Indian imports of US ethane for petchems to expand
State-controlled refiners Bharat Petroleum (BPCL) and Gail are investing in new ethane-fed cracker projects at their existing petrochemical facilities to capitalise on the abundant availability of cheap US ethane and the growing fleet of very large ethane carriers (VLECs). This follows on from private-sector refiner Reliance switching to US ethane at its 1.5mn t/yr ethylene cracker in Jamnagar, in west India’s Gujarat state, over the past few years, having previously relied on ethane extracted from LNG imports from the Mideast Gulf. Gail operates two 450,000 t/yr crackers at its Pata petrochemical plant in Uttar Pradesh in northern India, which can use either ethane or propane. This arrives through the Hazira-Vijaypur-Jagdishpur pipeline having been fractionated and processed from LNG at Hazira on the west coast of Gujarat. BPCL is also increasingly integrating its refining operations with petrochemicals, but presently only has 500,000 t/yr of propylene capacity at its 310,000 b/d Kochi refinery in Kerala. BPCL is investing close to $6bn to develop an ethane-fed cracker at its 156,000 b/d Bina refinery in Madhya Pradesh, while Gail is spending a similar amount on building a 1.2mn t/yr ethane-fed cracker near its 5mn t/yr LNG plant at Dabhol in Maharashtra. Gail has signed an initial agreement with Shell Energy India to import US ethane and has expressed interest in hiring VLECs to transport the supply over 20 years starting from mid-2026. The plans are partly aimed at cutting reliance on LNG after a shortage last year prompted by disruptions to supplies from Russia’s state-controlled Gazprom in the wake of the war in Ukraine, and surging international prices. Petrochemical producers in India imported 1.3bn m³ of LNG in 2022, down by 47pc on the year, oil ministry data show. This resulted in Gail shutting down its Pata plant for a few months and then operating it at a lower utilisation when it was brought back on line. Besides the price and reliability of LNG imports, the act of processing and fractionating it for use in NGLs in India also adds complication and costs. “We continue to focus on differentiated and specialty polyester products,” Reliance said recently. “We have always mentioned about having zero dependence on LNG and that essentially continues.” Plant pressures India’s ethane imports have been relatively steady in recent years. They reached 1.62mn t in 2022, compared with 1.53mn t in 2021 and 1.57mn t in 2020, Vortexa data show. But the country’s expanding ethylene production capacity and domestic consumption will boost this in the coming years. India’s ethylene demand is likely to increase to 8.7mn t and polyethylene consumption to 6.9mn t by 2026, Argus calculates. Center Approves Setting up of Ethanol Plant in Una June 8, 2023: The Central Government has approved the ethanol plant being set up by Hindustan Petroleum Corporation Limited (HPCL) in district Una of Himachal Pradesh. This plant will be set up on 30 acres of land at a cost of 5 billion. Rice, sugarcane, and corn are majorly used for ethanol production. Therefore, this scheme will also prove helpful in strengthening the economy of the farmers of the region. Chief Minister Thakur Sukhwinder Singh Sukhu had taken up the matter with the Centre. The raw material for this plant will be procured from districts Kangra, Hamirpur, Bilaspur, and Una. Apart from this, this plant will provide employment and self-employment opportunities to the local people and farmers of Kangra, Hamirpur, Bilaspur, and other parts of the state. With the establishment of this plant, about 300 people of the area will get direct and indirect employment opportunities.
Cheap Russian crude imports turn not so profitable for Indian oil companies
India managed to reduce its overall expenditure on crude oil imports by taking advantage of discounted Russian oil. However, Indian Oil Marketing Companies (OMCs) failed to maximise the benefits from this favorable situation. Kotak Institutional Equities in a report said that, “We also note that while India’s overall crude imports costs have benefitted from Russian imports, OMCs’ reported raw material costs do not show any increased advantage versus Dubai crude.” Kotak Institutional Equities say that the benefit of Russian crude will be higher for companies like Nayara Energy, which is owned by Rosneft, a Russian OMC. Indian oil companies have to spend more on transportation and insurance costs as compared to Nayara Energy which saves cost and benefits from the discounted Russian crude oil. Indian Oil Corporation’s (IOC) raw material costs in Q2FY23 was around $115 billion per barrel, while Dubai crude oil was around $105 billion per barrel. This means IOC was not able to monetise the benefits of Russian imports. Similarly, Bharat Petroleum Corporation’s (BPCL) raw material costs in Q2FY23 was around $115 billion per barrel compared to Dubai crude oil, which was around $105 billion per barrel. Dubai crude is used as a benchmark. Thus, if Indian refiners’ crude costs decline (versus Dubai crude), it not only boosts their refining GRMs, but also offers improved advantage over Singapore GRM
More Russian Oil is making backdoor entry into NATO nations via Saudi Arabia, UAE
The cat is out of the bag. India is not the only country using imported Russian oil to export processed petro-products. West Asian oil giants, led by Saudi Arabia, are buying millions of barrels of Russian diesel oil, which is banned in Europe, to sell the product to buyers in the European Union (EU). Saudi Arabia and the United Arab Emirates (UAE) are importing low priced Russian oil to jack up oil exports at higher prices to Europe. Earlier, reports suggested that India, the world’s third largest consumer and importer of crude oil, was exporting Russian oil, after refining, to countries in Europe and Asia. These reports are only partly true as India has been exporting refined oil products for many years. India has been importing crude oil from a number of countries. Lately, India has substantially raised its crude oil imports from the US, with the country’s share in India’s crude basket hitting a record 14.3 percent in December. While Russia has become the top source of crude oil with a share of 21.2 percent in December, India reduced its dependence on Iraq (16.9 percent), UAE (6 percent) and Kuwait (4.2 percent) to accommodate more crude imports from the US. In December, crude oil imports from the US shot up 93 per cent to 3.9 million MT. India hardly imported crude oil from Russia till 2021. Huge transportations costs made Russian crude oil very expensive compared to India’s nearby import sources from West Asia. Incidentally, India’s first greenfield private sector refinery at Jamnagar in Gujarat, put up by Reliance Industries (RIL), was granted export-oriented status as early as in April, 2007. It used imported crude oil, mostly from West Asian suppliers, to make refined products for the purpose of export. The RIL refinery has an installed capacity of 1.24 million barrels per day, making it the world’s largest refinery. The situation changed after the Russia-Ukraine war began in February, last year. The western trade and financial embargo on Russia forced the latter to sell its oil and other products at large discounts. Oil imports suddenly became much cheaper from Russia. This made India go for Russian crude oil as the country’s energy market is 87 percent dependent on imported oil. Till 2020-21, India’s purchase of crude oil from Russia was less than one percent of its total oil imports. India bought only 419,000 tonnes of crude oil from Russia in the first 10 months of 2020-21, which was 0.2 per cent of the total import of 175.9 million tonnes. India exported refined petroleum products worth US$49 billion in 2021, making the country the world’s third largest refined petroleum exporter. The main export destinations were Singapore ($4.59 billion), the US ($3.56 billion), the Netherlands ($2.89 billion) and Australia ($2.62 billion). India’s fastest growing export markets for refined petroleum during 2020 and 2021, well before the Russia-Ukraine war, were the US, Australia and Togo
Saudi output cut unlikely to lift oil prices to high $80s-low $90s, Citi says
Top crude exporter Saudi Arabia’s one million barrel per day (bpd) oil output cut is unlikely to underpin a “sustainable price increase” into the high $80s-low $90s with weak fundamentals pointing to lower prices by year-end, Citi analysts said in a note on Tuesday. Brent gained as much as $2.60 on Monday after Saudi Arabia, OPEC’s de facto leader, said its output would drop by 1 million bpd to 9 million bpd in July. However, oil prices came off those gains to edge lower on Tuesday. “We see average quarterly prices fairly range-bound for the year, averaging $81 for Brent in both H1 and H2 but with the potential to range between $72 and $90,” Citi said in the note. Citi analysts cited factors such as weaker demand and stronger non-OPEC supply by year-end, potential recessions in the U.S. and Europe, and lower growth in China which could see prices end up lower rather than higher this year and in 2024. OPEC+, which groups the Organization of the Petroleum Exporting Countries and allies led by Russia, currently has cuts of 3.66 million bpd in place, amounting to 3.6% of global demand, to limit supply into 2024 as the group seeks to boost flagging oil prices. But “it would take surprisingly better coordinated action among OPEC+ producers to tighten markets… The likelihood that Saudi Arabia would tackle this on its own on a sustained basis is quite low,” Citi said. Citi said if Saudi Arabia kept production at 9 million bpd throughout the third quarter of this year, the deficit during the period would widen to above 1 million bpd and leave global oil markets finely balanced in 2023 – however, markets would still face a large surplus in 2024. Other analysts said a global shortfall in supply is set to deepen in the third quarter following the kingdom’s output cuts and could push Brent towards $100 a barrel by year-end.
Saudi Oil Output Cut Unlikely To Hurt India As Russia Leaps Ahead
Saudi Arabia’s decision to further cut crude output is unlikely to hurt India as Russia, with its discounted oil, has trumped all other nations to emerge the largest supplier with 42% share in India’s fuel imports. The cheap Russian supply in May scaled another record and is now more than the combined oil bought from Saudi Arabia, Iraq, UAE and the U.S., PTI reported citing data from energy cargo tracker Vortexa. India took 1.96 million barrels a day from Russia in May, 15% higher than April. The additional supply cut of one-million barrels a day from July by Saudi Arabia will not lead to any substantial impact as India has an extraordinarily good pricing deal from Russia, according to Ashwin Jacob, partner Deloitte India. “The price increase in coming months will be compensated by the Russian discounts to large extent.” The impact on India will be minimal,” Jacob said. In FY23, barring Russia, crude imports from all other geographies including Saudi Arabia, Iraq, UAE, US, and others countries, fell. “In 2022-23, there was a change in the sources of India’s crude imports. Russia’s share in India’s crude imports soared to 19.1 per cent from 2.0 per cent a year ago,” the Reserve Bank of India said in its FY23 annual report. India imported 232.73 million tonnes of crude in FY23, an increase of 9.58% year-on-year, according to Petroleum Planning & Analysis data. The increase in value terms was 37% year-on-year to $157 billion. According to Director General of Commercial Intelligence and Statistics, India imported Petroleum Crude worth $162.2 billion and petroleum products worth $47.21 billion in FY23. It exported petroleum products worth $97.4 billion in FY23. Kotak Securities, in a report said, markets are likely to tilt into a deficit in the second half of 2023, if Chinese demand recovery materialises. “With rising odds of a Federal Reseve pause in June coupled with tightening supplies, we might see oil prices trading with an upside momentum.”
Oil Prices Fall Back After A Short-Lived OPEC+ Rally
This Monday saw what was perhaps one of the shortest oil price rallies following an OPEC+ meeting. The announcement of an additional production cut of around 800,000 bpd by the oil-producing group pushed Brent crude and West Texas Intermediate slightly higher during the day but by Tuesday morning the momentum had fizzled out and both key benchmarks were down. At the time of writing, Brent crude was trading at $76.52 per barrel, with West Texas Intermediate at $71.93 per barrel, both down, although by less than half a percentage point from yesterday. During the Monday session, Brent crude added some $2.60 per barrel and WTI jumped by over $3 per barrel. It appears that traders are unconvinced about the importance of any further cuts from OPEC+ as worry about the state of the global economy prevails. On Sunday, Saudi Arabia announced that it would implement voluntary cuts of 1 million bpd but the UAE was allowed to raise its output by about 200,000 bpd. “Supply side issues took centre stage following OPEC’s production cuts. However, the gains were limited amid ongoing concerns over the economic backdrop,” analysts from ANZ said in a note cited by Reuters earlier today. On the other hand, “the U.S. economy is about to show a very robust summer travel season that should mean gasoline and jet fuel demand is going to be very strong,” according to Edward Moya from OANDA, also cited by Reuters. According to U.S. manufacturing sector data, the industry has been shrinking for seven months in a row, which fits in with the definition of a recession, which has dampened demand for fuels and reinforced a bearish sentiment among oil traders. On the other hand, summer driving season is peak demand season and with prices at the pump much lower than they were this time last year, it could live up to its name, possibly changing traders’ sentiment.
Law may be updated for adequate oil assets compensation
The government is considering reforming the law governing the petroleum sector to protect investors against the expropriation of their assets, a measure that would directly address a key concern raised by energy giant ExxonMobil. The oil ministry has drawn up a proposal, which would entitle investors to reasonable compensation if the government expropriated their assets, according to people familiar with the matter. The oil ministry has completed consultations with the law, finance and other ministries on the matter, they said, adding that the proposal may soon be presented to the Cabinet. After the Cabinet’s approval, the proposal may be introduced in Parliament. India has introduced a slew of reforms in the past decade but has struggled to attract foreign investors to the exploration and production sector, primarily because some of the key issues have been left unaddressed creating uncertainties for oil and gas investors who already face enormous challenges due to climate change. ExxonMobil, which has spent years studying India’s geological data and expressed willingness to invest in the country, wants policies to be made more investor friendly. “India should offer globally competitive fiscals, enable those to stay intact, provide protection against expropriation, and (permit) neutral arbitration,” Monte Dobson, lead country manager-South Asia at ExxonMobil, told ET in January. The company wants exploration contracts to provide a legal shield against any move by the government to expropriate assets. “It’s really rooted in experience,” he said, citing the company’s experience in Venezuela where it faced expropriation after a change in government. Expropriations are rare but companies still want protection against those rare events, a person aware of the oil ministry’s thinking said. The ministry’s proposal is aimed at assuring investors that they are not going to lose money in the event of expropriation, he said. The windfall tax imposed on domestic oil production last year after crude prices sharply rose has also acted as a dampener for investors who see it as a government effort at making return on investment uncertain. Windfall taxes do not work in the long run, Dobson had said in the interview. “Such steps can shift investments away from a country over the long term,” he said.
High Court dismisses govt plea to enforce arbitral award against RIL
The Delhi High Court has dismissed the government’s petition seeking enforcement of a 2016 final partial award (FPA) of an arbitral tribunal, in a dispute with Reliance Industries over cost recovery provisions and reimbursement of royalties and taxes related to the Panna, Mukta and Tapti gas fields. The high court rejected the petition holding it to be “premature and not maintainable”. The 2016 FPA is “not an executable arbitral award” as it does not award any amount to the government, it said in the order on Friday. Reliance and Shell-owned BG Exploration & Production India had in December 2010 dragged the government to arbitration over cost recovery provisions, profit due to the government and also statutory dues including royalty payable. The companies wanted to raise the limit of cost that could be recovered from the sale of oil and gas before profits are shared with the government. However, the government raised counter claims over expenditure incurred, inflated sales, excess cost recovery, and short accounting. A three-member arbitration panel headed by Singapore-based lawyer Christopher Lau by majority issued an FPA on October 12, 2016, upholding the government view that the profit from the fields should be calculated after deducting the prevailing tax of 33% and not the 50% rate that existed earlier. It also upheld the cost recovery in the contract, fixed at $545 million for the Tapti gas field and $577.5 million for the Panna-Mukta oil and gas field in the Arabian Sea off the Mumbai coast. The two firms wanted that cost provision to be raised by $365 million in Tapti and $62.5 million in Panna-Mukta. Subsequently, the tribunal with the consent of parties agreed to decide the dispute including various components of the cost recovery formula through a series of partial awards. It was only after all the FPAs were passed that the actual amounts to be paid were to be computed in the final award. The most critical issues to be decided were the cost recovery limit following which the investment multiple had to be recalculated. While the 2016 FPA, one in a series of FPAs passed by the arbitral tribunal, had not awarded any amount to the government, the oil ministry used this award to claim $2.31 billion from Reliance and partner BG Exploration & Production India by filing an execution petition in the HC.
India continues with May 16 windfall tax notification as prices haven’t changed much
Government has decided to continue with the May 16 windfall tax rates, as there hasn’t been much change in prices since then and now , sources tell CNBCTV-18. “Since there is not much change in prices, the earlier notification continues. It has not been withdrawn”, sources tell CNBCTV-18. The May 16 windfall tax notification had reduced the special additional excise duty on petroleum crude to nil from Rs 4,100/tonne. While SAED on diesel, petrol and ATF had continued at nil. This nil windfall tax regime will now continue till government notifies new rates. “We issue a notification only if there is a change,” a source told CNBCTV-18. The government has kept $75 as the trigger for windfall tax levy, below which the tax is nil. India’s crude oil basket has been consistently averaging below $75/bbl. It averaged $74.98 a barrel in May and so far in June it has further fallen to below $73/bbl . Given the present scenario it might just be possible there will be a zero windfall tax, unless crude oil prices make a comeback. The government reviews windfall tax levies every fortnight and it is likely the next review will happen around mid June.
Adani and Total bet on India’s LNG recovery
India’s liquefied natural gas imports are picking up after years of weak demand, as companies such as Total and Adani bet heavily on a turnround in a market that has so far defied lofty expectations. India has set ambitious targets to become one of the world’s biggest LNG importers by more than doubling the share of gas in its energy mix to 15 per cent by 2030, helping attract a wave of infrastructure investment. But the LNG import market has shrunk since the Covid-19 pandemic and Russia’s invasion of Ukraine, which pushed prices far higher than domestic fuels such as coal. India’s LNG imports rose for three consecutive months starting in March, with imports in May reaching 2.7bn cubic metres, according to Refinitiv. While still below pre-pandemic levels, companies argue the 66 per cent growth in imports in May compared to February heralds the beginning of a boom for India’s LNG sector. Petronet, the country’s largest importer, said last month it expects a “huge jump” in demand, while Adani Total, a joint venture between the French energy major and the embattled Indian group, said it expected “momentum and boost in the demand across India”. Adani Total in late May opened a new LNG terminal in Dhamra, on India’s eastern coast, with 5mn metric tonne per annum regasification capacity. It is the most significant development between the pair since US short seller Hindenburg Research in January accused Adani of engaging in fraud and market manipulation. Adani vehemently denies the allegations. Total and Adani struck the agreement to build Dhamra in 2018, their first project together. Total went on to invest more than $3bn across city gas distribution and solar power with Adani, though it paused a planned $4bn investment in a green hydrogen venture following Hindenburg’s allegations. The French company has defended its continued relationship with Adani. The Dhamra terminal “reflects TotalEnergies’ ambition to support India’s energy transition and supply security”, Total said in April. Analysts said the Dhamra terminal is poised to capture gas demand in India’s less developed but populous east. “It’s a crucial terminal [as] India is trying to achieve 15 per cent gas,” said Ayush Agarwal, an analyst with S&P in India. Yet the outlook for India’s LNG market remains uncertain. Agarwal said he does not expect demand to pick up significantly until next year onwards, while India’s existing LNG infrastructure remains heavily underutilised.