The EU Has No Plans To Revise Its Russian Oil Price Cap
The European Union has no plans to revise the $60 price cap imposed on Russian oil exports even though Russian crude is selling above the cap. “There is no movement currently in the Council [of the European Union] with the oil price cap,” an unnamed diplomat from the Baltics told Energy Intelligence. The news outlet noted that officially, the price cap is subject to review once every two months, in order to ensure it is 5% below the market price for Urals. Russia’s flagship Urals crude blend traditionally sells at a discount to Brent, with that discount widening after the imposition of a price cap on all Russian oil exports as part of a sanction push following the invasion of Ukraine. In the past few weeks, however, the discount between Urals and Brent has been narrowing, until this month, when it topped $60. At the time of writing, Urals was trading above $63 per barrel. The Wall Street Journal noted in a report that this price rebound for Urals was evidence that Russia had adjusted to the sanction regime. It would also mean Russia’s oil export revenues would move higher, preventing which was one of the main goals of the price cap. The other goal was to keep global markets well supplied with oil. From its inception, the idea of the price cap, conceived by the G7 last year, had its critics. These argued the goals of the cap are mutually exclusive, while advocates said it is possible to both keep Russia’s revenues lower and exports high. In the end, the outcome has been kind of mixed, with Russia indeed seeing lower export revenues as the price of Urals remained depressed for months. Yet both Russian oil sellers and their clients have been using alternatives to Western shippers and insurers, essentially finding a way around the price cap, which only applies for buyers intending to use Western tankers and insurance coverage. In the past few weeks, however, the discount between Urals and Brent has been narrowing, until this month, when it topped $60. At the time of writing, Urals was trading above $63 per barrel. The Wall Street Journal noted in a report that this price rebound for Urals was evidence that Russia had adjusted to the sanction regime. It would also mean Russia’s oil export revenues would move higher, preventing which was one of the main goals of the price cap. The other goal was to keep global markets well supplied with oil. From its inception, the idea of the price cap, conceived by the G7 last year, had its critics. These argued the goals of the cap are mutually exclusive, while advocates said it is possible to both keep Russia’s revenues lower and exports high. In the end, the outcome has been kind of mixed, with Russia indeed seeing lower export revenues as the price of Urals remained depressed for months. Yet both Russian oil sellers and their clients have been using alternatives to Western shippers and insurers, essentially finding a way around the price cap, which only applies for buyers intending to use Western tankers and insurance coverage.
Subsidy On Petroleum
Government is committed to ensure access to affordable and clean energy to all. It has been endeavour of the Government to encourage usage of cleaner fuels like Compressed Natural Gas (CNG)/Piped Natural Gas (PNG), Liquefied Petroleum Gas (LPG), Compressed Bio Gas (CBG), BS IV Grade Petrol and Diesel, Ethanol Blended Petrol, Sustainable Aviation Fuel etc. in the country. Government of India is determined to promote usage of natural gas, as a fuel across the country, and to increase its share in primary energy mix from around 6.7 % to 15 % by 2030. As a major step towards its objective to provide cleaner fuels to households, Government launched Pradhan Mantri Ujjwala Yojana in May 2016, under which adult women from poor households are provided a deposit free LPG connection. Till December 2022, 960 million PMUY connections have been provided to poor households in the country. The coverage of LPG in country has gone up from 62 % in 2016 to almost 100% as on today. Number of active domestic LPG consumers have increased from 145.2 million on 01.04.2014 to 315 million as on 01.07.2023. Traditionally, rural population in India had been mainly using fuels such as firewood, coal, cow-dung, kerosene etc. for domestic cooking. It was primarily, due to issues relating to affordability, accessibility, and awareness. These traditional cooking fuels however cause significant harm to health and environment. To increase LPG usage amongst PMUY households, Government has started a targeted subsidy of Rs 200 per 14.2 Kg domestic LPG refill for upto 12 refills per year for 2022-23 and 2023-24 for PMUY beneficiaries. As a result of steps of the Government and Oil Marketing Companies to encourage LPG usage amongst consumers, per capita consumption of LPG by PMUY households has gone up from 3.01 refills in 2019-20 to 3.71 refills in 2022-23. The funds allocated for Direct Benefit Transfer for LPG (DBTL) Scheme (Budget Estimates) for 2023-24 are same as funds for 2022-23 (Revised Estimates) at Rs. 1800 million. Government reviews its budgetary requirements during the course of year based on emerging situations and expenditure position. For instance, the funds allocated for PMUY for the year 2022-23 at Budget Estimates stage were Rs. 8 billion which were revised to Rs. 8.010 billion at Revised Estimates stage. Further, to insulate domestic LPG consumers from fluctuations in international prices, Government continues to modulate the effective price to consumer for domestic LPG. During Covid Pandemic, Government had also provided about 141.7 million free LPG refills to PMUY households under Pradhan Mantri Gareeb Kalyan Package during 2020. To increase awareness of benefits of the usage of LPG, Government and OMCs have been organising massive awareness programmes through print, electronic and social media. LPG consumers including PMUY beneficiaries can book a refill by various methods including Interactive Voice Response System(IVRS), Short Message Service(SMS), Whatsapp, calling directly on the phone of distributor, e-commerce platforms, OMC mobile applications, OMCs web-portals etc. Further, OMCs continuously expand the distribution network by commissioning new LPG distributorships.
U.S. Shale Slowdown Weighs On Oilfield Services
The first signs of a slowdown in activity in the U.S. shale patch emerged earlier this year as declining oil prices prompted drillers to reduce the number of active rigs. Then data suggested that well yields were also dropping—a sign of potential natural depletion that would make drillers think twice before going all in on output expansion. Now, the financial results of oilfield service providers are adding to the growing body of evidence that despite the EIA’s upbeat forecasts about record oil production, the industry was going its own way—and it is the way of caution. The Financial Times reported that the reduced drilling activity that the Dallas Fed Energy Survey reported earlier this year was beginning to affect the financial performance of the companies that actually carry out that activity. The report cites Liberty Energy’s Chris Wright as saying on a call with analysts, “During the second quarter, we saw reduced frack activity that resulted in increased white space in our calendar.” In the presentation of the company’s results, Wright also forecast lower activity in the U.S. shale patch over the second half of the year as a whole. This interestingly coincides with a recent production update from the Energy Information Administration. Earlier this year, the EIA consistently predicted a new record high for U.S. oil production thanks to the shale industry. Now, it has changed its tune. In May, the EIA predicted that U.S. shale oil output would hit a record in June, at 9.5 million bpd. A month later, the agency reported in its June edition of the Drilling Productivity Report total estimated production for the month of 9.37 million bpd. Output then inched up in July to some 9.42 million bpd across the big shale basins, but now the Energy Information Administration forecasts a decline in August to 9.397 million barrels daily. “It is hard to be in the production business these days.” This is what one of the respondents to the Dallas Fed’s quarterly energy survey said in comments published with the second-quarter edition of the report. It found more signs of a slowdown as well as increased cautiousness among industry executives when production growth was concerned. “Our country’s leadership for the last two years has created a lot of uncertainty in the energy sector. The crystal ball says that this same leadership over the next two years will maintain that uncertainty and it will grow exponentially,” another executive said for the survey. Indeed, uncertainty seems to be here to stay, discouraging ambitious growth plans, especially in the context of cost inflation that, despite some encouraging signs from monthly CPI readings, is far from comfortable for many players in the shale field. “The environment in North America has levelled off and we’re hearing some of the customers requesting discounts, particularly in the more commoditised markets like pressure pumping,” Baker Hughes’ chief executive Lorenzo Simonelli said, as quoted by the Financial Times, confirming the perception of a slowdown despite relatively high oil prices on international markets. There is also the gas conundrum to consider in the shale patch. Last year, thanks to the energy crunch in Europe, U.S. gas prices reached as high as $9 per mmBtu at one point. Now, that’s collapsed to less than $3 per mmBtu. Gas rigs, therefore, are also declining in numbers. The great thing about shale oil and gas is that producers can respond relatively fast to changes in demand patterns. The trouble is that demand uncertainty is plaguing the industry. It will continue to plague it until it becomes clear one way or another if the world is going into a massive recession or if it will just be Germany and the rest of the eurozone. The more important factor over the longer term is well inventory. As the Wall Street Journal reported earlier this year, there has been concern among industry executives that the best inventory has been drilled through. It is, indeed, a concern that has been voiced repeatedly by Scott Sheffield, Pioneer Natural Resources’ CEO. “Most companies are drilling tier two and tier three inventories now,” having tapped their best prospects, Sheffield told Reuters in an interview in January. “Less quality production is coming out of the Permian, out of the Bakken.” With such a combination of factors—lower inventory quality, higher costs, demand uncertainty, and an anti-industry government—it would be nothing short of reckless to keep boosting production. So, the U.S. shale industry is doing what any industry would do under the circumstances, curbing production growth and waiting for signs that any growth-discouraging factors are about to change. The risk: a global supply squeeze. “If you still believe the global demand picture for oil is higher over the coming years and the US isn’t growing the way it used to . . . everywhere else has to fill that void,” Raymond James analyst Jim Rollyson told the FT last week.
RIL, BP ramp up KG-D6 gas output
Indian private-sector refiner Reliance Industries (RIL) and BP have raised gas output from “difficult fields” located in the KG basin off India’s east coast during April-June. RIL and BP ramped up production from the fields to 20.9mn m³/d of gas, as the two companies commissioned the MJ field during the period, RIL said in its earnings call on 21 July. The firm has two more wells to come on stream and is on track to achieve gas output from the KG-D6 block at 30mn m³/d during 2023-24, accounting for 30pc of India’s overall gas production, it added. India produced 34bn m³ of natural gas in April 2022-March 2023, preliminary oil ministry data show. RIL and BP have signed several gas sale and purchase agreement with fertilizers, city gas distribution, power, refinery, steel, and ceramics after conducting two rounds of e-auctions for a cumulative volume of 11mn m³. Their gas price realisation also remains higher by 11pc on the year at $10.81/mn Btu during April-June, but was lower by 5.1pc on the quarter as the government lowered the ceiling price at $12.12/mn Btu from $12.42/mn Btu earlier. RIL and BP have jointly developed three main gas fields in the KG basin. RIL owns around 67pc of the KG-D6 fields, with the rest owned by BP. RIL expects gas price volatility to continue this year, particularly because of high storage levels in Europe and higher nuclear output from Japan and France as well as demand recovery in China. RIL posted a consolidated net profit of Rs182.58bn during April-June, down by 6pc on the year owing to weak oil-to-chemical (O2C) demand following a decline in fuel cracks, weak petrochemical demand and a fall in crude oil prices. RIL’s revenue from the O2C business was at Rs1.33 trillion over April-June, down by nearly 18pc from a year earlier, the company said in a stock exchange filing. RIL’s refinery throughput was at 19.7mn t (396,000 b/d) during April-June, largely unchanged from January-March and from April-June 2022. It said that the impact of the cyclone Biparjoy was minimised because of depleted inventory and as two shutdowns of the FCC hydrotreater and Dahej cracker had been completed in the April-June quarter.
Goldman Sachs Sees Oil Prices Rising On Record Demand
Oil prices are set to rise to $86 per barrel at year-end, from $80 now, as record-high oil demand and lowered supply will lead to a large market deficit. “We expect pretty sizable deficits in the second half with deficits of almost 2 million barrels per day in the third quarter as demand reaches an all-time high,” Daan Struyven, head of oil research at Goldman Sachs, told CNBC’s “Squawk Box Asia” program on Monday. While demand is set for a record high this summer, supply is shrinking. The production and export cuts from OPEC+ and the slowdown in U.S. oil production growth will also play a part in large deficits in the third quarter this year. According to Goldman’s Struyven, “We expect U.S. crude supply growth to slow down pretty significantly to a sequential pace of just 200 barrels per day from here.” The total rig U.S. count fell to 669 last week, according to Baker Hughes data on Friday. So far this year, Baker Hughes has estimated a loss of more than 100 active drilling rigs. Last week’s count is also 406 fewer rigs than the rig count at the beginning of 2019, prior to the pandemic. Also last week, oilfield services giants Halliburton and Baker Hughes both signaled softer demand for drilling on the North American market. At the same time, there is already evidence of lower supply from OPEC+. Russian crude oil exports have shown signs of decline for a second consecutive week and are estimated to have sunk to a six-month low in the four weeks to July 16. Russia is preparing to cut 500,000 barrels per day (bpd) off its oil exports in August, and shipping plans so far suggest that Russia could deliver on at least part of its pledge to reduce oil exports next month. Saudi Arabia’s crude oil exports have also started to decline, to below 7 million bpd in May, for the first time in many months. Crude shipments out of the world’s top exporter could further decline as Saudi Arabia is now cutting its production by 1 million bpd in July and August.
Russia Is Losing The Energy Battle
“Russia has lost the energy battle,” Fatih Birol, Executive Director of the International Energy Agency (IEA), told French newspaper Liberation in March, a year after Russia invaded Ukraine. In the year and a half since Putin ordered troops into Ukraine and cut off natural gas supply via pipeline to many EU customers, Europe has managed to replace much of the piped gas with LNG imports, and has banned imports of Russian crude and petroleum products. The U.S. has stepped up to fill part of the oil and gas supply gap left by Russia. It was quite a gap, and American oil producers and exporters of LNG have been happy to fill it. “Trade flows have been turned on their head with Middle East and the US exporters the key beneficiaries,” Amrita Sen, head of research at consultancy Energy Aspects, told the Financial Times. Russia Loses European Energy Market Since the invasion of Ukraine, Russia has lost Europe as an energy customer and is now reduced to China and India for selling its crude oil. China and India are the world’s largest and third-largest crude oil importers, respectively, so the potential Chinese and Indian markets for Russian crude are huge. However, we may have already seen peak Indian crude oil imports from Russia, analysts say. Europe, for its part, is buying more oil and gas from the United States and is signing long-term LNG supply deals with U.S. exporters—deals that were not so ‘welcome’ in Europe just two years ago when climate goals were top of developed nations’ energy priorities. Russian gas is neither sanctioned nor embargoed anywhere, but some buyers in North Asia may have become wary of depending on Russian LNG too much. Before the war and the embargoes on its oil, Russia accounted for nearly 40% of all European imports of crude, refined products, and natural gas. Currently, the EU doesn’t import Russian crude, except Bulgaria, due to an EU derogation until 2024. Natural gas supply via pipelines from Russia now accounts for less than 10% of the EU’s gas supply, down from nearly 40% before the Russian invasion of Ukraine. Europe’s single biggest gas supplier now is Western Europe’s top oil and gas producer Norway, a close EU ally and a founding member of NATO. Some Asian Customers May Be Nearing Limits For Russia’s Energy As Europe is shifting away from Russian fossil fuels, Asian customers China and India have become the key customers of Russia’s crude. India’s oil imports from Russia continued to surge in the first half of 2023 as cheaper Russian crude exports find more and more buyers in the world’s third-largest crude oil importer. More than a year since the war began, India has turned from a marginal buyer of Russian crude to the most important market for Moscow’s oil alongside China. Indian refiners, not complying with the G7 price cap and looking for cheap opportunistic purchases, have snapped up many of the Russian Urals cargoes, which used to go to northwest Europe before the EU embargo. But India may have seen the peak crude imports of Russian crude, due to infrastructure constraints and the need to keep good trade relations with other crude oil suppliers, according to analysts at Kpler. “India will look to continue Russian crude imports, but perhaps it has reached its limit, hampering any additional barrels,” Janiv Shah, senior analyst at Rystad Energy, told CNBC this week. In natural gas, Asia looks to have limited spot purchases of Russia’s LNG, as major buyers in North Asia are estimated to have slashed imports from Russian export projects to the lowest in two years. Buyers are looking to diversify and avoid potential future problems with payments and deliveries, according to Bloomberg. U.S. Oil And Gas Exporters Win As buyers in Europe retreated from Russian oil, U.S. crude oil exports to Europe rose and are expected to continue rising. Last year, Europe ranked a close second after Asia in terms of U.S. crude oil purchases. European imports of crude from the United States averaged 1.51 million barrels per day (bpd) in 2022, accounting for 42% of American crude exports, just shy of the 43% of U.S. exports that went to Asia, per EIA data. “EU sanctions implemented in December 2022 that prohibit all seaborne imports of Russia’s oil to Europe make it likely that demand for U.S. crude oil will continue in 2023,” the EIA said earlier this year. “The US came out ahead with rising oil and gas exports and a new multibillion congressionally mandated plan to win in clean tech,” Amy Myers Jaffe, a New York University research professor and energy expert, told FT. In the LNG market, Europe and China are in an intensifying competition to sign long-term supply deals with U.S. LNG developers and exporters. Long-term LNG contracting has seen a flurry of deals in recent months, including from buyers in Europe, where energy security has taken center stage at the expense of concerns about emissions from natural gas imports. For the U.S. LNG developers and exporters, more long-term purchase deals with Europe – and Asia – mean more chances for projects to contract future volumes from planned export facilities and underpin financing and final investment decisions for a greater number of U.S. LNG export terminals.
VOC Port allots land to ACME for green hydrogen plant
V O Chidambaranar Port Authority, the state-owned entity that runs the port at Thoothukudi in Tamil Nadu, has issued a letter of intent to ACME Cleantech Solutions Pvt Ltd to lease 222.79 acres of port land for setting up a green hydrogen and green ammonia project with an investment of Rs 52,474 billion. V O Chidambaranar Port has become the first port in India to allocate land for production and export of green hydrogen. The land will be leased on annual rentals set by the port authority for 30 years, government sources said. V O C Port Authority has also leased 10 acres of land to ReNew Power Ltd for storage and export of green hydrogen and ammonia. The ACME plant will produce 3,000 tonnes per day of hydrogen. ACME and ReNew Power were among 25 entities that responded to an expression of interest issued by V O C Port Authority to set up green hydrogen and green ammonia projects on port land.
Pakistan to import 100,000 tonnes of Russian oil every month
In a bid to ensure cheap energy in the country, the government will import 100,000 tons of Russian crude oil every month. The Minister of State for Petroleum, Dr Musadik Malik, while talking to reporters here on Saturday said that the government is making all-out efforts to ensure the supply of cheap energy in the country. He said Russian crude oil is cheaper than other oils in the global market. The State Minister said that the government is expected to sign an agreement with Azerbaijan to buy cheap LNG very soon. He said that the deal to buy cheap LNG would be made, keeping in mind the local demand and condition of the country’s foreign exchange reserves. He also announced that private sector is allowed to purchase cheap LNG for their industry. However, he made it clear that the private sector will not be allowed to resale the cheap LNG. He said an agreement with Saudi Arabia for setting up oil refinery in Pakistan with the estimated investment of $10 billion is also expected soon.
Domestic crude oil production at 2.4 MMT in June, import bill declines to $9.5 billion YoY: PPAC
India produced a total of 2.43 million metric tonnes (MMT) of crude oil in June 2023, compared to the same level of 2.4 MMT reported in the year-ago period, according to Petroleum Planning & Analysis Cell (PPAC). Out of 2.5 MMT, Oil and Natural Gas Corporation (ONGC) produced 1.6 MMT of crude oil while Oil India Limited (OIL) and private sector producers contributed 0.27 MMT and 0.56 MMT, data released by the Oil Ministry showed. Crude oil imports increased by 0.6 per cent and decreased by 1.2 per cent during June 2023 and April-May 2023 respectively, compared to the corresponding period of the previous year. The net import bill for oil and gas was $9.5 billion in June 2023 compared to $13 billion in June 2022, according to PPAC. Out of this, the crude oil imports constitutes $10 billion, liquified natural gas (LNG) imports stood at $1.4 billion and the exports were $3.5 billion during June 2023, the data showed. During June 2023, the Indian basket crude price averaged $74.93 per barrel as against $74.98 per barrel during May 2023 and $116.01 per barrel during June 2022. The price of Brent Crude averaged $74.70/bbl during June 2023 as against $75.55/bbl during May 2023 and $123.70/bbl during June 2022. The production of petroleum products came in 23.1 MMT during June 2023 which is 4.6 per cent higher than June 2022, where 22.8 MMT was from refinery production and 0.3 MMT was from fractionator. On the other hand, natural gas consumption (including internal consumption) for June 2023 stood at 5,066 MMSCM (million metric standard cubic meters), which was 1.2 per cent lower than the corresponding month of the previous year, according to the official data. The cumulative natural gas consumption for the current financial year till June 2023 stood at 15,943 MMSCM, which was higher by 1.2 per cent compared with the corresponding period of the previous year. In addition, LNG import for June 2023 was 2,221 MMSCM which was 1.6 per cent lower than the corresponding month of the previous year. The cumulative import of 7,590(P) MMSCM for the current financial year till June 2023 was higher by 4.4 per cent compared with the corresponding period of the previous year. India is dependent on imports to meet over 85 per cent of its crude oil requirements and around 50 per cent of its natural gas requirements.
Russia is not ruling out quotas on fuel exports, deputy PM says
In a bid to stabilise global gasoline (petrol) prices, Russia may consider introducing quotas on the export of oil products, news agency Reuters quoted Russian Deputy Prime Minister Alexander Novak as saying on Friday. Gasoline wholesale prices are currently at an all-time high amid risk-on sentiment in broader markets and signs that Russia is making good on its pledge to curb supplies. Average gasoline prices at Saint-Petersburg International Mercantile Exchange (SPIMEX) rose on Wednesday by 1.8% to 62,653 roubles ($694.5) per tonne, reaching a new all-time high. As Russian oil is becoming more expensive, buyers such as India are now considering boosting purchases from traditional sources in the Middle East instead. Adding to supply shortages, Moscow aims to reduce its third-quarter crude export plans by 2.1 million tons, in line with its previously stated pledge to cut overseas shipments by 500,000 barrels a day. Earlier pledges by Russia and Saudi Arabia to cut back production helped spark the rally in crude that started in late June. “In principle, it is being considered. But there are other proposals too. We need to weigh the pros and cons,” he replied to a question on possible quotas for oil products exports, the RIA news agency reported. He added that some refineries had postponed planned maintenance to a later date to meet rising demand. An increase in production at refineries could facilitate Russia’s pledge to cut crude oil exports by 500,000 barrels per day in August in order to prop up the global oil market, Reuters report said. IIndia bought 60% of all Russian Urals oil exports in June with strong demand from all refiners, while shipments to China dropped to just 7% as independent refiners slowed buying, trading sources and Refinitiv Eikon data showed. Russia produces several different types of crude oil, but its main export blend is Urals, which is a medium sour crude, per IEA. Urals is Russia’s main export grade from its European ports and represents about a half of total Russian oil exports. The country, subject to severe Western sanctions over its actions in Ukraine, also exports oil from its Pacific ports, its Arctic ports and via a direct pipeline to China. The steep discounts on Russia crude oil that India gorged on since the Ukraine war, have plunged but the shipping rates charged by Russia-arranged entities continues to remain ‘opaque’ and higher than normal, sources told news agency PTI recently. Russia bills Indian refiners at a price shade less than the USD 60 per barrel price cap imposed by the West but charges anything between USD 11 to USD 19 per barrel, twice the normal rate, for delivery from the Baltic and Black Sea to the west coast, three sources with knowledge of the matter said. The USD 11-19 per barrel shipping costs from the Russian ports to India – some of it on the 100+ tankers reportedly acquired by Russian actors for a shadow fleet – are higher than rates for comparable distances, such as a voyage from the Persian Gulf to Rotterdam. Russia has heavily relied on India, China, Turkey and Bulgaria for oil sales since the imposition of sanctions. Retail fuel prices have been relatively stable as they are being regulated by the state.