Centre increases windfall tax on crude to Rs 4250 per tonne
The centre on Monday increased windfall tax on domestically produced crude petroleum to Rs 4250 per tonne from existing Rs 1,600 per tonne. It has also increased duty on export of diesel to Rs one per litre from Nil. The new rates will be effective August 1.
Saudi Arabia Is Cooking Up A Surprise For The Oil Markets
Recent production cuts by Saudi Arabia are beginning to take a toll on the nation’s economy, according to the IMF’s latest World Economic Outlook. The Kingdom’s 2023 GDP growth projections have been significantly reduced, now expected to reach only 1.9%, down from the previously projected 3.1% in May. The IMF attributed this downgrade to the production cuts announced in April and June as part of the OPEC+ agreement. Despite efforts to diversify the economy with Vision 2030, Saudi Arabia remains heavily reliant on hydrocarbon revenues, with the impact of oil market developments still outweighing the growth potential of non-hydrocarbon sectors. Although the Kingdom has taken strides in economic diversification, all new projects, including the ambitious Giga-Projects, continue to be tied to oil and gas funds. Aramco’s substantial revenue base remains crucial for driving economic activity. While this analysis may not sit well with Saudi officials, the IMF downgrade could potentially be followed by similar reactions in the financial markets. The unilateral production cut presented by Saudi Energy Minister Prince Abdulaziz bin Salman, which was extended during the recent OPEC+ meeting, is now showing negative consequences. The Kingdom’s official stance is that Riyadh is the sole entity capable of controlling and stabilizing markets, particularly oil prices. However, many analysts have expressed skepticism about the true motives behind the Saudi move, as a tighter demand-supply situation is expected in the latter half of 2023. Some argue that price fluctuations and speculation are part of the market’s natural dynamics, and intervention may not be necessary. Evidence supporting the effectiveness of the Saudi cut is debatable. When the cut was initially announced, markets showed minimal reaction, and prices remained weak. The slow economic recovery in China and marginal global demand growth have kept oil prices within the range of $75-85 per barrel. The recent price rally can be attributed to factors unrelated to Saudi Arabia’s actions, such as stock withdrawals and reduced fear of a global recession. Saudi Arabia’s progress in economic diversification projects requires higher foreign direct investments (FDI) and increased government revenues, as well as access to international financial markets. The IMF report has cast some doubt on these aspirations. With the MENA region experiencing lower GDP growth projections and some countries facing financial crises, Saudi Arabia must reevaluate its short-term economic strategies. While non-oil GDP growth is robust, it cannot fully compensate for the current reliance on oil revenues. The low FDI inflow during Q1 2023 raises concerns, especially when compared to the expectations set in Vision 2030. Market analysts and media should closely monitor Riyadh’s actions in the coming weeks, as a significant change may be on the horizon. Although no immediate changes are expected at the upcoming JMCC meeting, a Saudi production hike before October 2023 is highly plausible. Signs of a new demand-supply crunch in oil and petroleum product storage volumes, along with positive indicators in Asia, Europe, and the USA, could lead to a dramatic shift in the Kingdom’s production volume strategies. A surprise move to prevent oil prices from surpassing $90-100 per barrel in Q4 could be in the works. While the media may not be informed, it is likely that Crown Prince Mohammed bin Salman and his brother are preparing a new Saudi surprise after the summer season.
Duliajan Numaligarh Pipeline Limited proposes 500km natural gas pipeline in northeast
Two major pipeline projects are in the works in the northeast, which produce 20 per cent of the country’s natural gas output of 75 million metric standard cubic metres per day(mmscmd). Assam, Arunachal Pradesh and Tripura have established gas production potential in the region, while Manipur and Nagaland are believed to have substantial reserves. Duliajan Numaligarh Pipeline Limited has proposed a 500km natural gas pipeline from Duliajan to Chandrapur near Guwahati through Jorhat, Golaghat, Karbi Anglong and Nagaon in the state. DNP operates a dedicated pipeline supplying natural gas to the Numaligarh refinery. The company said there was a huge business opportunity of around 5.5mmscmd with a pipeline which needs to target the city gas distributors and other bulk consumer industries at Bokajan, Diphu, Lumding, Hojai, Lanka, Nagaon, Morigaon and onwards to Chandrapur near Guwahati. The pipeline can also be connected to the IGGL Phase-I pipeline near Borpothar (Golaghat district in Assam). It can connect to the new gas sources along the route in Dibrugarh and Sibsagar districts. DNP is also looking at sourcing gas from other players in the region such as HaEC, Oil Max .
Qatar’s quest to becoming the world’s most secure gas energy source
Energy security and liquified natural gas (LNG) have dominated headlines over the last year. Among the discussions stands a large, yet geographically small, player — Qatar. The Gulf state has been at the centre of energy discussions, particularly during the onset of Russia’s invasion of Ukraine, as Europe scrambled to seek an alternative to its heavy dependence on Moscow’s gas. The demand for energy reflected well on Qatar’s oil and gas sector, with state-owned QatarEnergy recording a net profit of $42.47 billion (QAR 154.6 billion), representing a 58% year-on-year increase. “Qatar managed to increase production slightly last year in order to help meet increased global demand for LNG following the reduction of Russian pipeline exports to Europe, underlining its role as a secure source,” Jamie Ingram, Senior Editor at Middle East Economic Survey (MEE), told Doha News. Since the early detection of its gas resources, energy has evolved into a potent instrument of Qatar’s soft diplomacy, propelling the nation towards achieving global production dominance. Rise to prominence In 1971, Qatar entered the realm of natural gas by making its inaugural non-associated gas discovery off the north-east coast, eventually establishing what is currently recognised as the North Field. This would mark a pivotal moment for the Gulf state. The gas-rich area, which Qatar shares with Iran, carries more than 900 trillion standard cubic feet of gas reserves and represents 20% of the world’s proven reserves. Qatar’s proven reserves witnessed a steady increase over the years, jumping from 2,265 billion cubic meters in 1981 to 8,500 billion cubic meters in 1996. It was not until the late 1990s when the country made its first sale and purchase agreement with Japan’s Chubu Electric for 4 tonnes of LNG per annum, marking the beginning of a decades-long gas industry friendship between Tokyo and Doha. Prior to the discovery of gas, oil was the primary driver of Qatar’s wealth until it became clear to the country that natural gas is the future. Qatar had utilised the years of low oil demand, especially during the 2007 global financial crisis, as an opportunity to grow its use of LNG. The Gulf state recorded a major milestone in 2010 when its production of LNG reached 77 mtpa (million tonnes per annum), climbing up the industry ladder to become the world’s largest LNG producer. Despite having already topped the global LNG race, Qatar has continued to increase its annual LNG production, promising to reach 126 mtpa by 2027 through the North Field Expansion project—the largest of its kind on a global scale. Qatar’s announcement of the North Field campaign came at a critical time in its economy in 2017, during which the Gulf state found itself grappling with an unexpected embargo was led by its neighbours—Saudi Arabia, the United Arab Emirates, Bahrain and Egypt. More than a year into the rift, by 2019, Qatar made the surprising decision of exiting the Organisation of the Petroleum Exporting Countries (OPEC), which Saudi Arabia and the UAE hold major influence in. Qatar’s energy minister Saad Sherida Al Kaabi said at the time that the country wanted to shift its focus towards natural gas, a move that has since solidified its position in the LNG world. Four years after its withdrawal from OPEC, Qatar became the star of the show in the energy sector, with analysts pointing to the $30 billion North Field expansion project’s major role in turning the Gulf state into a reliable partner in the gas industry. “Qatar’s decision to invest in expanding capacity helps reassure importers that it is committed to being a reliable supplier for decades to come. Countries such as China can continue to invest in expanding gas-fired power plant capacity safe in the knowledge that new supplies are coming onto the market,” Ingram said.
GAIL India misses Q1 profit view as natural gas marketing drags
GAIL (India) Ltd (GAIL.NS), the country’s largest gas distributor, reported a lower-than-expected quarterly profit on Monday hurt by weak performance at its core natural gas marketing segment. The company’s standalone profit after tax fell to 14.12 billion rupees ($171.67 million) in the quarter ended June 30, from 29.15 billion rupees a year earlier. Analysts, on average, were expecting GAIL to earn 16.06 billion rupees, as per Refinitiv data. The state-owned gas company’s revenue from operations fell about 14% to 322.27 billion rupees. Its natural gas marketing segment, which contributes 82.1% of the total revenue, saw an 18% drop in quarterly revenue. During the quarter, GAIL’s biggest natural gas marketing segment saw a 56.2% slump in its profit. Its LPG and liquid hydrocarbons segment’s profitability dropped 68% during the quarter. The firm is reeling from the impact of a former unit of Russia-owned Gazprom Marketing and Trading’s failure to deliver some liquefied natural gas (LNG) cargoes following western sanctions on Moscow over its invasion of Ukraine last year. GAIL had said it will get four LNG cargoes from Sefe in June, equivalent to the volumes it was getting under a deal with Sefe, a former unit of Russia’s Gazprom. Sefe resumed supplies to GAIL from March this year. Additionally, GAIL revised the investment cost for a proposed propane plant to 112.56 billion rupees from an initial investment of 78.23 billion rupees. GAIL’s shares, which were trading up 4.6% Monday morning, trimmed gains to be 1.3% higher after results.
Gasoline: The Price Rally That Nobody Saw Coming
The direction of oil prices is top news material. Everyone follows oil prices. Many also follow the prices of the most traded oil derivatives, and some may have noticed something rather alarming in the trend of one of these derivatives. Gasoline, one of the six most traded petroleum contracts on the global futures market, has gained over 20% in the year to date, according to a recent Bloomberg report. This is more than what crude oil has gained—a lot more. At the start of this year, Brent crude was trading around $78 per barrel. This week, the international benchmark, which now also includes a U.S. crude grade, touched $83 per barrel. Gasoline, meanwhile, started the year at less than $2.50 per gallon. This week, gasoline topped $2.90 per gallon and may yet reach $3. This is a cause for worry for governments around the world because gasoline, along with diesel, plays a lead role when it comes to inflation. When the price of fuels rises, the prices of everything else rises, too, because everything else is being moved from one place to another—from producer to consumer—on vehicles using either diesel or gasoline. Yet while diesel is a lot more common for goods transportation, gasoline is a lot more popular among regular drivers. Gasoline demand is a closely watched economic indicator that analysts use to gain insight into the state of the economy, among many others. Right now, the data suggests that gasoline demand is quite healthy, which could be cause for optimism about the global economy were it not for the fact that supply is falling short of expectations. This is fueling concern about more inflation pain despite the efforts of central banks in Europe and North America to tame it with a series of rate hikes. In the United States, the Federal Reserve announced yet another hike of 25 percentage points for the benchmark interest rate this week. In the same week, gasoline prices moved higher, with the national average adding 4% in a single day. According to the EIA, gasoline stocks are some 7% below the five-year average for this time of the year. And oil drillers are not drilling more. They are drilling less. In Europe, governments had to step in last year and subsidize fuels amid the energy crunch and the following embargo on Russian crude and fuels. The move drew a lot of criticism from transition advocates who argued the EU is essentially selling out to the oil and gas industry by encouraging the use of its products. Yet those governments that implemented the subsidies knew very well what they were doing: they were avoiding riots by millions of drivers whose living standard depends quite a lot on affordable fuels. Meanwhile, the European Central Bank just hiked interest rates to the highest in more than two decades. And gasoline is not going down anytime soon. Because there is simply not enough supply, at least not everywhere. In the United States, gasoline inventories are lower than the five-year average both because of the gap between demand and production rates but also because of unplanned refinery outages, Bloomberg noted in its report, such as the one at Exxon’s Baton Rouge facility from earlier this week. Media reported that a gasoline production unit was down at the Baton Rouge refinery earlier this week. The reports noted that the unit, a catalytic converter, could be down for several weeks. Needless to say, gasoline prices jumped lively at the news. In Europe, refining and gasoline production has been disrupted by protests in France and then, last month, Shell’s Pernis refinery in the Netherlands shut down a unit due to a leak. That and the shutdown of refineries in the past few years on both sides of the Atlantic have combined to create a tight supply picture even as governments consider bans for gasoline-powered cars. While they consider these bans and even vote on them, consumption is on the increase. Bloomberg reports that gasoline consumption in France, Germany, Spain, and Italy is on the rise. At the same time, because of the embargo on Russian fuels, feedstocks needed to produce gasoline are in short supply on the continent. Meanwhile, Chinese refiners are producing millions of barrels of gasoline and diesel. They are, in fact, producing so much that there were recently pressuring refining margins for the whole region. But most of the gasoline and diesel that Chinese refiners produce gets consumed locally. Because although it’s the world’s biggest EV market, China is also a giant non-EV market. And fuel demand is on the rise. The picture that gasoline supply and demand trends paint is one of prolonged tight supply and high prices. This, in turn, will likely keep inflation untamed despite the best efforts of central banks—efforts, which also unfortunately make life more expensive. The silver lining: inflation leads to lower consumption of everything. The risk is slipping into a recession.
GAIL’s tie-up with LanzaTech for CO2 capture is a big deal
India’s premier natural gas company GAIL entered into a joint venture with Nasdaq-listed LanzaTech to capture carbon dioxide (CO2) and convert it into useful organic chemicals. This must be recognised as a paradigm-setting initiative to combat climate change. So far, the global discourse on combating climate change has been about reducing additional emissions of heat-trapping gases such as CO2, called greenhouse gases, rather than on taking out what has already been injected into the atmosphere. But now it is clear that the strategy of reducing additional emissions cannot by itself bring global temperatures to within 1.50C of pre-industrial levels. There is increasing acceptance that carbon dioxide removal (CDR) must be an integral part of the solution.
Oil on track for biggest monthly gains in over a year
Oil prices hovered near three-month highs on Monday, set to post their biggest monthly gains in over a year on expectations that Saudi Arabia would extend voluntary output cuts into September and tighten global supply. Brent crude futures dipped 9 cents to $84.90 a barrel by 0005 GMT while U.S. West Texas Intermediate crude was at $80.41 a barrel, down 17 cents. The September Brent contract will expire later on Monday. The more active October contract was at $84.23 a barrel, down 18 cents. Brent and WTI settled on Friday at their highest levels since April, gaining for a fifth straight week, as tightening oil supplies globally and expectations of an end to U.S. interest rate hikes supported prices. Both are on track to close July with their biggest monthly gains since January 2022. Saudi Arabia is expected to extend a voluntary oil output cut of 1 million barrels per day (bpd) for another month to include September, analysts said. “Oil prices are up 18% since mid-June as record high demand and Saudi supply cuts have brought back deficits, and as the market has abandoned its growth pessimism,” Goldman Sachs analysts said in a July 30 note. “We still expect the extra 1 million bpd Saudi cut to last through September, and to be halved from October.” The bank maintained its Brent forecast at $86 a barrel for December and expects prices to rise to $93 in the second quarter of 2024. Goldman Sachs estimated that global oil demand rose to a record 102.8 million bpd in July and it revised up 2023 demand by about 550,000 bpd on stronger economic growth estimates in India and the United States, offsetting a downgrade for China’s consumption. “Firmer demand is driving a moderately larger deficit in H2 2023 than expected, averaging 1.8 million bpd, and a modest 0.6 million bpd deficit in 2024,” it said. Exxon Mobil’s CEO Darren Woods said the company expects record oil demand this year and next year, and that this may help boost energy prices in the second half of the year. In the U.S., energy firms in July cut the number of oil rigs for an eighth straight month by one to 529, Baker Hughes said in its weekly report on Friday.
Russian Crude Oil Exports Continue To Plunge
Russia’s crude oil exports by sea continued to slump last week and are now well below the February levels and nearly 1.5 million barrels per day (bpd) lower than the recent peak at the end of April, tanker-tracking data monitored by Bloomberg showed on Tuesday. Russia’s crude shipments plunged by 311,000 bpd to 2.73 million bpd in the week to July 23, as exports out of the Western ports on the Baltic Sea and the Black Sea crashed to 1.17 million bpd, down by 625,000 bpd from the previous week, according to the data reported by Bloomberg’s Julian Lee. Crude shipments from the Kozmino port in Russia’s Far East, from where the voyage to top customers China and India is much shorter, rose in the week to July 23, but couldn’t offset the plummeting crude export volumes from Novorossiysk on the Black Sea and Primorsk and Ust-Luga on the Baltic Sea. So in the week to July 23, nationwide Russian crude exports by sea, at 2.73 million bpd, were 1.48 million bpd lower than the peak seen in the final week of April, according to Bloomberg’s data. Tanker-tracking data have already started to show in recent weeks that Russia’s seaborne crude oil exports were declining from the highs seen in April and May. Last week, Russian crude oil shipments plunged to a six-month low in the four weeks to July 16. This week’s data compiled by Bloomberg suggests shipments plummeted further in the following week to July 23. In early July, Russia said that it would cut its crude oil exports by 500,000 bpd in August in a bid to ensure a balanced market, and the reduction in exports would come from a further 500,000-bpd cut in oil production. Vessel-monitoring data suggest that Russia has started to reduce supply to the market, which, combined with the Saudi production cut of 1 million bpd in July and August, would tighten market balances.
India’s gas pipeline network expands, industry urges gas subsidy reform
In a strong push to enhance the share of clean energy in India’s energy basket, the Government is looking to raise the share of natural gas in the energy mix to 15 per cent in 2030, achieve 5 per cent blending of bio-diesel in diesel or direct sale of bio-diesel by 2030, and have commissioned till June 2023 a total of 71 commercial-scale biogas/CBG plants under the Sustainable Alternative to Affordable Transportation (SATAT) plan or registered on the GOBARdhan portal to contribute to the overall target of 15 MMTPA of CBG production. The Government has upped the ante to raise the stakes by creating a National Gas Grid (One Nation, One Gas Grid) as well as increasing the availability of natural gas across the country. The Petroleum and Natural Gas Regulatory Board (PNGRB) has authorised an approximately 33,592 km natural gas pipeline network across the country. Out of this, 23,173 km of natural gas pipelines, including spur lines, tie-in connectivity, sub-transmission pipelines, and dedicated pipelines, are operational, and a total of 12,206 km of pipelines are under various stages of construction, according to a response by Minister of State in the Ministry of Petroleum and Natural Gas Rameswar Teli. While the current share of natural gas in the basket is 6.7 percent, India’s natural gas consumption has grown by 4 to 5 percent CAGR over the past 20 years, points out Gurpreet Chugh, Managing Director at ICF, owing to the evolution of the gas mix with the substantial introduction of Liquefied Natural Gas, the expansion of the City Gas Distribution (CGD) network, and the emergence of technologies like Compressed biogas (CBG). While the current mix of domestic and imported gas stands at 50-50, the Government has indicated that the ratio could soon tilt in favour of imported gas due to increasing market demands. A similar transition as seen in the oil sector, driven by reforms in the 1990s, is on the horizon for the gas sector, leading to the dismantling of the APM. The increasing demand for gas and its relative cheapness compared to imported oil could well set the pace for an imported gas-based regime in India. The potential is underlined by the 45 million tonnes of free gas capacity in LNG terminals with only 25 MT coming through, allowing a significant opportunity for the LNG business to integrate with the natural gas industry. However, Chairperson of PNGRB Anil K. Jain feels that the persistent dichotomy between domestic and imported gas, which is splitting the market, must be dismantled for the sake of a cohesive natural gas industry. “There is every reason; gas availability is not a problem, but the markets in India need to amalgamate,” says Jain. The PNGRB has also implemented a unified tariff with effect from April 2023 for the interconnected natural gas pipelines as part of the National Gas Grid plan. “Unified tariffs are a way of opening up markets, particularly in areas with difficult accessibility,” Jain told the industry recently. To simplify the implementation of the unified tariff, an entity-level integrated natural gas pipeline tariff has been introduced in the regulations. Further, to protect the overall interests of consumers in different regions, the number of unified tariff zones has been increased from two to three. With 94 percent of the country under CGD licencing, Jain is optimistic about the remaining pipeline from Jammu to Srinagar and CGDs in the Northeast and hilly districts, as well as in J&K. The chairperson also stresses the necessity of infrastructure readiness for the other two segments of CGD—industry and commercial—signaling the likelihood of a second wave of investments. While industry lauds the government’s efforts in promoting domestic exploration and production through the introduction of revenue-sharing mechanisms, Prashant Modi, MD & CEO, Great Eastern Energy Corporation, and Chairman of the FICCI Committee on Oil & Gas, is of the view that for transforming India into a gas-based economy, there is a need for implementing a direct benefit transfer system for gas subsidies, similar to the LPG subsidy. “The establishment of a standard operating procedure for every layer of the gas infrastructure ecosystem to ensure compliance with laws gives the government the liberty to monitor at any given time,” suggests Modi. Chugh outlines several emerging opportunities for the gas sector, including the use of LNG in heavy-duty vehicles, an area where electric vehicles currently lack a viable solution, as well as the growth of compressed biogas (CBG), which also aids in reducing air pollution, and opportunities in biomass gasification. Under the Sustainable Alternative Towards Affordable Transportation (SATAT) programme, for establishing an ecosystem for the production of CBG and for promoting its use along with natural gas, oil and gas marketing companies are inviting expressions of interest to procure CBG from potential entrepreneurs.