India sees 34 per cent fall in oil imports from Saudi Arabia; imports from Russia increase
India’s crude oil imports from Saudi Arabia declined by 34 per cent in July, according to energy cargo tracker Vortexa. A Moneycontrol report said that India imported 484,000 barrels of crude oil per day in July, compared to 734,000 barrels per day (bpd) in June. The decline in India’s imports came after the West Asian kingdom announced supply cuts of one million bpd in July. Saudi Arabia and a number of other oil-producing nations have cut oil supply in a bid to stabilise the global oil prices, Apart from Saudi Arabia, Iraq had decided to lower its oil supply by over 200,000 bpd through the end of the year. In May, Russia and the Organization of the Petroleum Exporting Countries announced a cut in oil production by 1.6 million bpd for the rest of the year. Increase in crude oil imports from Russia In the meantime, Russia continued to be India’s top crude oil supplier in July. According to Viktor Katona, head of crude analysis at Kpler’s, daily volumes increased for the tenth straight month in June, reaching 2.2 million barrels per day. The data reveals that India received more crude oil from Moscow than it did from Saudi Arabia and Iraq, its usual suppliers, put together. Following the invasion of Ukraine, India became a prime consumer of Russian oil, but due to infrastructural problems and the need to maintain good relations with other suppliers, the country’s oil purchase may have reached its limit. Kpler however predicted that due to a decline in Russian oil production, imports may fall next month. According to a Bloomberg report, Reliance Industries Ltd. is the second-largest consumer of Russian crude after state-owned Indian Oil Corporation. India, the third-largest consumer and importer of oil in the world, purchases more than 80 per cent of its oil from foreign markets.
$85 Is Just The Beginning Of The Oil Rally
Earlier this week, media reported that oil production from the members of OPEC had fallen to the lowest since 2021—or 2020, depending on the source—thanks to voluntary production cuts from Saudi Arabia and involuntary declines in Nigeria, Angola, and Libya. The news naturally pushed oil prices higher. Yet they have already begun to climb as traders have finally started paying attention to the supply warnings and demand projections that banks and other analysts have been issuing for weeks. The jump in prices should have made Riyadh happy, and it probably did. The question now is how much higher the Saudis would let prices go before starting to relax their cuts. The Saudi Arabian economy grew by a modest 1.1% in the second quarter of the year, which was down from 3.8% in the first quarter. Media and analysts attributed the slowdown to lower oil prices, even though the Kingdom’s non-oil sector booked a pretty healthy 5.5% growth rate. Yet the weight that the oil trade has in the overall economy remains overwhelming despite Riyadh’s efforts to diversify. And this means that it needs even higher oil prices—to continue with the diversification efforts. Bloomberg’s Grant Smith suggested this week that the Saudis may decide to relax the cut from September as Brent moves to $85 and above. The reasoning was that refiners would welcome the additional barrels, and the Saudis would be happy to boost their market share after losing some of it because of the voluntary cuts. On the other hand, Smith wrote, longtime OPEC observers were not convinced this would be enough for the Saudis to relax the cuts. Uncertainty about demand was one reason cited, and the risk of disrupting the discipline of OPEC as a whole was another. Ultimately, however, the Saudis can keep the cap on output for exactly as long as they need to in order to get prices where they want them to be. It is yet another demonstration that not only is OPEC very much alive and relevant in today’s world, but its de facto leader still has plenty of sway over the group. “The kingdom will want to see a protracted rise toward $90 a barrel and possibly improvement in Chinese economic data to start considering putting the 1 million barrels per day back into the market,” PVM Oil Associates analyst Tamas Varga told Bloomberg earlier this week. Meanwhile, Goldman Sachs updated its outlook on oil demand in a way that should please Riyadh. The bank said oil demand had hit a record in July, reaching 102.8 million barrels daily, and that this would lead to a deficit of 1.8 million bpd in the second quarter of the year. In such a context, there is really no rush for Saudi Arabia to return those barrels to the market. Especially if they are not exactly a whole million. This was suggested by an unnamed EU source who spoke to Oilprice.com’s Simon Watkins, saying that the production data for Saudi Arabia showed no cuts were being made from fields that the Saudis operate in a neutral zone that the Kingdom shares with Kuwait. In other words, Saudi Arabia may be cutting some barrels but pumping plenty in the neutral zone and selling those “under the radar,” as Watkins reported. This would allow it to benefit from higher prices, boost its market share, and simultaneously continue to exert upward pressure on prices with the official cuts. Meanwhile, the American Petroleum Institute did the Saudis a huge favor by reporting an estimated 15.4-million-barrel inventory drop for last week. The massive figure seriously exceeded analyst expectations, which were for a much more moderate inventory decline of less than a million barrels. Traders are rushing to cover their short positions in oil, too, and this is boosting prices further. The benchmarks jumped to a three-month high this week as funds bought crude and fuels and changed their bets from bearish to bullish. All this works in Saudi Arabia’s favor, and it also suggests prices could reach the level Riyadh would like to see sooner rather than later. And that’s when things would get interesting: announcing an end to the cuts would be unwise as it would immediately cause a plunge in prices. A gradual relaxation is a more likely option, as suggested by analysts surveyed by Bloomberg this week.
Essar Oil and Gas Exploration and Production to invest Rs 20 billion in Bengal CBM block
Essar Oil and Gas Exploration and Production on Monday reported a net profit of Rs 3.35 billion in the financial year ended March 31, helped by reduced operating costs and higher prices. It reported a Rs 2.12 billion in net profit a year ago. The company plans to invest Rs 20 billion in the next 18 to 24 months for drilling 200 more wells in the Raniganj block. The unconventional hydrocarbon producer reported its highest revenues in a year of Rs 9 billion in FY2023, a growth of about 1.8 times compared with the previous year. EOGEPL currently produces two-thirds of India’s gas output from coal seams called coal bed methane (CBM). It plans to invest Rs 20 billion in the next 18 to 24 months for drilling 200 more wells, which will help swell output. It produced 0.84 million standard cubic metres per day of CBM. The company strives to contribute 5 per cent to India’s total gas production in the next five years. The Raniganj block is the highest producer of CBM to date and the only CBM project in India to produce over 82 billion cubic feet of CBM gas to date. Prashant Ruia, director, Essar Capital and EOGEPL, said, “The company aims to participate in India’s mission of reducing carbon footprint and becoming a gas-based economy by the next decade. EOGEPL aims to provide industries in its vicinity with alternative clean fuel at economical prices by ramping up its gas production at the cheapest cost.”
Europe’s LNG Imports Fall To 20-Month Low
LNG imports into Europe fell in July to the lowest level since November 2021 as low European benchmark natural gas prices are discouraging traders to ship many cargoes to the continent right now. Europe’s LNG imports declined by 7% year over year in July, to 8.6 million tons, the lowest import volumes since November 2021, when the energy crisis in Europe began, ship-tracking data compiled by Bloomberg showed on Wednesday. The front-month futures at the TTF hub, the benchmark for Europe’s gas trading, were at $30.43 (27.71 euros) per megawatt-hour (MWh) as of early Wednesday in Amsterdam. Prices jumped earlier this week as maintenance offshore Norway, including at the giant gas field Troll, reduced pipeline gas exports from Norway, which is now Europe’s single-largest gas supplier having ousted Russia from the top spot after the Russian invasion of Ukraine. However, Europe’s benchmark natural gas prices have fallen in recent months and are now 80% lower than the records seen last summer amid ample gas inventories with storage sites on track to be full well in advance of EU targets. EU gas storage levels are much higher than the five-year average and the levels from this time last year, easing concerns about Europe’s gas supply. The EU gas storage sites were 85% full as of July 31, according to data from Gas Infrastructure Europe. Comfortable inventory levels are capping the price gains from Norwegian maintenance stoppages, keeping European prices lower. The low European natural gas prices discourage traders from sending too much LNG to Europe now as sellers are looking at the Asian market where spot LNG prices have risen amid heatwaves in Japan, South Korea, and parts of China. “The discount of European gas prices compared to Asian LNG prices increased to an average of around US$2.1/MMBtu in July compared to an average of around US$0.3/MMBtu in June 2023,” ING strategists Warren Patterson and Ewa Manthey said earlier this week. “The higher discount in the European gas market could help divert more LNG cargoes towards Asia and reduce the supply glut in the European market.”
Petronet expects lower price in Qatar LNG contract renewal, eyes more term deals
India’s largest importer of liquefied natural gas (LNG) Petronet LNG expects to extend its term contract with Qatar at prices lower than what the West Asian gas exporter offered in recent contracts with countries like China and Bangladesh. Additionally, the company is in talks with various international suppliers for more term deals as India seeks to secure long-term LNG supplies in a market prone to volatility. “We are hopeful that we will be getting definitely a better deal than the others. That is our expectation,” Petronet LNG’s Chief Executive Officer (CEO) A.K. Singh said, adding that renegotiation talks have started and are moving in a “positive direction”. Singh, however, declined to share specifics of the pricing levels being sought by the company. According to him, there are indications that recent contracts by Qatar have been finalised at a slope of 12-13% to the price of Brent crude. As part of the current term deal with Qatar that ends in 2028, Petronet LNG imports 8.5 million tonnes per annum (mtpa) of LNG, or super-cooled gas, at a slope of 12.67 per cent to the price of Brent plus an additional charge of $0.52 per million British thermal units. Apart from extending the Qatar contract at a lower price, the company is also understood to be looking at increasing the import volumes by up to 1 mtpa. Petronet’s Qatar LNG contract is India’s biggest term contract for super-cooled gas. According to Singh, the extreme price volatility that was seen over the past couple of years in global LNG markets has established that term contracts, and not spot purchases, are the most viable option for securing supplies at a reasonable price. He said that increasing gas consumption on a sustainable basis through spot purchases is not a viable option. Therefore, Petronet LNG is in talks with other global suppliers for more term contracts. As one of the major importers of LNG globally, India was adversely impacted by the tightening global supply and surging spot LNG prices last year in the aftermath of Russia’s invasion of Ukraine. India’s oil and gas companies, public sector players in particular, are scouting for long-term LNG purchase agreements with global suppliers to secure reliable supplies of super-cooled gas. Recently, Indian Oil corporation inked term deals with Abu Dhabi’s ADNOC Gas and France’s TotalEnergies for importing 1.2 mtpa and 0.8 mtpa of LNG, respectively.
Domestic natural gas prices hiked 5% to $7.85/MMBtu for August
Domestic natural gas price hike in India: The government on Monday hiked the price of domestic natural gas to $7.85 per metric million British thermal units (MMBtu) for August from $7.48 per MMBtu for the previous month. According to a notification by the Petroleum Planning and Analysis Cell, the gas produced from the nomination fields of Oil and Natural Gas Corp. (ONGC and Oil India will remain unchanged and have a ceiling price of $6.50/MMBtu. The new prices took effect from August 1. The revision was on the basis of the new price formula.
Petronet LNG raises operating rates in Apr-Jun
Indian state-controlled importer Petronet LNG raised operating rates at its 17.5mn t/yr Dahej terminal to more than 96pc in the April-June quarter because of lower LNG prices, The rise comes after the facility — India’s largest LNG import terminal — operated at around 76pc during January-March, and at 87pc in April-June 2022, chief executive Akshay Kumar Singh said at an earnings call on 31 July. Petronet expects domestic gas demand to rise as spot LNG prices remain lower. It sees LNG prices hovering in the range of $10-12/mn Btu, which “is quite affordable as compared to long-term contract prices” Singh said adding that he expects volumes to go up further in the coming months. Dahej processed 217 trillion Btu (4.4mn t) of LNG during April-June, as against 172 trillion Btu in January-March and 196 trillion Btu during April-June 2022. It processed 704 trillion Btu of LNG over the April 2022-March 2023 fiscal year, while total LNG imports were 752 trillion Btu, lower by 11pc from a year earlier. Utilisation at Petronet’s 5mn t/yr Kochi facility continued to be capped at around 20pc, with volumes of 13 trillion Btu. Overall throughput at Dahej and Kochi was at 230 trillion Btu during April-June, with throughout up by 24pc from the previous quarter and by 11pc on the year, company officials said. Petronet is “seriously engaged” in discussion with QatarEnergy to extending its 8.5mn t/yr long-term contact beyond 2028, Singh said, adding that the deal is likely to be finalised by December. The firm has also been exploring the possibility of more long-term deals, but has been cautious as the market continues to remain tight and as most contracts have very high slope currently. Petronet at present buys LNG from QatarEnergy at a price based on a slope of about 12.67pc of Ice Brent, plus a fixed charge of about 50 cents/mn Btu. Petronet hopes to raise its offtake by 0.75mn-1mn t/yr to 9.25mn-9.5mn t/yr in its negotiation with Qatargas to renew their existing contracts. The company also aims to commission its third LNG import terminal, a 4mn t/yr floating storage and regassification unit (FSRU) at Gopalpur in eastern Odisha state by the middle of 2026. It would consider building a land-based terminal if FSRU prices are high because of strong European demand, Singh said on 31 July. He said the cost of building an FSRU is 2.3bn rupees ($28mn) as against Rs50bn for a land-based import terminal. But Singh said he hopes that FSRU prices will fall in three years as Europe is working on alternative sources of energy.
Big Oil Continues To Be Pushed Toward Greener Endeavors
Last year, Big Oil made record profits that got stuck in the throats of governments, activist organizations, and international bodies such as the UN and the IEA. Yet those same governments practically encouraged these profits by subsidizing fuels to avoid even higher inflation and all the problems that such a development would have produced. In 2022, with demand for energy roaring back after the pandemic and Russia’s invasion of Ukraine, the consequent gas supply squeeze, and fears of a similar oil squeeze, the target that Big Oil had painted on its back temporarily disappeared. Energy security temporarily became more important than decarbonization. That era is over, according to some analysts. Now, the pressure on Big Oil to decarbonize is going to increase. All Big Oil majors except BP reported weaker profits for the second quarter because of the decline in oil and gas prices. BP, which reports on Tuesday, is also expected to book slimmer profits for this year’s second quarter than last year’s. The time of plenty seems to be over. According to the Financial Times, this means that the supply squeeze threat has passed, and now the governments that subsidized diesel and gasoline will once again increase the pressure on the oil industry to go green. In fact, the pressure has never decreased, even when oil was trading above $100 a barrel last year. And despite that pressure, Big Oil has signaled a retreat from earlier ambitious transition targets. It seems everyone got a reality check last year. Only Big Oil came out with different outtakes from that check than the governments that slapped windfall profit taxes on the industry and then worried it would stop investing in more production. The pressure is working: European supermajors have been splashing on various low-carbon projects, from wind and solar capacity to EV chargers. But that was before 2022. This year, BP and Shell basically walked back their decarbonization pledges to the frustration of their activist investors. Those same investors, by the way, received much lower support for their climate-related resolutions at this year’s AGMs than in previous years. The rest of the shareholders must have liked the share repurchase programs and the fatter dividends. Meanwhile, the American supermajors, who have generally steered clear of things like wind and solar, are venturing into raw transition materials: Exxon and Chevron both announced forays into lithium mining this year, signaling the potential direction their decarbonization drive would take. The two are also busy expanding their carbon capture capabilities. Exxon, for one, sees a future in which its decarbonization business could one day outgrow its core oil and gas business. In Europe, BP and TotalEnergies just won a tender for offshore wind capacity in Germany, essentially beating the wind industry on its own turf. Just because the leadership of these companies has signaled it will go easy on the whole decarbonization affair doesn’t mean it will pass on opportunities to benefit from generous government funding for wind and solar. Big Oil has been under the microscope for years now, with governments, regulators, and activists all watching the industry closely for any suggestion they might want to expand their core business. Yet when they did do that, activists protested last year as expected, but governments didn’t. Governments in Europe spent billions on fuel subsidies contributing to Big Oil’s massive profits. In the U.S., President Biden and his energy secretary pleaded with Big Oil to boost oil production after actively working to make boosting oil production as difficult as possible. Now, decarbonization is back on the table as a top concern amid a ramp-up in the climate emergency talk from officials such as the UN’s Antonio Guterres. But the perception that the supply squeeze threat is over, as suggested by the Financial Times last week, may well be wrong. Oil and gas prices are palpably lower now than they were this time last year, but they are on the climb. And the reason they are on the climb is that fears are growing that demand for oil will soon exceed supply thanks to OPEC+ efforts to prop up prices and unrelenting demand growth, despite price movements. The current situation is somewhat paradoxical: national and international government officials are calling for the decarbonization of the hydrocarbons industry. At the same time, they are forecasting higher demand for these same hydrocarbons and, in the case of the IEA, warning that this higher demand would result in a deficit. It would be reasonable to suggest that this means decarbonization efforts are not exactly going as planned. The reason for this is that the need for energy is immediate and pressing. People need energy right now and not in five years. And Big Oil is happy to help while it invests in that new energy capacity that will be up and running in five years thanks to government subsidies.
Modi’s Oil Strategy: Is India Rethinking Its Russian Crude Imports?
Following several months of increased imports of Russian crude by India, the trend may finally begin to wane as it stockpiles enough to meet the country’s demand. India has favoured Russian crude in recent months due to its discounted prices, making its oil much cheaper than Middle Eastern alternatives. But moving out of peak season, India’s oil demand is expected to fall over the coming months before rising again next year. Further, Russia is expected to reduce its oil exports in line with fellow OPEC+ member Saudi Arabia’s voluntary production cuts. Since the Russian invasion of Ukraine, India has been importing large amounts of Russian crude thanks to its highly competitive oil prices. As Russia undercuts OPEC by heavily discounting its crude, several countries, including China and India, have been taking advantage of the opportunity to stockpile low-cost oil while demand is high. This move has been criticised by many governments around the world following the gradual introduction of sanctions on Russian energy by the U.S. and EU over the last year. President Biden and several other state leaders have urged countries around the globe to restrict the import of Russian oil and gas to condemn the ongoing war and harm its economy. But Indian Prime Minister Modi has repeatedly defended the country’s decision to increase imports of Russian crude as a means to meet India’s growing energy demand. India has repeatedly asked high-income countries to support the development of its renewable energy industry in support of a global green transition, which has continually fallen on deaf ears. The country’s reliance on oil and gas is still significant and Modi believes as a low-income country it should be permitted to purchase whatever oil is being offered at the lowest price, having failed to see support for its energy industry from the U.S. and Europe. In June, India’s imports of Russian crude hit a record high of 2.2. million bpd, accounting for about 40 percentof India’s crude imports, following 10 consecutive months of increases. In the previous month, its imports of Russian oil surpassed the combined imports of its two next biggest suppliers, Saudi Arabia and Iraq. India is the third-largest importer of crude in the world, making it a significant market for Russia to capture. Before the Russia-Ukraine war, India imported very little Russian crude. But since Putin began to offer discounted crude, to ensure it kept selling its energy products to those still interested in buying them, India has been steadily increasing its imports. However, India’s ability to import more Russian oil has likely reached a limit as it goes into its lower-demand monsoon season. Janiv Shah, a senior analyst at Rystad Energy, stated “India will look to continue Russian crude imports, but perhaps it has reached its limit, hampering any additional barrels.” Shah explained, “I would say 2.2 million b/d will be the peak this year … We believe India’s imports of Russian crude will see a slight downward correction to two million barrels per day. That will be the sustainable level of buying.” This forecast has been echoed by other energy experts. India’s high energy demand season is in the winter months before it slows during the rainy season for around four months. During this time, lots of construction projects stop and several refiners have plans to use the low season to carry out maintenance on their facilities. Its oil demand has already begun to decrease, falling by around 3.7 percent month-on-month in June. Meanwhile, Russia’s ability to export larger amounts of crude may also have reached its limit. The country’s oil exports decreased by around 600,000 bpd to 7.3 million bpd in June, the lowest amount since March 2021. In addition, Russia pledged to reduce its oil exports in July in solidarity with Saudi Arabia’s quota cuts. The OPEC leader said it would reduce its oil production in an attempt to boost oil prices, following a steep decline in recent months, something that Russia may have contributed to. Russia has been undercutting OPEC+ oil prices to attract consumers and continue selling crude, to the detriment of other OPEC+ members. But it seems that Putin was only willing to push Saudi Arabia so far. Although India’s imports of Russian crude may remain stable for the rest of the year, depending on the state of the conflict and Russian oil prices, Indian refiners may well try to increase their Russian crude imports even further in 2024. Although India’s refiners will likely want to maintain their relationship with long-term Middle Eastern crude exporters. The country’s imports of oil from the Middle East are thought to have decreased by around 21.7 percent in June compared to the beginning of the year, although India has some minimum purchase agreements and does not want to rely solely on Russia for its oil.
Pakistan Is Being Priced Out Of The LNG Market Again
Pakistan has dropped plans to procure LNG cargos for next year after its tender only attracted two offers that featured a 30% premium to market prices. Per a Bloomberg report that cited unnamed traders in the know, the offers had come from Trafigura and the delivery dates had been in January and February 2024. This is not the first time Pakistan is being forced out of the LNG market because of prices. Last year, when the suspension of Russian pipeline gas deliveries turned Europe into a major LNG buyer, importers such as Pakistan were essentially priced out of the market. Even supplies that should have been locked in under long-term contracts were affected when Eni announced early this year it would not be able to deliver its contracted once-monthly LNG cargo to Pakistan due to circumstances outside its control. Other suppliers of LNG to Asian countries also chose to breach their contracts amid sky-high prices on the spot market. This has made Pakistan’s energy situation quite precarious, with blackouts plaguing the country last year for months and power rationing becoming unavoidable. This year, the price situation has largely normalized and this has allowed Pakistan and other poorer Asian nations to return to the LNG market. As the latest news from Pakistan suggests, however, this return may well have been temporary. Based on the reported premium asked by Trafigura for LNG deliveries to Pakistan next year, commodity traders’ expectations would be for yet another strong jump in prices come heating season. Demand from the rest of Asia is also seen rebounding as is demand from Europe. The latter has been lukewarm so far this year because of the mild winter last year that saw a lot of gas remain in storage. That gas is basically unsellable as it was bought at record prices and any resale would lead to massive losses.