India eyes refill of strategic oil stockpiles as US replenishes
India is considering refilling its strategic hoard of crude oil, joining the US as the world’s top guzzler begins to rebuild its depleted stockpiles after a period of drawdown. The South Asian nation plans to import about 1.25 million tons (9.2 million barrels) of oil to fill empty reserves, said people with knowledge of the matter, who asked not to be identified as the information isn’t public. The grades and timing are still under discussion, one of the people said. It’s unclear if India, which has emerged as a major buyer of Russian crude since the Ukraine invasion, will choose to buy cargoes from the OPEC+ producer, or its traditional suppliers in the Middle East. The US and India are making plans to beef up reserves — the back-up for emergencies such as acute global outages or price spikes — as benchmark prices trade near the lowest in more than a year. Brent is around 45% lower from its 2022 high as demand concerns hang over the market. An oil ministry spokesman didn’t immediately reply to phone call and text message seeking comments. The South Asian nation plans to fill about one-quarter of its reserve spread across two sites in Visakhapatnam facility on east coast and Mangalore on west coast. India has strategic storage in three locations with capacity to hold about 5.33 million tons. The capacity is not much considering India imported 232.4 million tons crude in the year ended March 31. India allocated Rs 5,000 crore ($606 million) in its budget earlier this year toward filling strategic stockpiles. The International Energy Agency said in February that the funds could cover purchases of about 10 million barrels of Russian crude, or around 7 million barrels of non-sanctioned oil. It last added to its strategic stockpiles in 2020 after oil crashed due to Covid lockdowns, buying crude at an average price of $19 a barrel. Scant Interest The Asian nation initiated a plan early last year to allow local and foreign companies to lease space that could accommodate around 8 million barrels at two underground locations. However, India’s refiners were unwilling to pay what the government was asking to rent the space, one of the people said. Discussions about leasing storage were also held with Saudi Aramco and Abu Dhabi National Oil Co., but they didn’t progress, according to Parliament documents. Adnoc signed a deal in 2017 to lease some space, enough for almost 6 million barrels. India is seeking to increase its reserve capacity by 6.5 million tons, but progress has been slow due to issues related with land acquisition. The feasibility of storage caverns near Bharat Petroleum Corp.’s Bina refinery and the use of salt caverns at Bikaner near Hindustan Petroleum Corp.’s Barmer plant is also being assessed.
Sri Lanka wants India to put a Oil and Gas pipeline to help its economy to recover
Sri Lankan High Commissioner in India Dr Milinda Moragoda today disclosed that his country had floated a proposal to the Indian government to lay an Oil & Gas pipeline through Trincomalee and claimed it had received favourable response from the leadership of the country. Speaking to foreign correspondents here this evening at the Foreign Correspondents Club of South Asia (FCC), Dr Moragoda, who has previously held several ministerial portfolios in the Lankan cabinet , said such a pipeline would help his country’s economic growth to receive petroleum products ranging from petrol, diesel, lubricants etc which it had to import at prohibitive costs. Thanking the Indian government under PM Narendra Modi for the extraordinary support it had extended at the dark hour in his country of an unprecedented economic crisis, he said his country was thankful for the $1.6 billion credit it was extending to resurrect the island nation’s shattered economy. On the economic crisis, he said the external debt was about $15 billion of which India was due to get $1.6 billion, $2.6 billion to the Paris Club of European nations and a huge chunk to China. China has also extended a $1.6 billion credit line but nothing concrete had been achieved so far , but negotiations were on , he said. On the controversy if the businessman Gautam Adani was favored to construct a multipurpose port in Sri Lanka, Dr Moragoda said, “he was among the first to arrive with a concrete proposal to construct the port. There is no politics in this. It’s purely an investment decision the government of Sri Lanka made. We are not competent to comment on the businessmen relations with the government in India. As far as Srilanka is concerned, we welcome investment decisions. “ The project is on and will be completed, he said. The Adanis are also the first to arrive in Israel and they are going to construct the Haifa port, he pointed. When it comes to geo-politics interests conflicting with geo-economic interests, every nation will choose the latter for economic development. He said as far as Sri Lanka was concerned it realized its geo-political situation and its proximity to India and knows its security concerns are best served by India than any other country.
GAIL shuts Ratnagiri LNG terminal till September, cuts imports: Sources
GAIL (India) Ltd has stopped importing liquefied natural gas (LNG) at its 5 million tonnes/year Ratnagiri plant since mid-May as it has shut the facility until end-September, two company sources said. GAIL annually shuts the plant in the western Maharashtra state during monsoon season as rain and high tides make operations difficult without a breakwater. However, a breakwater is expected to be ready next year that would obviate the need to shut the terminal during monsoons, one of the sources said. The company received its last LNG cargo at the Dabhol port on May 11, according to Refinitiv Eikon data. The Maharashtra Maritime Board has ordered restricted operations by inland vessels during ‘four weather season’ from May 26 to Aug. 31, citing ‘safety of life and environment’, according to a notice seen by Reuters. GAIL delays the import of LNG to October as seas remain rough during September, the two sources said. GAIL did not respond to a Reuters email seeking comment.
Bharat Petroleum unveils Rs 490 billion petrochemical and capacity expansion project at Bina Refinery
Bharat Petroleum Corporation Limited (BPCL), a oil and gas company in India, has announced its ambitious expansion plans worth Rs. 490 billion, further increasing the Company’s footprints in petrochemical segment and renewable energy, together with augmenting marketing infrastructure. The core component of the expansion projects is the Ethylene Cracker Project, which will drive the production of essential petrochemicals. The project encompasses the establishment of an Ethylene Cracker (EC) Complex, downstream Petrochemical Plants, as well as the expansion of the existing Refinery capacity from 7.8 MMTPA to 11 MMTPA and associated facilities at Bina Refinery. With a capital expenditure of approximately Rs. 490 billion, this initiative marks a significant milestone for BPCL and energy sector as a whole. Bina refinery expansion will meet the growing demand of petroleum products in central and northern India while also providing necessary feedstock to EC complex. While Petrochemical Plant will cater to the growing domestic demand for petrochemical products. G Krishnakumar, C&MD, BPCL, said, “BPCL has leapfrogged into the world of Petrochemicals as we embark upon the ₹49000 Ethylene Cracker project in our Bina Refinery, in step with the expansion of Refining capacity to 11 MMTPA. Combined with our investment in Wind Energy and new age Petroleum Oil Lubricants installations built for sustainable processes, this is a watershed moment in our strategic endeavor to be at the forefront in meeting the rapidly growing demand for energy and Petrochemical products in India.” “We are steadfast in aligning our strategic imperatives with the Government’s Atmanirbhar Bharat mission to make India a self-reliant and globally competitive petrochemical powerhouse,” G Krishnakumar said.
India still a bright spot for LNG in a subdued market
The recent drop in the Platts West India marker to a near two-year low, expectations of a ramp-up in operations at Dhamra LNG terminal and the hot weather will likely keep spot LNG procurement supported in India, despite a rise in domestic natural gas production, industry sources told S&P Global Commodity Insights. “LNG procurement should mostly not be that much affected by domestic gas production because demand has also grown,” a domestic Indian-gas source said. According to S&P Global seaborne data, India’s LNG imports rose to 2.02 million mt in April from 1.94 million mt in March and from 1.70 million mt in April 2022. The International Energy Agency, or IEA, in May revised upwards India’s natural gas consumption for 2023, with the agency predicting a 4% year-on-year increase due to a modest recovery in the power sector and continued growth in industrial activity and city gas sectors. “Out to 2030, we expect gas demand to grow by 3.4% on an annual basis. This will be primarily led by gas demand growth in the city gas sectors, industries and feedstock for fertilizer plants,” Zhi Xin Chong, Director, Gas, Power, and Climate Solutions at S&P Global said. With the CGD rounds now covering 98% of India’s population, many companies are now investing in developing new infrastructure to reach out to this customer base. “We expect gas demand in this sector to continue its rapid growth especially with the expansion of pipelines in the East Coast of India,” Chong said. Gas production increases Gas supply continues to grow as Reliance Industries Limited-BP start up production from the MJ gas fields, developed in the KG-D6 block. In an operational update in April, RIL said that production from KGD6 rose 13.8% year on year to 42.9 Bcfe in January-March. With incremental gas production from MJ field, along with ongoing production from R Cluster and Satellite Cluster fields, output at KG-D6 is expected to reach about 30 MMSCMD in FY24, it added. ONGC, which contributes two-thirds of the country’s oil and gas output, has stepped up discussions with ExxonMobil, Equinor, the American oil services conglomerate Baker Hughes, and French research organization Instituted Français du Pétrole on various issues such as technology and deepwater collaboration. “Energy security is geography dependent…ONGC invests $ 3.5 billion to keep up production,” ONGC Chairman and CEO Arun Kumar Singh said in February. Meanwhile, sources noted that softer WIM LNG prices were also likely to spur demand in India even as other Asian countries reel from excess stock amid muted demand. Platts assessed WIM for June slipped below $10/MMBtu this month. The marker reached a near two-year low on May 5, when it was assessed at $9.638/MMBtu and was last assessed at $9.775/MMBtu May 11. “India can buy cargoes as the price is now below the Brent-linked prices. We have an old contract with Brent slope that is higher…so the price range currently makes sense for us,” an industry source said, adding that $10.5/MMBtu could be a key level for most of the Indian importers, given the current crude oil prices. The forward curve for JKM suggests that weakness in LNG prices will continue to sustain, with the August derivative price assessed at $11.25/MMBtu and September derivative at $12.35/MMBtu on May 11 at Singapore close. Surge in tender activity Bharat Petroleum Corporation Limited, or BPCL, has recently awarded its LNG tender for delivery on June 14 to Dahej. Most of the volume is expected to be used in its refinery, industry sources said. An industry source said that BPCL may bring out a RLNG tender to market some volume from the tender that it awarded. The source added that if such a RLNG tender is successful, more LNG buy tenders may be in the plans. Meanwhile, the Reliance-BP consortium carried out an e-auction for sale of 6 MMSCMD on April 12. “The entire volume was sold and Gas sale purchase agreement (GSPA) under execution with successful bidders,” RIL said in a statement. Domestic gas market participants are also eyeing the Reliance-BP auction on May 19 that seeks bids for up to 6 million standard cu m/day for a tenure of three to five years. In April, Petronet LNG awarded a mid-June cargo tender and Indian Oil Corp. awarded two cargoes for delivery in May-June and end June-early August.
BPCL to invest Rs 52, 731 crore in expanding capacities
State-owned Bharat Petroleum Corporation Ltd’s (BPCL) board has approved the ethylene cracker project at Bina Refinery including downstream petrochemical plants and expansion of the refinery with capital expenditure of approximately Rs 49,000 crore, the company said. The core component of the expansion projects is the Ethylene Cracker Project, which will drive the production of essential petrochemicals. The project encompasses the establishment of an Ethylene Cracker (EC) Complex, downstream Petrochemical Plants, as well as the expansion of the existing Refinery capacity from 7.8 MMTPA to 11 MMTPA and associated facilities at Bina Refinery. G Krishnakumar, C&MD, BPCL, said, “BPCL has leapfrogged into the world of Petrochemicals as we embark upon the ?49000 Ethylene Cracker project in our Bina Refinery, in step with the expansion of Refining capacity to 11 MMTPA. Combined with our investment in Wind Energy and new age Petroleum Oil Lubricants installations built for sustainable processes, this is a watershed moment in our strategic endeavor to be at the forefront in meeting the rapidly growing demand for energy and Petrochemical products in India.” The board has also approved the setting up of two 50 MW wind power plants for captive consumption, one at Bina refinery in Madhya Pradesh and another at Mumbai refinery in Maharashtra, the company said in an exchange release. The total project cost for two 50 MW wind power plants is approximately Rs 978 crore (Rs 489 crore for each project), it said. Additionally, BPCL is making significant investments in Petroleum Oil Lubricants (POL) and Lube Oil Base Stock (LOBS) installations with receipt pipelines at Rasayani in Maharashtra. This project, with an estimated cost of approximately Rs. 2,753 Crore, aims to augment storage capacity, smoothen the supply-chain and streamline the distribution of essential petroleum products. The company added that these expansion projects align with its vision to diversify and expand in adjacent and alternative businesses to create additional revenue streams and cleaner environment by building the renewable energy portfolio to achieve Net Zero targets in Scope 1 and Scope 2 emissions. “The expansion project at Bina Refinery and the other initiatives demonstrate BPCL’s dedication to meet the evolving energy needs of the nation and ensure energy security and sustainability. These investments will not only strengthen the company’s position in the petrochemical industry but also contribute to the economic growth and development of the regions where the projects are based,” BPCL said.
India Looks To Lock In Long-Term LNG Deals
Major Indian natural gas importers are discussing long-term supply deals with the biggest LNG exporting countries to lock in future supply and avoid volatility and uncertainty in case of spot price spikes, traders and executives tell Bloomberg. India plans to significantly increase its natural gas consumption as it looks to boost its share in the energy mix. But the country and its LNG importers are particularly sensitive to surging spot LNG prices and often retreat from the spot market when prices jump. Such was the case last year when high spot LNG prices priced out many Asian buyers as Europe bid up for supply and became the primary destination of spot LNG cargoes. For most of 2022, India – alongside other countries in South Asia such as Bangladesh and Thailand – withdrew from the spot market due to the record high prices. In India, LNG imports fell by 15.2% in 2022, but the total import costs soared by 44.5% due to high LNG prices, the Institute for Energy Economics & Financial Analysis said in a report in February. This year, the slump in spot LNG prices has encouraged price-sensitive buyers India, Pakistan, and Bangladesh to return to the market looking for cargoes. But it looks like Indian buyers are not willing to take chances on the spot market for years to come. According to Bloomberg’s sources, Petronet LNG, GAIL India, and Indian Oil Corporation are holding discussions with LNG exporters from the United States, Qatar, and the United Arab Emirates (UAE) for supply deals of 20 years. GAIL India, the biggest natural gas company in the country, is even reportedly looking to buy an interest in an LNG export project in the United States. Petronet LNG is in talks with Qatar to secure additional long-term volumes and is also in discussions with several other LNG suppliers, executives at the company told Bloomberg. Petronet LNG’s chief executive Akshay Kumar Singh, told Bloomberg earlier this month, “The lesson learned by the consumers is that they can’t run the business based on spot.”
Rosneft sends JV feelers to PSU refiners for India unit
Russia’s Rosneft has expressed interest in building a greenfield refinery in India in a joint venture with domestic state-owned refiners, according to people familiar with the matter. India’s public sector refiners are separately seeking foreign partners in their pursuit of a scaled-down alternative to the proposed $44-billion west coast refinery that hasn’t taken off for years, they said. The Russian firm is understood to have held preliminary discussions with Indian government officials and executives at state-run refiners regarding a new project in India, the people said. This will be separate from the Gujarat refinery that Rosneft-backed Nayara Energy operates. IOC, BPCL likely candidates for tie-up “Cooperation with Indian companies is being developed in the integral format throughout the whole technological chain, from production to refining and sales of petroleum products,” Rosneft told ET in an email. “Rosneft aims to further expand cooperation with Indian partners. Information on specific plans you will learn later in the relevant company announcements.” The oil ministry didn’t respond to ET’s queries, and neither did the state-owned Indian Oil Corp, Hindustan Petroleum Corp Ltd (HPCL) and Bharat Petroleum Corp Ltd (BPCL). It’s unclear which Indian refiner will end up partnering Rosneft but Indian Oil and BPCL could be the likely candidates. HPCL is overleveraged due to a greenfield refinery it’s building in Rajasthan. Indian Oil is the most upbeat among state firms on adding capacity and already has a crude purchase agreement with Rosneft, while BPCL has a land parcel ready for a refinery in Uttar Pradesh. State refiners have increasingly realised that they need an alternative to the west coast project in which Saudi Aramco had agreed in 2018 to take a 50% stake, people familiar with the matter said. The project is being jointly developed by Indian Oil, BPCL and HPCL. Unavailability of land and Maharashtra political strife may keep the leadership distracted, worsening the project’s prospects, said people familiar with the matter. Overseas partners The government and the state refiners are of the view that India needs to add greenfield capacity to meet future fuel demand, and can’t wait endlessly for the west coast refinery to take off, the person said. Therefore, each state refiner is now planning to move away from the joint venture and evaluate greenfield capacity separately, in partnership with foreign players, he said. More overseas entities are likely to be approached for partnership talks. State refiners plan to keep the majority in any joint venture with foreign firms, as that would help them control crude sourcing strategy as well as product pricing in domestic market, a person familiar with companies’ plans said.
India set for LNG deal-making rush in win for Modi’s gas push
India’s liquefied natural gas buyers are seeking decades-long supply deals to protect them from price surges, a move that will support the government’s plan to boost the fuel’s use. Importers are accelerating efforts to lock in fuel, according to traders and executives. Buyers including Petronet LNG Ltd., GAIL India Ltd. and Indian Oil Corp. are in talks with suppliers in the US, Qatar and the UAE for deals that last for 20 years. The trend is a reversal for the nation, which hasn’t signed a long-term deal since 2021, according to contract data from BloombergNEF. That should help reduce their exposure to the volatile spot market — where prices surged to a record last year and made the fuel too costly for many buyers. It also increases the prospect of imports rebounding in a boost for Prime Minister Narendra Modi’s strategy to more than double the share of gas in the country’s energy mix by the end of the decade to help reduce pollution. “The lesson learned by the consumers is that they can’t run the business based on spot,” Akshay Kumar Singh, chief executive officer of Petronet LNG, said earlier this month. “Going forward, we will be finding a lot of long-term contracts signed by different stakeholders.” India’s consumers — from power plants to petrochemical facilities — are highly price-sensitive as gas competes head-to-head with cheaper and dirtier alternatives, but had become too dependent on the spot market, which was far more expensive than long-term contracts last year. The nation’s LNG imports plummeted by nearly 20% after Russia’s invasion of Ukraine upended the market. While LNG rates have since dropped and India is again purchasing spot shipments, that may not last. Prices are slated to increase in the second half of 2023, impeding demand growth, according to Ayush Agarwal, LNG analyst at S&P Global Commodity Insights. Petronet is in the middle of negotiations with Qatar to extend an existing deal at a lower price and secure additional volumes, according to executives at the firm, who asked not to be named as the talks are ongoing. The company is in talks with several other suppliers, they said. GAIL is looking to purchase a stake in a US LNG export terminal, coupled with a 1 million ton per year deal. About nine suppliers have expressed interest, a senior company official said. GAIL is also in talks with several other suppliers outside of the US, another official said. Spokespersons for Petronet, GAIL and IOC didn’t immediately reply to messages seeking comment on contract negotiations. Even though there is little supply available before 2027 due to a lack of new projects, long-term contracts are still a way to avoid pitfalls in the spot market, Petronet’s Singh said earlier this month. “Business can’t be managed with spot,” Singh said. This year’s import level “all depends on how the prices are hovering in international market. We are keeping fingers crossed.”
OPEC Cut Failed To Lift Oil Prices, But The Year Isn’t Over Yet
Crude oil prices have been on a losing streak for four consecutive weeks now, erasing all the gains they booked after OPEC’s latest supply cut announcement as economic fears take precedence over demand expectations. When the cartel announced the cuts, almost every bank with a commodities department rushed to update their price forecasts, expecting prices to jump even higher than before. Morgan Stanley was a rare exception: it revised its price forecast for oil downwards. “OPEC probably needs to do this to stand still,” Martijn Rats, chief commodity strategist at the investment bank, said at the time, adding that the OPECc+ decision “reveals something, it gives a signal of where we are in the oil market. And look, let’s be honest about this, when demand is roaring…then OPEC doesn’t need to cut.” He seems to have been right, for the most part. Only it’s not demand itself that was the problem. It has been the popular expectation of worsening demand that has been driving the price decline. Indeed, the daily media updates on oil prices have, in the past four weeks, repeated the same refrain over and over again: weak U.S. and Chinese economic data, fears of more interest rate hikes in the U.S., fears of a recession, which is already a fact in certain industries, notably freight transport. Clearly, these expectations have had a sound basis. The thing about oil demand, however, is that the U.S., or the rest of the developed world, is not where additional oil demand will be coming from in the rest of the year and future years. It’s the developing world that will see growth in oil demand with the potential to drive prices higher. Dutch ING said in a recent oil market update that while oil prices remain depressed for now, things could very well change in the second part of the year, with a deficit looming on the horizon. The basis for this forecast is a combination of lower OPEC+ output, higher demand outside the OECD, and a smaller-than-expected growth in U.S. output, according to ING. What’s more, there is always the possibility that OPEC+ will cut output again, adding to oil’s upside potential. The Dutch financial services major is not the only one expecting higher prices later this year. Citi’s commodities head Ed Morse recently told CNBC that oil prices may have bottomed out, and we’re entering peak demand season in the much more populated northern hemisphere. “OPEC+ output cuts and a rebound in China’s demand will likely offset slower demand elsewhere … Therefore, we expect prices to bottom out soon,” the Commonwealth Bank of Australia said in a note from early May. Goldman is another bank that’s optimistic about the immediate future of oil prices. In a note from early March—weeks before the surprise OPEC+ cut announcement, the bank said Brent could reach $100 by the end of the year if OPEC keeps its 2-million-barrel output cut agreement in place. Again, that was before the OPEC+ additional cut announcement that temporarily boosted prices. And it might well boost them once again as the year progresses. All it would take would be a more optimistic economic update from either China or the United States. Of course, all these are only projections based on historical data and some common sense. The thing about markets, however, is that they do not always obey common sense but tend to get swayed on a dime. The past four weeks are evidence of that, with oil traders largely ignoring any fundamentals to focus on what banks call the macro picture. They have ignored data about Chinese refinery throughputs and oil imports to focus on the latest PMI, which has shown a contraction in the country’s growth pace. They have ignored data about U.S. production trends to focus on the April CPI reading, which showed inflation remains a substantial problem. All this is perfectly understandable: the so-called macro picture has a huge bearing on oil demand, which tends to decline in times of high inflation and rising interest rates. The thing that gets forgotten, however, while watching that macro picture is that oil, for all its bad rap, is what economists call an inelastic commodity. This means that whatever the price for the commodity, there will always be strong demand for it. And this, in turn, means that it might be time for traders to focus a bit more on the supply outlook. Because when supply tightens, prices will rise—demand will be going nowhere, even in inflation-stricken U.S. What’s more, as ING noted in its oil market update, OPEC+ is aware of the power it can wield in output control. There is nothing to prevent it from doing it again should prices fall too low for its liking. After all, how much market share can it lose?