Russia’s Urals Oil Breaches $60 Price Cap For The First Time
Russia’s flagship crude grade, which has been trading consistently below the price cap set by the G7 and the European Union, climbed above $60 per barrel on Wednesday. That’s supported by Argus Media data, cited by Bloomberg. It is now, for the first time, that observers can judge if the price cap is actually working. Before, with Urals trading below it anyway, it could hardly be argued that the cap was doing anything to deliberately squeeze Russia’s oil export income. In fact, because another Russian grade, ESPO, has been consistently trading above the price cap, it could be argued that the cap was not the most effective of tools, mostly creating a headache for Western insurers and shipowners. But now that Urals has jumped above the cap, even temporarily, things could get interesting—and unpleasant for buyers. According to energy analyst Vandana Hari from Vanda Insights, when it comes to India “It’s problematic.” “Indian banks have been extra cautious in the last few months for fear of sanctions, requiring the refiners to show that the free-on-board price of their cargo was below $60 in order to put the payment through,” Hari told Bloomberg. If Urals jumps above $60 again, it means Russia and its oil buyers would have to increase the use of non-Western insurers and tanker operators to avoid punitive action from the G7 and the EU. “We are monitoring the market closely for potential violations of the price cap,” the U.S. Treasury said in a statement cited by Bloomberg. “It is worth noting that trades above $60 that do not use Coalition services are not in violation of the price cap and a substantial proportion of Russian oil trades, though, still use Coalition service providers.”
Petroleum Ministry lowers domestic content criteria, purchase preference advantage for homegrown firms in oil & gas PSUs LSTK, EPC projects
Prime Minister Narendra Modi’s push for Make in India suffered a setback on Tuesday with Petroleum Ministry lowering the domestic content criteria as well as purchase preference advantage for homegrown firms in lumpsum turnkey (LSTK) or engineering, procurement and construction (EPC) projects floated by oil and gas public sector undertakings (PSUs To give preference to local suppliers and to promote domestic manufacturing and production of goods and services, India in 2017 classified a Class-I local supplier, with local content ‘equal to or more than 50 per cent’, as the winner in all PSU global contracts provided the Class-I supplier sourced 50 per cent of its content locally and matched the lowest bid, even if it had quoted 20 per cent higher than the lowest bid. These thresholds were greatly reduced on Tuesday through a Ministry order whereby the domestic content contribution was lowered to 30 per cent — gradually escalating to 50 per cent — and the purchase preference price differential reduced to 10 per cent across the board and for all years to come. That, in essence, means that any foreign firm stands a chance to win LSTK and EPC contracts even if it domestically sources 30 per cent of the project value (instead earlier 50 per cent) and majorly, that domestic Class-I firms would have to be well within 10 per cent price range (instead of the earlier 20 per cent) quoted by a foreign firm to bag the purchase preference advantage. “…to increase competition and to incentivize progressive increase in Minimum Local Content (MLC) in high value oil and gas LSTK/EPC contracts/projects, it has been decided under para 14 of the Public Procurement (Preference to Make in India) Order 2017 to revise the MLC for getting the purchase preference and Margin of PP for such contracts/projects on progressive basis with predictable trajectory,” says the Ministry’s July 11 order.
Demand for term LNG contracts firms amid supply security concerns
LNG term contract volumes have leapt this year, as energy security becomes paramount worldwide, with markets — most notably among them China — snapping up deals to head off potential shortages, industry sources and analysts have told S&P Global Commodity Insights. While long-term deals have become increasingly appealing to buyers, short and medium-term arrangements have remained important, due to the flexibility they provide, industry observers said. The LNG supply response takes a minimum of around four years to come through and 2022-27 represents a period of “reshuffle”, according to Michael Stoppard, global gas strategy lead and special adviser with S&P Global Commodity Insights. Most of the recent term deals have been for volumes from either projects yet to reach final investment decision, or from part of capacity expansions at existing developments.
Iraq Takes First Step Towards Becoming The World’s Biggest Oil Producer
Iraq’s parliamentary oil and gas committee plans to increase the country’s oil production to more than five million barrels per day, according to the release of committee minutes last week. As analysed in full in my new book on the new global oil market order, not only could this be done with relative ease by Iraq but it could also easily be the precursor to further oil production increases to 13 million barrels per day (bpd) if handled correctly. This would make Iraq the biggest oil producer in the world. In broad terms, Iraq remains the greatest relatively underdeveloped oil frontier in the world. Officially, according to the EIA, it holds a very conservatively-estimated 145 billion barrels of proved crude oil reserves (nearly 18 percent of the Middle East’s total, and the fifth biggest on the planet). Unofficially, it is extremely likely that it holds much more oil than this. In October 2010, Iraq’s Oil Ministry increased its own figure for the country’s proven reserves to 143 billion barrels. However, at the same time as producing the official reserves figures, the Oil Ministry stated that Iraq’s undiscovered resources amounted to around 215 billion barrels. This was also a figure that had been arrived at in a 1997 detailed study by respected oil and gas firm, Petrolog. Even this figure, though, did not include the parts of northern Iraq in the semi-autonomous region of Kurdistan. This meant, as highlighted by the IEA, that most of them had been drilled during a period before the 1970s began when technical limits and low oil prices gave a narrower definition of what constituted a commercially successful well than would be the case now. Overall, the IEA underlined that the level of ultimately recoverable resources across all of Iraq (including the Kurdistan region) at around 246 billion barrels (crude and natural gas liquids). Given the true scale of Iraq’s oil reserves – and the fact that the average lifting cost per barrel of oil in the country is US$1-2 pb (the lowest in the world, along with Iran and Saudi Arabia) – what sort of oil output could reasonably be expected? Back in 2013, the Integrated National Energy Strategy (INES) was produced, and this analysed in detail three realistic forward oil production profiles for Iraq and what each would involve. As also analysed in my new book, the INES’ best-case scenario was for crude oil production capacity to increase to 13 million bpd (at that point, by 2017), peaking at around that level until 2023, and finally gradually declining to around 10 million bpd for a long-sustained period thereafter. The mid-range production scenario was for Iraq to reach 9 million bpd (at that point, by 2020), and the worst-case INES scenario was for production to reach 6 million bpd (at that point, by 2020). Consequently, the 5 million bpd figure announced last week can be regarded as the first easily achievable stepping stone toward those figures. Indeed, according to Iraq’s Oil Minister, Hayan Abdel-Ghani, last week, the country’s oil production capacity already stands above this level – at 5.4 million bpd – although it is still only producing around 4.3-4.5 million bpd overall. The question at this point is, with these enormous reserves in place, and specific plans on how to turn these into up to 13 million bpd in the Oil Ministry’s files, why is Iraq not already producing a lot more oil than it is? The reason is the ongoing endemic corruption that lies at the heart of Iraq’s oil and gas industry. This not only removes enormous amounts of money from Iraq’s coffers that could fund much-needed infrastructure investments but also deters Western companies with the required technology, logistical expertise, and personnel from becoming too involved in the country. Although commissions are standard practice in the Middle East – and indeed across many business around the world – the practice has become something else entirely in Iraq. This has been highlighted repeatedly by OilPrice.com and independently over many years by Transparency International (TI) in various of its ‘Corruption Perceptions Index’ publications, in which Iraq normally features in the worst 10 out of 180 countries for its scale and scope of corruption. “Massive embezzlement, procurement scams, money laundering, oil smuggling and widespread bureaucratic bribery that have led the country to the bottom of international corruption rankings, fuelled political violence and hampered effective state building and service delivery,” TI states. “Political interference in anti-corruption bodies and politicisation of corruption issues, weak civil society, insecurity, lack of resources and incomplete legal provisions severely limit the government’s capacity to efficiently curb soaring corruption,” it concludes. The sums of money that Iraq has lost could have funded all the major projects needed to boost oil production up to at least 7 or 8 million bpd to begin with, notably the crucial Common Seawater Supply Project (CSSP), as also analysed in my new book. According to a statement made in 2015 by then-Oil Minister – and later Prime Minister of Iraq – Adil Abdul Mahdi, Iraq “lost US$14,448,146,000” from the beginning of 2011 up to the end of 2014 as “cash compensation” payments to international oil companies and to other entities. In basic terms, the way in which such a staggering sum was lost relates to the way in which gross remuneration fees, income tax and the share of the State partner was deducted and accounted for in the compensation paid out over reduced oil production levels. The sheer scale and scope of this corruption created the unwillingness of major Western firms to become too heavily involved in the country. In June 2021, U.K. oil super-major, BP, said it was working on a plan to spin off its operations in Iraq’s supergiant Rumaila oil field into a standalone company. The statement was highly reminiscent of the withdrawal of the U.K.-Dutch oil super-major, Shell, from Iraq’s supergiant Majnoon oil field in 2017 and of its withdrawal from Iraq’s supergiant West Qurna 1 oil field in 2018. Each of
Government floats tender to set up 4,50,000 ton green hydrogen production facility in India
Solar Energy Corporation of India (SECI) has floated a tender for setting up a production facility of 4,50,000 tonne of green hydrogen in India under the Strategic Interventions for Green Hydrogen Transition (SIGHT) scheme. SECI is a Government of India enterprise under the administrative control of Ministry of New & Renewable Energy (MNRE). It is a nodal agency for implementing various schemes for renewable energy in the country. According to the tender document, the total capacity available for bidding is 4,50,000 tonne per annum including 4,10,000 tonne under Technology Agnostic Pathways and 40,000 tonne under Biomass Based Pathways. The total capacity to be allocated under this tender is 450,000 tonne per annum of green hydrogen (GH2), it stated. It provided that a bidder, including its parent, affiliate or ultimate parent or any group company shall submit a single bid undertaking to set up a GH2 production facility. The projects shall be quoted in multiples of 500 tonne only, it stated
India explores building liquefaction units in Iraq to convert flared gas into LNG
India has initiated exploratory talks with Iraq to assess the possibility of building facilities to liquefy natural gas that is flared at the West Asian country’s oil and gas facilities, and transporting it as liquefied natural gas (LNG) to India, a senior government official said. The proposal came up during last month’s India-Iraq Joint Commission Meeting in Delhi. India already has strong ties with Iraq, particularly in energy trade with Baghdad being a top source of Delhi’s crude oil imports. Put simply , gas flaring refers to burning of unwanted and unutilised associated natural gas that is produced during oil production and other processes in the oil industry. A major oil and gas producer, Iraq is one of the biggest gas flaring countries as it lacks facilities to capture and process the gas to convert it into fuels or export it as LNG. Iraq flares a lot of gas and we are a large importer of gas. So, we are exploring if our companies can set up plants in Iraq to liquefy that gas into LNG,” said the official, who did not wish to be identified. As per estimates by global agencies, Iraq flares around 50 million standard cubic metres per day (mscmd) of natural gas. In 2022-23, India’s LNG imports stood at 19.9 million tonnes, which is equivalent to 71.6 mscmd of natural gas. The official quoted above however, did not name the Indian companies that may be looking at building liquefaction facilities in Iraq. The estimated timelines are also not clear, considering various impediments, particularly the security situation in Iraq.
Insulating consumers from oil price gyrations key for India’s demand growth: minister
India’s oil and gas consumption is growing at a rapid pace and to ensure that the upward trajectory is sustained it is crucial that domestic consumers remain insulated from surging international oil and gas prices, petroleum minister Hardeep Singh Puri said. “While we talk about growth, we have been mindful of inflation and prices. We have successfully insulated the common man from the surge in international prices, and our policies have ensured sustained availability of fuel at the most reasonable prices,” Puri told a recent industry seminar. Latest data from the Petroleum Planning and Analysis Cell showed that India’s oil demand rose 5.7% year on year to 116.44 million mt, or 5.1 million b/d, in the first half of 2023. India’s diesel demand rose 7.4% in the first half of 2023 from the same period in 2022, while gasoline demand rose 8.2%. Demand for jet fuel and naphtha rose 24.4% and 6.4%, respectively, over the same period. “Refining activities are expected to be robust in the second half of the year, driven by strong domestic demand,” said Sumit Ritolia, refinery economics analyst at S&P Global Commodity Insights. “As we enter the second half of the year, demand typically increases with the start of the festive and wedding season. Additionally, in the first and second quarters of 2024, India will have its central election, and the government is placing significant focus on infrastructure activities, further driving increased demand and consumption,” he added. Economic outlook brightens Puri quoted World Bank’s prediction for a robust 6.3% GDP growth rate for India in 2023-24 (April-March), saying it was a reflection of the country’s robust economic fundamentals. “Our growth, undeniably, has been fueled by our voracious energy consumption, a by-product of rapid urbanization and industrialization,” Puri said, adding that a quarter of the global energy demand growth between 2020 and 2040 was projected to originate from India. “We have not merely survived, but thrived, with the highest growth rate amongst the top five economies worldwide. Even in the face of global slowdown, we are projected to contribute to around 15% of global growth in 2023,” Puri added. As the economy continues to outshine on the global stage, the petroleum sector will continue to play a crucial role in fueling the country’s growth, the minister said. “A growth-energy correlation is manifestly visible as India stands today as the world’s third-largest energy consumer, the third-largest consumer of oil, the third-largest LPG consumer, the fourth-largest LNG importer, the fourth-largest refiner, and the fourth-largest automobile market in the world,” Puri said. He said that New Delhi’s resolve to bring reforms in the energy sector is unwavering, and the cabinet’s recent approval of critical gas pricing reforms is testament to this commitment. “The benefits of these reforms have helped the public, with a noticeable reduction in the average cost of piped natural gas and compressed natural gas,” the minister said. India said in late March that a unified tariff for all interconnected gas transmission pipelines owned and operated by authorized entities — Indian Oil Corporation Limited, Oil and Natural Gas Corporation Limited, GAIL (India) Limited, Pipeline Infrastructure Limited, Gujarat State Petronet Limited, Gujarat Gas Limited, Reliance Gas Pipelines Limited, GSPL India Gasnet Limited and GSPL India Transco Limited — came into effect April 1. The crucial reform has been hailed by many market participants as positive, with the reform set to usher more price transparency, boost gas-related infrastructure, and provide access to remote areas. Supply diversification Puri said India was taking crucial strides towards diversifying its energy supplies and increasing the share of alternate energy sources like biofuels, ethanol and CBG. It was also boosting domestic oil and gas production, as well as setting new energy targets through electric vehicles and hydrogen. “We have diversified our import basket from 27 countries in 2006-07 to 39 in 2023,” Puri said. He added that India increased its ethanol content in petrol from 1.53% in 2013-14 to more than 11.5% by March 2023. India has set a roadmap for ethanol blending, with the aim to achieve a blend comprising 20% ethanol in petrol by fiscal year 2025-26. Puri said E20 was rolled out on Feb. 8, ahead of its April target. The number of outlets retailing E20 stood at almost 600 and will cover the entire country by 2025. “We are relentlessly pursuing these initiatives and targets with the belief that it will usher in a new era of sustainable and secure energy for India, bolstering our economic growth while safeguarding the environment for our future generations,” Puri said.
HPCL gets bids to lease part of Chhara LNG terminal
India’s Hindustan Petroleum Corp Ltd has received six or seven bids from industries to lease a part of its Chhara liquefied natural gas (LNG) import terminal on the west coast, the LNG unit’s chief executive said on Monday. HPCL aims to commission the terminal, with a planned capacity of 5 million metric tons per year (tpy) in the December quarter, K Sreenivasa Rao told reporters at an event. “We have received six or seven bids, and in the next three months, we should be able to decide on the award,” Rao said. HPCL was looking to lease capacity of 3 million tpy to other companies for a period of more than 10 years, he added. The terminal was completed in March, but its commissioning has been delayed as a 40-km (25-mile) pipeline link to an existing network meant for sales to consumers is not yet ready, Rao said. “We hope the 40-km pipeline should be ready very soon.” The terminal will run at about 30% of capacity in 2024 to reach full capacity in four or five years, he said, adding that HPCL has also made provision to double capacity to 10 million tpy in future. India is beefing up its gas infrastructure as Prime Minister Narendra Modi targets an increase in the share of natural gas in its energy mix to 15% by 2030 from about 6.5% now. India’s gas demand is picking up now, as prices have softened, Rao said, following a spike that had damped demand.
Oil & Gas exploration: Govt receives 13 bids for 10 blocks
The government received 13 bids, including three from the private sector, for 10 oil and gas blocks on offer in the latest exploration licensing round where companies had a year to submit their bids, according to a notification by the Directorate General of Hydrocarbons (DGH), which oversaw the process and extended bid submission deadline several times. State-run Oil and Natural Gas Corp (ONGC) placed bids for nine blocks while Oil India, Vedanta, Sun Petrochemicals, and the joint venture of Reliance Industries and BP placed bids for one block each. ONGC would win six blocks without a contest but compete with Vedanta, Sun Petrochemicals, and Oil India in one block each. Reliance-BP joint venture also faces no competition for the block it has bid for in the KG Basin.
Big Oil’s Radical Proposal: Curtail Consumption, Not Production
Last year, in the middle of an energy crunch, European governments called on their citizens to consume less energy. They also lashed out at Big Oil for making billions from the squeeze. Now, Big Oil is the one calling for a reduction in energy consumption. Essentially, supermajors have suggested that people should use less of their products. But they don’t want to slash production. The seemingly paradoxical message came out earlier this week from a conference in Vienna, where OPEC leaders met with their Big Oil counterparts from BP, Shell, and other oil companies to discuss the future of global energy. As might have been expected in this day and age, the message to come out of the gathering was that everyone is committed to a net-zero world in the future but that right now, everyone was committed to ensuring there is enough energy for those who need it, regardless of the source. What was, perhaps, less expected was the reported call from Big Oil for governments to focus on demand reduction rather than supply limitation as a means of enabling that net-zero world. OPEC officials, meanwhile, focused on the importance of energy security as they have done before. “We must do everything we can to reduce emissions, not to reduce energy,” OPEC secretary-general, Haitham al Ghais said, as quoted by Euronews. “There is a misconception going around about reducing production and reducing investment in oil and gas, we do not agree with that message.” One would assume the reason OPEC disagrees with this message is that it would lead to lower profits for its members. But according to Big Oil, the motive for switching from a focus on supply to one on demand will avoid even higher profits for oil producers. Not that the executives put it quite this way. The report on that call comes from Reuters, which was once again refused access to the conference but quoted sources present there. And that call follows statements made by Big Oil executives that they will slow down with their pivot away from their core business. From an activist perspective, Big Oil is trying to justify its renewed focus on oil and gas at a time when oil and gas are making record profits. From an energy security perspective, it is difficult to argue that reducing the supply of a commodity while leaving demand unchanged could only have one result: a sharp rise in the price of that commodity. Of course, there is a case to be made that right now, despite stable and growing demand for oil, prices are depressed—but this is because factors different from oil’s fundamentals are running the show, as it were. These factors include GDP growth in big consumers, inflation, and central bank monetary policy. But there is also the perception that there is an abundant supply of oil that has contributed to the pressure on prices. So, what Big Oil executives are basically saying is that governments—and activists—have got the wrong end of the stick: they are trying to reduce the supply of oil and gas without addressing demand. And that is an approach that is doomed to failure, as we saw last year when the same governments that berated Big Oil for its profits subsidized the consumption of Big Oil’s products to avoid riots on their hands. Meanwhile, at another recent event, other Big Oil executives dared speak a truth that few leaders in the West would even acknowledge in private. That truth amounts to the fact that oil and gas are going nowhere in the next few decades, no matter what green transition plans governments are making. “We think the biggest realization that should come out of this conference … is oil and gas are needed for decades to come,” is how Hess Corp.’s John Hess put it. “Energy transition is going to take a lot longer, it’s going to cost a lot more money and need new technologies that don’t even exist today.” Naturally, this would be a welcome opportunity for a climate advocate to argue that Big Oil is trying to save its bacon when the world is turning vegan, but even that climate advocate would be hard-pressed to explain why, if the world’s moving away from hydrocarbons, China is building coal plants and India is building refineries. The truth is that the world is not moving away from hydrocarbons. Demand for oil has hit 102 million barrels daily. Demand for gas is soaring, too, notably from transition poster continent Europe. U.S. oil consumption is also growing after a drop in 2020—the lockdown year. There may be something, then, in a call for addressing demand for oil and gas instead of calling for less production. But addressing demand with a view to essentially discouraging it will be tricky—and also highly unpopular among voters. Germany is a good example worth studying by other transition-minded countries. It shows that forcing the transition down people’s throats does not usually yield the expected results.