Gas price plunge brings relief to Europe
European gas prices have plunged to the lowest since mid-2021, when Russia was just beginning to squeeze supplies before its invasion of Ukraine, helping to reverse a surge in inflation and bring relief to consumers. The slump gas futures are down by two-thirds already this year hasn’t just eased the pressure on household budgets. It also undermines one of the biggest bargaining chips held by President Vladimir Putin the ability to squeeze the region’s gas supplies. With some traders predicting short-term prices could even go negative at times this summer, the picture couldn’t be more different from May last year. Back then, futures were quadruple what they are now and countries were forced to revive coal generation to keep the lights on after Russia slashed gas supplies. There were also worries about shortages and whether Europe would be able to build gas storage levels before winter. Now, stockpiles are above average and might even be filled during the summer, and ahead of schedule.
Natural Gas Prices Could Fall Below Zero In Parts Of Europe
As tepid demand for gas from power generation and industry has sent European natural gas prices into a freefall in recent weeks, traders and industry officials are not ruling out the possibility that Europe may see a brief dip to below zero for day-ahead prices in some markets this summer. The combination of ample inventories at the end of a mild winter, steady imports of LNG, and weak demand has led to eight consecutive weeks of weekly losses in European benchmark natural gas prices, the longest weekly losing streak in more than six years. While the benchmark price is unlikely to drop below zero, some regional day-ahead natural gas prices in Europe could see sub-zero prices briefly this summer, if demand remains weak and renewable power generation holds high, traders and industry officials at the E-World energy fair in Essen, Germany, told Bloomberg. “Individual regional gas markets in Europe could go negative when you have hours and days with renewable production,” Peder Bjorland, vice president for gas trading and optimization at Norway’s energy giant Equinor, told Bloomberg. “There is quite a big distance from the price level we see now and to the single-digit and negative prices, and a lot can happen on that route,” Bjorland added. The front-month futures at the TTF hub, the benchmark for Europe’s gas trading, crashed by 10% on Thursday to settle at $26.78 (24.94 euros) per megawatt-hour (MWh), the lowest price since the start of the energy crisis in the autumn of 2021. The price trend in European natural gas prices is in stark contrast with last year, when benchmark prices soared to as much as $322 (300 euros) per MWh in August, after Russia slashed supply via pipelines and governments and industry were spooked by potential gas shortages in the winter. Thanks to milder winter weather, reduced consumption on EU level, and demand destruction in industry from the high energy costs, Europe made it through the 2022/2023 winter without gas shortages or gas rationing. Currently, gas inventories are comfortably high for this time of the year. As of May 24, natural gas storage sites in the EU were 66.71% full, according to data from Gas Infrastructure Europe. The level of gas in storage is the highest for this time of the year in at least a decade. Europe could fill up inventories as early as September, well ahead of the winter, analysts have told Bloomberg. Demand for natural gas in Europe is now weak after the winter heating season ended and peak summer power demand is yet to begin. Gas consumption from industry, which went through a very rough patch last autumn and winter, is also weak. Despite falling gas prices, industrial consumption of the fuel is not taking off, although it is possible that large industrial energy consumers wait for a further drop in gas prices, analysts say. Further price declines could put a floor under prices as more power plants could switch to gas from coal, Goldman Sachs said earlier this week. “This substitution process can work as a temporary floor to gas prices until industrial demand and Asia LNG imports start to improve more visibly, which in our view will ultimately pull gas prices higher into late-summer,” Goldman’s analysts wrote in a note carried by Bloomberg. The near-term outlook on natural gas prices in Europe looks bearish. But things could swiftly turn if demand spikes in summer heatwaves with low wind speeds that could cripple wind power generation. Industrial customers could also start using more gas if prices continue to fall, ultimately supporting the prices. A recovery in Asian demand for LNG could also result in higher European prices as Europe will have to compete with Asia for spot cargoes.
Efforts on to put pressure on India for importing Russian oil amidst Ukraine conflict
India’s import of oil from Russia has become a major irritant for certain constituencies in the United Kingdom and the United States, the two countries that are leading the charge against Russia with Ukraine in the war. As per official data, in March 2022 India was importing 0.4 million oil barrels a day from Russia, which now stands at 2.1 million a day, an increase of 425%. Sources in diplomatic circles told The Sunday Guardian that a sustained effort was going on to force India to stop it from buying Russian oil. These efforts were being made at multiple levels in London and Washington, including by trying to put pressure on the Rishi Sunak and Joe Biden governments to use their influence on Delhi. Members of Parliament, media houses and lobbying organizations are being involved in these efforts so that a public perception against India is built on “supporting Russia’s war on Ukraine”. To be sure, India, on multiple public forums, has stated that it wants the existing world order to be respected and war should cease immediately. Unlike countries like China and Pakistan, it has not supported any of the two sides despite pressures and pulls from various quarters. Sources told The Sunday Guardian that recently a fake narrative was pushed among UK’s parliamentarians that India was selling Russian oil to Britain at a premium. However, later it emerged that since December 2022, when the UK banned Russian oil from entering its territory, the import of oil from India by Britain has neither increased nor decreased. As per regulations in place in the UK, if Russian-origin oil is substantially refined in the importing country (India), and a new product is formed, then the UK companies, public and private, are allowed to buy the same. But, as data shows, India has not increased its oil export to the UK despite a substantial increase in imports from Russia. This suggests that this increased import was being used to add to India’s strategic oil reserves. These reserves are in place to cater to domestic demand in times of crisis, both man-made and natural. In February, Finance Minister Nirmala Sitharaman had announced that India would be purchasing Rs 50 billion worth of crude oil for its national strategic reserves. India’s strategic petroleum reserves get supplied from the Abu Dhabi National Oil Company (ADNOC) under an agreement between ADNOC and the Indian Strategic Petroleum Reserves Ltd (ISPRL), signed in January 2017. The ISPRL is an Indian government-owned company mandated to store crude oil for the country’s emergency needs. These strategic crude oil facilities, that hold about 37 million oil barrels, are spread across four locations in India and can sustain at least 10 days of normal consumption, which is 4.7 million barrels per day on a normal day. India oil companies hold reserves for more than 60 days as per normal consumption rate.
ONGC puts a date to start of KG gas, seeks $12 price
India’s top oil and gas producer ONGC has finally put a date for the much-awaited start of production from its KG basin gas field as it sought USD 12 price for the fuel it plans to deliver from June 15. Oil and Natural Gas Corporation (ONGC) will produce 0.4 million standard cubic metres per day – a fraction of the planned output from the block that sits next to Reliance Industries’ prolific KG-D6 area in the Bay of Bengal, from June 15 and will ramp it up to 1.4 mmscmd by February 5, 2024, according to tender document the firm floated, seeking bids for gas sales. ONGC’s director for production Pankaj Kumar had in March told PTI that the firm will start production of oil from KG-DWN-98/2 or KG-D5 block in the Krishna Godavari basin by May or June this year. A small amount of gas will also flow with the oil that comes out of the reservoir lying several hundred metres below the seabed. The company has now sought bids from users like city gas operators that sell CNG to automobiles and piped cooking gas to households, companies using gas to produce fertiliser or make electricity, LPG producers and traders, for the gas that will flow from June 15. ONGC asked companies to quote a premium ‘P’ that they are willing to pay over and above the rate arrived at by calculating 14 per cent prevailing Brent oil price plus USD 1 per million British thermal unit, the document showed.
Oil Short-Sellers Might Be In For Another Big Squeeze
Oil prices recorded big declines on Thursday, with WTI and Brent crude down 3% on the intraday session as debt ceiling jitters overcame optimism about another round of OPEC+ production cuts. Rampant short-selling has also been putting a lot of pressure on the markets. According to commodity experts at Standard Chartered, speculative positioning in crude oil has now returned to its March bearish extreme despite the OPEC+ cuts taking effect in the current month. There’s a disconnect between what energy economists are seeing in the data and what speculative traders are acting on. Oil prices have touched multi-year lows on several occasions over the past two months, with StanChart speculating that the disconnect could be the result of the increasingly top-down and macro-led nature of oil-market sentiment. But the shorts might be in for another big short squeeze. It’s becoming increasingly clear that Saudi Arabia is no longer interested in staying in Washington’s good books, and the OPEC+ cartel will do anything in its power to keep oil prices high. “Speculators, like in any market they are there to stay, I keep advising them that they will be ouching, they did ouch in April, I don’t have to show my cards I’m not a poker player… but I would just tell them watch out,” Saudi Energy Minister Abdulaziz bin Salman said on Wednesday as quoted by Reuters. The United States and Europe have been strongly opposed to production cuts by the cartel, with President Joe Biden’s administration accusing Saudi Arabia of colluding with Russia and supporting its war in Ukraine shortly after OPEC+ announced the first cuts. “The Saudi Foreign Ministry can try to spin or deflect, but the facts are simple, this will increase Russian revenues and blunt the effectiveness of sanctions,” National Security Council spokesman John Kirby said in a strongly worded statement in October. Shale Decline The Biden administration has also been frustrated by the inability or unwillingness by domestic producers to ramp up production in a bid to lower fuel prices. U.S. shale producers have opted to return excess cash to shareholders instead of drilling more. The much-touted second shale boom has lately been getting a reality check as equipment demand declines sharply, a worrying sign that drilling in U.S. shale energy regions is leveling off. The Financial Times has reported that next week, Texas auctioneer Kruse Asset Management will auction off two unused, top-of-the-line drilling rigs valued at $40 million and $30 million when built in 2019 at starting bids of just $12.9M and $2.3M, respectively. “There’s no reason for them to be so cheap, but there’s just no demand,” Dan Kruse, chief executive of Kruse Asset Management, has told the Financial Times. According to Baker Hughes data, U.S. oil and natural gas rig count has declined 6% in the year-to-date to 731 last week, reversing a steady climb since the depths of the pandemic. The current tally is a far cry from the nearly 2,000 rigs that were running around mid-2014 at the peak of the shale boom. Last week, rig count for gas-directed rigs dropped by 16, or 10 per cent–the steepest weekly fall since 2016. Expectations for another shale boom are getting tamped down due to rising costs as well as limited supplies of labor and equipment that continue to hamstring efforts by U.S. shale producers to quickly ramp up production. Still, a number of experts have predicted that U.S. production will continue growing. A week ago, the Energy Information Administration (EIA) forecast U.S. crude production will rise about 5% in 2023, while fuel demand will increase 1%. U.S. crude oil exports for the month of April surpassed forecasts, hitting a record 4.5 million barrels per day in March thanks to a strong Chinese market due to rising fuel demand. U.S. crude exports grew 22% last year from 2021 after Russia’s invasion of Ukraine led the U.S., the EU and Canada to ban imports of Russian oil and dramatically altered global flows. China is the world’s second largest oil consumer, and has recorded an economic resurgence ever since it rolled back its strict zero-covid policies. April exports to China surged to ~850,000 barrels per day, the highest level since May 2020. Overall, the oil price selloff is likely to prove fleeting, with most experts predicting oil prices above $80 a barrel over the coming years–well above the $58-a-barrel average price between 2015 and 2021.
USD 300 million of Indian oil firms stuck in Russia
As much as USD 300 million (about Rs 25 billion) of dividend income belonging to Indian oil firms is stuck in Russia due to tough Western sanctions following Moscow’s invasion of Ukraine, a top official said on Thursday Indian state oil firms have invested USD 5.46 billion in buying stakes in four different assets in Russia. These include a 49.9 per cent stake in the Vankorneft oil and gas field and another 29.9 per cent in the TAAS-Yuryakh Neftegazodobycha fields. They get dividends on profits made by the operating consortium from selling oil and gas produced from the fields. “We had been regularly getting our dividend income from the projects, and they are lying in bank accounts in Russia,” Oil India Ltd chairman and managing director Ranjit Rath told reporters here. Soon after Russia’s invasion of Ukraine in February last year, several major Russian banks were banned from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) financial transaction processing system, constricting Moscow’s ability to access the global payments system. Also, the Russian government has put restrictions on the repatriation of dollars from that country to check volatility in foreign exchange rates. The USD 300 million dividend income pertains to the consortium of OIL, Indian Oil Corporation (IOC) and Bharat PetroResources Ltd. ONGC Videsh Ltd, which also has a stake in the same projects, would have a similar dividend income. This dividend is lying with the Commercial Indo Bank LLC (CIBL), which was a joint venture of the State Bank of India and Canara Bank. Canara Bank in March sold its 40 per cent stake in CIBL to SBI.
India takes lead in clean energy investment: IEA
India is emerging as a global leader in clean energy investment, surpassing spending on fossil fuels, as the country accelerates its transition towards sustainable energy solutions, according to a report released by the International Energy Agency (IEA) on Thursday. Of the projected $2.8 trillion global energy investment for 2023, more than $1.7 trillion is expected to be allocated to clean technologies, including renewables, electric vehicles, nuclear power, grids, storage, low-emission fuels, efficiency improvements, and heat pumps. In contrast, investments in coal, gas, and oil are estimated to amount to slightly over $1 trillion. India’s robust clean energy industry is experiencing remarkable growth, with solar investments taking centre stage. The IEA report emphasizes that solar power is poised to overtake investments in oil production for the first time, underscoring India’s commitment to renewable energy sources. Highlighting India’s achievement in clean energy, IEA executive director Fatih Birol said, “Clean energy is moving fast – faster than many people realise. This is clear in the investment trends, where clean technologies are pulling away from fossil fuels. One shining example is investment in solar, which is set to overtake the amount of investment going into oil production for the first time.” India’s clean energy drive is fuelled by a combination of factors. Strong economic growth, coupled with concerns about energy security in the face of global energy crises, has propelled the country towards cleaner alternatives. Furthermore, India’s proactive policy support, including favourable regulations and incentives, has played a pivotal role in attracting significant investments. The country’s clean energy momentum extends beyond solar power. India has witnessed a substantial surge in electric vehicle (EV) adoption, with sales projected to increase by a third this year following impressive growth in 2022. Additionally, India’s commitment to electrified end-uses is evident in the double-digit annual growth of global heat pump sales since 2021. While India leads the way in clean energy investment, the IEA report highlights the need for global efforts to ensure equitable and widespread clean energy transitions. The majority of the increase in clean energy investments is coming from advanced economies and China, raising concerns about potential divisions in global energy dynamics if other regions do not accelerate their clean energy adoption. Addressing the investment gap, Birol stressed the importance of international collaboration, stating, “Much more needs to be done by the international community, especially to drive investment in lower-income economies, where the private sector has been reluctant to venture.”
India to be green hydrogen hub by 2040: Hardeep Singh Puri
India will become a major green hydrogen hub in all aspects – production, consumption and exports – by 2040, petroleum and natural gas minister Hardeep Singh Puri on Wednesday said at a CII event. “By 2040, India will be a major green hydrogen hub with demand, production, and consumption all in India, including major exporting of green ammonia and others. I am very bullish on these next 15 years,” the oil minister said. The government, in its Budget for FY24, announced Rs 197 billion under production linked incentive (PLI) scheme to promote green hydrogen. “The PLI amount is just a catalyst. There is no dearth of resources. Money is coming in green hydrogen. India will be in the forefront of advancements in green hydrogen and not a follower,” he said. Considering the energy requirement of a growing India, he said that while the exploration and production (E&P) activities will go up exponentially, increased affordability and spending power will make green transition even faster. Puri called on the industry people attending the two-day annual event of the Confederation of Indian Industry (CII) to make their investment decisions based on the forecast that 25% of the global demand in the next 20 years till 2045 will come from India. “This growth will take place, transition to green energy will take place and that is the real story which is unfolding,” he said, adding that while global increase in demand per capita is 1%, growth in India is thrice that much.
Oil Prices Stuck Between Debt Ceiling Uncertainty And More OPEC+ Cuts
Crude oil prices began to trade on Thursday with little change from Wednesday’s close as opposing forces kept them stable. On the one hand, fear of a U.S. debt default is driving bearish sentiment and the respective trade behavior, which is pressuring prices. On the other hand, the Saudi Energy Minister suggested earlier this week OPEC+ might cut more output unless short sellers behave, and that lent oil some upward pressure. “Speculators, like in any market they are there to stay, I keep advising them that they will be ouching, they did ouch in April, I don’t have to show my cards I’m not a poker player… but I would just tell them watch out,” Abdulaziz bin Salman said, as quoted by Reuters. Reuters again noted in a separate report that OPEC+ would now more or less have to announce another production cut at its next meeting, lest it’s seen as making empty threats. In addition to these, the Energy Information Administration reported a massive estimated drawdown in U.S. crude oil inventories plus higher gasoline production and a draw in gasoline inventories, suggesting healthy demand. As a result of all this, Brent crude was trading below $78 per barrel at the time of writing, down slightly from Wednesday’s close, and West Texas Intermediate was trading at just under $74 per barrel, also recording a slight decline from Wednesday’s closing price. “A cautious lid on the risk environment brought by the U.S. debt ceiling uncertainty has also put oil prices on some wait-and-see in the Asia session,” IG analyst Yeap Jun Rong told Reuters. “The outlook for the oil market appears poor for now: macroeconomic drivers like the US debt-deal negotiations and tighter US monetary policy are weighing,” Sean Lim, an oil and gas analyst with Malaysian RHB Investment Bank, told Bloomberg.
Why Total and Africa Oil quit Kenya’s oil project
Two joint partners in Kenya’s quest for oil in Turkana have quit the project, exerting new pressure on the main operator Tullow Oil, which has been unable to take the exercise off the ground after the British oil explorer ran out of cash. Africa Oil says it abandoned the Kenya project, opting to concentrate in regions with high petroleum potential while Total withdrew barely months after it said it was considering other options to monetise its stake. The duo owned a 25 percent stake apiece in blocks 10BB, 13T and 10BA in the South Lokichar Basin, and their exit leaves the cash-strapped Tullow Oil to solely continue with the venture. The twin exits have left Tullow with full ownership of the three blocks at a time when concerns over its viability are mounting. “We have taken the decision to exit our Kenya concessions as our strategy has shifted to focus on production and high potential exploration opportunities, including our Orange Basin portfolio where we are now appraising the exciting Venus discovery, offshore Namibia,” said Africa Oil President and chief executive Keith Hill on Tuesday. TotalEnergies had at the end of last year indicated plans to dispose of its stake, as doubts lingered on Kenya’s ambition to join the league of oil exporting nations. “In Kenya, TotalEnergies holds interests in onshore permits (10BA, 10BB and 13T). On Blocks 10BB and 13T, TotalEnergies is studying the different options to monetise the oil discoveries made,” the firm said in a trading update last December. The two developments are the closest that major stakeholders in Kenya’s oil project have come to question the volume of the country’s oil reserves, which Tullow and Africa Oil discovered in 2012.