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.
India’s green hydrogen push and challenges
India wants to become a global hub for the production of green hydrogen, manufactured by splitting water molecules using renewable energy. It is an ambitious plan for a country whose hydrogen consumed currently is produced mostly with fossil fuels. Although first production is expected only in 2026, India has been negotiating bilateral agreements with the European Union, Japan and other countries to start exporting the fuel. Below are some details about India’s green hydrogen push and challenges. PRODUCTION TARGET India aims for annual production of 5 million metric tons of green hydrogen by 2030, which would cut about 50 million metric tons of carbon emissions and save more than $12 billion on fossil fuel imports. Indian companies including Reliance Industries, Indian Oil, NTPC, Adani Enterprises , JSW Energy, ReNew Power and Acme Solar have made announcements for setting up a cumulative annual green hydrogen manufacturing capacity of 3.5 million metric tons. As of now, most of the 5 million metric tons of hydrogen consumed in the country is produced with fossil fuels. GOVERNMENT SUPPORT In January, India approved an incentive plan of 174.9 billion rupees ($2.11 billion) to promote green hydrogen. This would be at least 10% of the cost to produce green hydrogen. New Delhi has also extended a waiver of transmission fees for renewable power to hydrogen manufacturing plants commissioned before January 2031.
GAIL to implement Pipeline project as an ambitious project envisioned by Modi
After the commissioning of the 282 km pipeline in Bihar, Natural Gas has now reached North Bengal encompassing the districts of Uttar Dinajpur, Darjeeling, and Jalpaiguri. GAIL (India) Limited is implementing the Barauni Guwahati Pipeline, which is an integral part of the Jagdishpur-Haldia and Bokaro-Dhamra Pipeline as part of the Pradhan Mantri Urja Ganga Project, an ambitious project envisioned by Hon’ble PM Shri Narendra Modi.
India’s gas regulator pitches for building natural gas storage
India should build storage for natural gas to boost the use of cleaner fuel in the country and hedge against global price volatility, A. K. Jain, chairman of the Petroleum and Natural Gas Regulatory Board, said on Monday. He said India should have natural gas storage that allows suppliers to build stocks when prices are low. That will also help in meeting higher demand from the industries, he added. “For market dynamics and supply assurance for the customers to shift to gas, (we) require gas storage,” Jain told reporters at an event. India has 5 million tonnes of strategic petroleum reserves but no storage facilities for natural gas yet.
Saudi-based ITFC signs $1.4bn deal to fund Bangladesh oil imports
The International Islamic Trade Finance Corp., a member of the Islamic Development Bank Group, has signed a $1.4 billion financing plan with the Bangladeshi government to fund the country’s oil imports, the Saudi Press Agency reported on Saturday. The signing took place during a recent official visit by a high-level delegation from Bangladesh to the ITFC headquarters in Jeddah. “This financing plan will enable the Bangladesh Petroleum Company to import oil products from July to June 2024,” the statement on SPA said. The agreement “reflects the successful long-term partnership between the two parties and will contribute to ensuring energy security for one of the fastest-growing economies in South Asia.” It “demonstrates the corporation’s commitment to supporting the economic development of its member states and providing financing solutions that meet the needs of its customers,” the statement added.
Oil Prices Drop From Ten-Week High On Macroeconomic Concerns
Oil prices slipped in Asian trade early on Monday, retreating from Friday’s ten-week high amid profit-taking and continued concerns about the world’s two biggest economies, the U.S. and China. As of early trade in Europe, WTI Crude traded at $73.15, down by 0.96% on the day. The international benchmark, Brent Crude, was down by 0.96% at $77.72. Both benchmarks settled over 2% higher on Friday, to the highest levels in ten weeks. Early on Monday, however, macroeconomic concerns again trumped the ongoing OPEC+ efforts to tighten the physical market. The Chinese post-Covid recovery may have further slowed as evidenced by the steepest drop in the producer price index (PPI) in June since the end of December 2015. Chinese factory gate prices slumped by 5.4% in June compared to the same month in 2022, data from the National Bureau of Statistics showed early on Monday. The drop in producer prices was steeper than analyst estimates and the annual decline in May. At the same time, China’s consumer inflation was flat on an annual basis in June, suggesting that the authorities could consider further monetary stimulus to revive demand. The OPEC+ cuts and the U.S. Administration’s announcement on Friday that it plans to purchase around 6 million barrels of oil for the Strategic Petroleum Reserve (SPR), with delivery scheduled for October and November, limited the oil price declines. So far, the Biden Administration has bought 6.3 million barrels at an average price of $72.67 per barrel, compared to around $95 per barrel that SPR crude was sold for in 2022. “Cuts from both Saudi Arabia and Russia have provided some support, although the market will have to continue to contend with macro uncertainty, which has capped the market over the last couple of months,” ING strategists Warren Patterson and Ewa Manthey said on Monday. “The recent action taken by Saudi Arabia will likely provide some comfort to longs as it sends the signal that the Saudis are committed to putting a floor under the market.” According to IG strategist Jun Rong Yeap, “Hopes for some recovery in the second half of this year may be pinned on expectations for China to bring in more stimulus in the months ahead while US economic conditions retain some resilience.” The oil market will be closely watching this week the U.S. Consumer Price Index (CPI) report for June due out on Wednesday and OPEC and IEA’s monthly reports on Thursday.
China’s LNG Imports Soar Despite Global Price Dip
China’s imports of liquefied natural gas (LNG) hit 5-month highs in June, but weak demand, especially in Europe, kept a lid on prices. Last month, China imported 5.96 million metric tons of LNG, 28% higher than the 4.64 million the country purchased a year ago and also higher than 5.54 million metric tons imported in May. However, that still proved inadequate as the spot price slipped to $9.00 per million British thermal units (mmBtu), 87% below its record high of $70.50 in late August and the lowest since April 2021. The much-awaited buying frenzy by the EU as it looks to fill its gas stores ahead of winter has yet to materialize. Europe imported 9.50 million metric tons in June, down from 12.11 million in May and the lowest monthly total since August 2022. Rocked by one of the worst energy crises in living memory, the European Union launched a gas buyers’ cartel in 2022 and started issuing tenders for supplies. According to Sefcovic, some 50 gas suppliers and large industrial gas consumers in the EU immediately expressed interest in being part of the bloc’s joint gas-buying effort. A key objective of the whole endeavor is to keep gas prices low by buying in larger volumes. Well, Europe’s gas buyer’s club has been a resounding success, with the continent’s gas stores nearly 80% full. Unfortunately, Europe’s purchases of U.S. LNG have also dwindled, with June’s volumes clocking in at 4.15 million metric tons, down from 5.63 million tons in May. Europe’s gas inventories, including in the United Kingdom, have now hit 889 terawatt-hours (TWh), according to data from Gas Infrastructure Europe. Stocks are now +246 TWh +38% above the 10-year seasonal average, although the surplus has narrowed from +280 TWh +81% in March. Meanwhile, U.S. gas inventories have also been ticking higher, with stocks for the week ended June 30, 2023, up 72 Bcf to 2,877 Bcf. The deluge of gas has put nearby futures prices under immense pressure, with futures for gas delivered in October 2023 now trading at a discount of almost 12 euros per megawatt-hour to prices for April 2024. In contrast, they traded at a premium of more than 5 euros at the beginning of the year and a full 38 euros a year ago. China and Asia Become Key U.S. Customers Asia’s imports of U.S. LNG climbed to 1.34 million metric tons in June, up from 1.21 million in May and the most since February. Indeed, China and Asia are now the U.S. biggest LNG customers, a position Europe held last year when it purchased as much as 65% of U.S. output. The United States’ largest producer of LNG, Cheniere Energy (NYSE:LNG), has signed a long-term liquefied natural gas (LNG) sale and purchase agreement with China’s ENN Energy Holdings. ENN will purchase ~1.8M metric tons/year of LNG on a free-on-board basis at Henry Hub prices for a 20-year term, with deliveries to commence mid-2026 ramping up to 0.9 million tonnes per annum (mtpa) in 2027. Last year, ENN signed a 13-year deal with Cheniere to purchase 900K metric tons/year, again based on Henry Hub prices. The deal is subject to the completion of Cheniere’s Sabine Pass project, which is being developed to include up to three liquefaction trains with an expected total production capacity of ~20M tons/year of LNG. Currently, Sabine Pass has six fully operational liquefaction units aka ?”trains”, each capable of producing ~5 mtpa of LNG for an aggregate nominal production capacity of ~30 mtpa. Cheniere processes more than 4.7 billion cubic feet per day of natural gas into LNG. Sabine Pass has multiple pipeline connections to interstate and intrastate pipelines, and is located less than four nautical miles from the Gulf of Mexico, thus providing easy access to seafaring vessels. Previously, Cheniere entered another long-term liquefied natural gas sale and purchase agreement with Norway’s national oil company Equinor ASA (NYSE:EQNR) that will see Equinor purchase 1.75M metric tons/year of LNG on a free-on-board basis for a purchase price indexed to the Henry Hub price, for a 15-year term.
The Great Oil Market Paradox: Inflation Fears Meet Rising Demand
Inflation concern. Rate hike fears. These have been the drivers of oil market moves for months now. Demand and supply have largely remained ignored. But this may be about to change. “This is in a year where there [are] economic headwinds, where there [are] recessionary signs everywhere … China’s still picking up,” the chief executive of Aramco acknowledged earlier this week, but added, speaking to CNBC, that he was optimistic for the future. The reason Amin Nasser was optimistic was, once again, China’s recovery. In fact, China’s recovery in the fuel use department has been quite robust. Demand for oil hit a record earlier this year and is likely to remain strong throughout 2023. Ignoring this fact to focus on factory activity does not mean it would go away. It’s not just the CEO of Aramco, either. Energy Aspects’ Amrita Sen this week noted an overlooked aspect of the central banks’ rush to tame inflation—the same rush that has kept oil prices depressed for much of the year. And that overlooked aspect could have a bullish effect on prices later in the year. It’s all about the cost of money, Sen wrote in an op-ed for the Financial Times. When central bankers hike rates, borrowing costs increase. And oil traders keeping millions of barrels in storage become unhappy. To fix this, they are beginning to sell this oil to reduce their costs. And that means there is less oil in global storage. Sen reported that, per Energy Aspects calculations, the world has just 22 days of oil demand covered with oil in storage. That’s three days below the average for 2010-2019, she noted, and about to fall further by the year’s end. Incidentally, global air travel is rebounding, and it is rebounding especially strongly in China, per a fresh report from the International Air Travel Association. The IATA this week reported a 130.4% increase in revenue passenger kilometers in the Asia-Pacific for May, which was by far the biggest increase in air travel in the world. Traffic in the region shot up by 156.7%. The figures were similar for China specifically, while every other big market—regional and national—saw much lower increases in air travel. It’s worth noting that all regions saw double-digit annual increases in air travel, meaning a solid increase in jet fuel demand, too. No wonder, then, that despite day-to-day oil price movements, Saudi Arabia’s Energy Minister remains bullish. The kingdom earlier this week announced an extension of its voluntary production cut of 1 million bpd for another month and possibly longer. On the heels of this announcement came one from Russia, which said it would cut exports by half a million barrels daily from August. Prices did not rise in any meaningful way following the news, which gave some commentators reason to argue that the output cuts were in fact bearish news for the oil market. These cuts, Reuters’ Clyde Russell wrote in a recent column, suggested that demand is falling short of expectations. Yet OPEC is either putting up a brave face, or its members are watching more than China’s factory activity. At this week’s OPEC conference in Vienna, unnamed sources close to the group told Reuters its outlook for oil demand remained quite positive. OPEC is later this month publishing its first outlook for 2024, and, according to the people who spoke to Reuters, it would feature a bullish view on demand. It would be lower than this year’s demand growth rate, but that has been extra-strong as the world exits two years of lockdowns. Indeed, even the International Energy Agency said in its June Oil Market Report that “Global oil demand continues to defy the challenging macroeconomic climate and is set to rise by 2.4 mb/d in 2023, outpacing last year’s 2.3 mb/d increase as well as earlier expectations.” It is this divorce between what oil traders are watching and what is actually happening with oil demand that is keeping oil prices depressed. And it is this divorce that can come crashing down in the second half of the year amid tighter supply, including from all-time production growth champion U.S. There is one way that prices could remain depressed, however. In fact, they could even fall further—if a large part of the world slides into a recession despite all the efforts central banks have made and are still making, whatever the pain to businesses and consumers. Indeed, in no random irony, it could be the central bank’s monetary tightening efforts that could cause a recession in a classic case of a cure being worse than the disease. Oil traders destocking is one instance of this. Another is lower consumer spending as prices rise due to higher borrowing costs for the companies that produce them. Recession fears are bound to linger, weighing on oil prices, for the remainder of the year at least. At the same time, signs of a physical tightening of the oil supply will sooner or later reach the attention of traders, and they will react accordingly, prompting a price rebound.