ukraine war, External Affairs Minister S Jaishankar noted that the purchase policies of India managed “global inflation”. During a conversation hosted by the High Commission of India in London, titled ‘How a billion people see the world,’ Mr Jaishankar discussed India’s impactful position in global affairs. EAM Jaishankar said, “So we’ve actually softened the oil markets and the gas markets through our purchase policies. We have, as a consequence, actually managed global inflation. I’m waiting for the thank you.” The minister explained that India’s approach to oil purchases prevented a surge in global oil prices, preventing potential competition with Europe in the market. He elaborated, “When it comes to the purchase…I think the global oil prices would have gone higher because we would have gone into the same market to the same suppliers that Europe would have done and as we discovered Europe would have outpriced us.”
GAIL India issues swap tender for 24 LNG cargoes in 2025
GAIL (India) Ltd has issued a swap tender offering 24 liquefied natural gas (LNG) cargoes loading out of the United States next year in exchange for 24 other cargoes for delivery to India in 2025, said two industry sources on Thursday. India’s largest gas distributor is offering two cargoes per month, from January to December, for loading from Sabine Pass on a free-on-board (FOB) basis. It is seeking the cargoes for delivery to the Dhamra terminal for the same months on a delivered ex-ship (DES) basis.
India’s CNG infra development in high gear
India’s auto industry is about to see a big increase in the use of compressed natural gas (CNG) over the next three to four years. One of the reasons for this optimism is the infrastructure of the city gas distribution (CGD) network that has reached over 88 percent of the country’s land mass. In terms of reach, it is equivalent to about 98 percent of the population, according to government statistics. At the same time, the government has a goal to bump up the number of CNG stations from 6,000 to 17,700 by 2030. To further bolster this momentum, the government recently launched the 12th CGD bidding round in early October, aiming to bridge any remaining gaps in the gas infrastructure. Where does it come from? India obtains its CNG from a combination of sources. Some of it is produced within the country, while the rest is imported. Roughly 35-40 percent of the natural gas used for CNG production comes from domestic sources. The remaining is imported in the form of liquefied natural gas (LNG) from different countries. For clarity, LNG, which is in a supercooled liquid state, is heated to convert it back into its natural gaseous form. The regasified (process of converting liquefied natural gas (LNG) at −162 °C (−260 °F) temperature back to natural gas at atmospheric temperature) natural gas is then compressed at a higher pressure, using specialised compressors, reducing its volume and making it suitable for storage and transportation as CNG. The country is also exploring other ways to produce CNG. For example, there are special plants called bio-CNG plants that create renewable CNG from agricultural waste. These plants help produce CNG in an environmentally friendly manner. India produced about 34,450 million standard cubic metres (MMSCM) of natural gas during the fiscal year 2022–2023, according to data released by the Ministry of Petroleum and Natural Gas. However, the total consumption of natural gas in the country was much higher, reaching about 60,311 MMSCM during the same period. To meet the demand, India imported approximately 26,647 MMSCM of LNG from other countries. The import bills for LNG amounted to around US$ 17.9 billion during that time.
Saudis Could Extend Production Cuts Well Into 2024
Saudi Arabia may extend its voluntary oil output cuts into the first quarter or the first half of next year, Reuters cited Energy Aspects co-founder Amrita Sen as saying on Wednesday, citing oil prices that are still too high and fundamentals that are still too strong to support a reversal. Sen’s forecast comes as oil prices as Brent crude prices were just under $82 at 11:01 a.m. Wednesday, with West Texas Intermediate (WTI) trading down a percentage point, at around $77.5 per barrel. On November 26, OPEC+ will hold another ministerial meeting. Earlier in November, Saudi Arabia, the world’s largest exporter, said it would extend its 1-million-barrel-per-day voluntary production cuts until the end of this year. The Kingdom also left official selling prices for Asia unchanged for deliveries in December because of weakening refining margins, supporting Sen’s forecast. The Saudi decisions sent the markets down on worries of oil demand outlook, suggesting these moves highlighted Saudi uncertainty. That uncertainty was compounded when Saudi Aramco reported a 23% drop in Q3 profits on lower oil prices and lower sales, despite the fact that this, in part, resulted from voluntary output cuts. On Tuesday, oil prices made some gains following OPEC’s Monthly Oil Market Report (MOMR), which indicated that the cartel sees fundamentals as strong and that demand in the U.S. and China is not troublingly low. Oil prices were climbing upwards midday Monday, with Brent crude gaining over 1.6% after the market digested an OPEC report suggesting demand in the U.S. and China is not lowering to the point of concern. The markets were also responding to unclear indications from the U.S. Federal Reserve about a potential end to rate hikes, with various investment banks speculating on rate reductions in the next 12 months. OPEC said it expected to see Chinese crude imports reach a new annual record this year, and criticized negative market sentiment as overblown.
Govt slashes windfall tax on crude oil, diesel
The Central government on Thursday cut the windfall tax on crude oil from Rs 9,800 per tonne to Rs 6,300 per tonne. It also reduced the windfall tax on diesel from Rs 2 per litre to Rs 1. The tax, levied in the form of Special Additional Excise Duty or SAED, on domestically produced crude oil was increased to Rs 9,800 per tonne from Rs 9,050 a tonne, according to an official notification on October 31 with effect from November 1. Further, the SAED on the export of diesel was reduced to Rs 2 per litre from Rs 4 a litre. India first imposed windfall profit taxes on July 1 last year, 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.
As Oil Prices Fall, Russia To Slash Crude Export Duties
Russia is set to slash its crude oil export duty by 5.7% for December as the price of its Urals blend drops, Bloomberg reported on Wednesday, citing the Russian Finance Ministry. The new duty starting in December is reportedly set to the equivalent of $3.37 per barrel or $24.7 per ton, according to Bloomberg. Last week, Bloomberg cited Argus Media as assessing Russia’s flagship Urals crude blend at $66.19 at the Baltic port of Primorsk, signaling the lowest prices for Urals since late July this year, when Urals topped the G7-imposed price cap. The Russian Finance Ministry, however, said Urals was selling for $79.23 between mid-October and mid-November, down from $83.35 in the previous period. The government will lower the duty to $24.7 a ton next month as the price of the country’s key export blend Urals declined, the Finance Ministry said Wednesday. That’s down by 5.7 percent from November and equates to about $3.37 a barrel. According to Trading Economics data, Urals has seen a 24.61% increase so far in 2023, based on data on trading on a contract for difference (CFD) tracking Urals. The highest price Urals ever achieved was nearly $118 per barrel in Q1 2013. On Tuesday, the International Energy Agency (IEA) said Russia’s oil export revenues had declined by $25 million to $18.34 billion in October, in tandem with declining oil prices. The IEA suggested that lower crude oil prices more than offset the shrinking discount for Urals in defiance of the G7 price cap. The international agency said Russian oil exports fell by 70,000 bpd in October, month-on-month. The G7 price cap mandates that Russian crude oil shipments to third countries can only use Western insurance and financing if Urals is sold below the $60 price cap. On Tuesday, a European Union official told the Financial Times that “almost none” of Russia’s October crude shipments were executed below the price cap.