Mubadala, others eye stake in I Squared’s India gas business
Mubadala Investment, sovereign wealth fund of the United Arab Emirates, and a couple of Japanese investors including Sumitomo are in the race to acquire a 30% stake in Indian natural gas distribution business of I Squared Capital. The deal is likely to value the business at $1 billion, multiple people aware of the development said. I Squared, a US private equity firm focused on infrastructure investments, is present in the city gas distribution business in India through Think Gas Distribution and AG&P Pratham. The former also operates over 80 CNG stations. “I Squared will merge Think Gas and AG&P city gas businesses and the investor will pick up stake in the merged entity through a mix of primary and secondary investment,” one of the sources said. The combined platform could fetch a valuation of upwards of $1 billion, the person said. “Talks are on with investors such as Mubadala and a couple of Japanese investors,” he added. Investment bank Barclays is advising I Squared for the stake sale, sources said. Mails sent to I Squared Capital, Mubadala and Sumitomo did not elicit any responses till press time on Thursday. Established by I Squared in 2018, Think Gas operates across 13 districts in India and supplies natural gas to domestic, commercial, industrial and automotive sectors. Headquartered in Delhi NCR, Think Gas serves over 30,000 customers daily, according to company website. AG&P has 12 long-term 25-year exclusive concessions in Rajasthan, Andhra Pradesh, Karnataka, Kerala and Tamil Nadu, while Think Gas has seven licences to operate across 13 districts across Punjab, Madhya Pradesh, Bihar, Uttar Pradesh and Himachal Pradesh. I Squared’s city gas distribution business is the largest such institution-owned platform in the country. Other major city gas distribution businesses include Adani Total Gas and Torrent Gas on the private side and PSU-backed players such as Mahanagar Gas and Indraprastha Gas. Last month, Mubadala picked up a significant stake in I Squared Capital-backed roads infrastructure investment trust (InvIT) Cube Highways for around $300 million. Mubadala’s other investments in India include Tata Power Renewables, Jio Platforms, and Reliance Retail. India’s natural gas demand is growing at a CAGR of 8% and the government is trying to increase access to gas to about 70% of the population by 2025.
Oil Prices Set For The Longest Weekly Losing Streak Since November 2021
Early on Friday, oil prices extended the losses of the previous two days as concerns about the Chinese and U.S. economies continue to weigh on market sentiment, dragging prices down and on track for a fourth consecutive weekly loss. As of early morning trade in Europe, the U.S. benchmark WTI Crude had slumped again to the $70 per barrel mark, and traded at $70.57, down by 0.42% on the day, and down from this week’s high of over $73 a barrel. Brent Crude, the international benchmark, was trading down by 0.53% at $74.62. Both benchmarks were on course to book another weekly loss, despite gains in the first two trading days of this week. A fourth consecutive week of losses would mark the longest weekly losing streak for oil since November 2021. Concerns about the U.S. economy, another build in U.S. inventories, and signs of a patchy economic recovery in China have weighed on the petroleum complex this week, overshadowing signals that the United States could begin buying crude soon to fill the Strategic Petroleum Reserve (SPR). The impasse on raising the U.S. debt ceiling and a subsequent looming debt default have also dragged down prices and sentiment in the oil market. Crude oil prices were also weighed down by the Energy Information Administration (EIA) reporting on Wednesday an inventory build of 3 million barrels for the week to May 5. Later on Wednesday, U.S. inflation data showed a decline in core consumer prices. But the still sticky inflation could mean that the Fed may not start cutting rates in the near term, analysts say. Concerns about oil demand in the near future outweighed signals from U.S. Energy Secretary Jennifer Granholm that the Administration could start repurchasing crude to fill the SPR once the June sale from the SPR is completed.
Low-Quality Crude Sees Mysterious Price Rally
Middle Eastern oil producers are raising the export prices for their lower-grade crudes, Bloomberg reported earlier this week. And European buyers have no choice but to pay up—because the alternative is Russian oil, and they can’t have that. It is a curious case, as noted in another Bloomberg report on the issue, since normally, the lower the crude grade, the lower the price. Light, sweet crudes like WTI or Arab Super Light fetch higher prices from refiners because they are easier to process into fuels. Heavier crudes and crudes with higher sulfur content—sour crudes—are normally cheaper because their refining is a more complicated affair. Yet the refining business doesn’t follow this unshakeable logic. Refineries are calibrated to operate with certain types of oil, and a lot of European refineries were calibrated to operate with Russian Urals—a medium sour grade. Energy Intelligence sounded the alarm as early as last year in an article that noted that European refineries had for decades processed Urals and would have a hard time replacing it with similar crudes. Global markets were amply supplied with light sweet crudes, the report pointed out, but the supply of medium sour ones was tighter. A year later, it still is, according to the Bloomberg reports. And producers are responding the way sellers always respond when demand for their product surges. Iraq has raised the price of its Basrah Medium for European buyers to the highest in a year. Saudi Arabia also raised the price of its Arab Light, which is in fact a medium sour crude. At the same time, in what would probably seem like a cruel move to Europeans, both Iraq and Saudi Arabia kept their prices unchanged for Asian buyers—who, to be fair, normally buy a lot more oil than European refiners, and now they’re also gobbling up Russian barrels, making it unwise for the Iraqis and the Saudis to raise prices to them. In addition to the replacement game that’s going on in international oil, there is also another factor: new refineries are coming on stream in the Middle East, so local consumption of various crudes is on the rise, leaving more limited volumes for export, as Bloomberg noted in a report that said the price changes in medium sour were taking traders by surprise. Some relief for European refiners came from the U.S., whose oil exports to Europe were set to reach a record in March at around 2 million barrels daily, but the fact is that U.S. oil production consists mostly of light, sweet crudes that can’t replace Urals at European refineries. They can’t replace heavy crudes for U.S. refineries, either, hence the United States’ continued dependence on imports of oil even after it became the world’s largest producer of the commodity. This means that the market of medium sour crude grades is set for an extended period of tight supply. Until some producers decide to boost output, but they have little motivation to do it, what with the EU’s and the UK’s plans for phasing out fossil fuel consumption. With such a context for future demand, producers are unlikely to invest in a production boost. This, in turn, means fuels will be more expensive for Europeans, and that would add fuel to already high inflation. A decline in benchmark oil prices would be a welcome respite but only a temporary one. Until refiners depend on imported sour crude from producer countries that make most of their money from their oil exports, they would be made to pay as much as the producers see fit. India and China, meanwhile, have access to discount Russian crude—all grades—and also cheap Middle Eastern crude, benefiting from both Europe’s questionable international policies and from internal competition in OPEC+. The EU might want to hurry up with replacing GDP with something else before the differences between its own GDP and China’s and India’s become too glaring.
Proposed India diesel ban offers limited GHG cuts
A proposed ban by 2027 on four-wheeler diesel vehicles in Indian cities with a population of over 1mn and in highly polluted towns could make limited contribution to cutting greenhouse gas (GHG) emissions. The ban, proposed in a report by the Energy Transition Advisory Committee (Etac) of the Indian oil ministry, will not contribute to cutting emissions significantly given the continuing fall in the share of diesel vehicles in India’s total vehicle sales. The report, whose recommendations the oil ministry are yet to accept it said on 10 May, also recommends several other measures to aid India’s 2070 net zero goal, including boosting the share of electric vehicles (EVs) in the total number of vehicles, as well as a progressive switch to gasoline and biodiesel blending in transport fuels. But the fall in emissions is unlikely to come mainly from switching four-wheeler vehicles to cleaner fuels. Four-wheeler full diesel vehicle sales have been on in falling trend since at least 2014. But sales of four-wheeler full gasoline vehicles almost doubled over the same period. The share of full diesel vehicles in total vehicle sales fell to under 11pc in the April 2022-March 2023 fiscal year from just over 14pc in 2014-15, data from government portal Vahan show. The drop in the share of full diesel vehicles in total four-wheeler sales accelerated after the government deregulated fuel prices in late 2014 and ended subsidies, likely because of a narrowing spread between retail gasoline and diesel prices. Retail gasoline prices were 96.72 rupees/litre in Delhi on 9 May compared with Rs89.62/l for diesel, a difference of Rs7.10/l. Gasoline prices were Rs72.26/l in Delhi on 1 April 2014 compared with Rs55.49/l for diesel, a spread of Rs16.77/l. India also launched a national vehicle scrapping policy in August 2021, aimed at phasing out unfit and polluting vehicles. The policy deregisters privately-owned cars older than 20 years and commercial vehicles older than 15 years. Indian carbon dioxide (CO2) emissions rose to 2.7bn t in 2019, the third-highest in the world, from 900mn t in 2000. But around 1.2bn t of emissions came from the power sector in 2019 compared with only 300mn t from the road. CO2 emissions are lower in diesel engines compared with gasoline-powered vehicles. But diesel engines emit more nitrous oxide and particulate matter, controlling which increases the cost of production and discouraging auto manufacturers.
Delhi HC dismisses govt appeal accusing Reliance of ‘fraud, unjust enrichment of over $1.729 billion’ for siphoning gas
In a set back to the government, the Delhi High Court on Tuesday dismissed its petition accusing Mukesh Ambani-led Reliance Industries (RIL) and its partners of committing an “insidious fraud” and “unjust enrichment of over $1.729 billion” by siphoning gas from deposits they had no right to exploit. Justice Anup Jairam Bhambhani while upholding the international arbitration award of July 24, 2018, that ruled in favour of RIL-led consortium that includes UK-based BP Plc and Niko Resources of Canada said “no interference” is called for. The government had sought setting aside of the arbitration award on the grounds that “the award strikes at the heart of the public policy and has given a premium to a contractor (RIL) that has amassed vast wealth by committing an insidious fraud as well as criminal offence …” “The unjust enrichment amassed by the contractor had already reached more than $1.729 billion today (at the time of filing petition), and is since increasing as the production of migrated gas is still continuing,” it had stated in its petition. Favouring RIL-led consortium in the so-called gas migration dispute case, the three-member tribunal headed by Singapore-based arbitrator Lawrence Boo in its 2:1 award in July 2018 had rejected the government’s contention. It said that the production sharing contract (PSC) doesn’t prohibit the contractor from producing gas—irrespective of its source—as long as the producing wells were located inside the contract area. It also had held that the consortium was not be liable to pay any amount to the government and had also directed the latter to pay $8.3 million as the cost of arbitration to the consortium. The government had raised a demand of $1.47 billion in 2014 upon RIL, the contractor of KG-DWN-98/3 block in the KG basin in the Bay of Bengal, for disgorgement of unjust enrichment made by draining and selling the gas that migrated from adjacent ONGC blocks – Godavari PML and KG-DWN-98/2, which share borders with the RIL’s block. It said that RIL was neither entitled to produce as per the PSC nor had any express permission from the government. In 2014, state-run ONGC approached the Delhi High Court, complaining that gas from its blocks was being produced by RIL. The two companies had appointed US-based consulting agency DeGolyer and MacNaughton (D&M), to examine the issue. D&M said development of the RIL block would be “capable of depleting (original gas in-place) on the Godavari PML block.”
India eyes green hydrogen bunkering at major ports by 2035
India has set a deadline of 2035 to establish green hydrogen bunkering and refuelling facilities at major ports in the drive to cut its carbon footprint, the shipping ministry said in guidelines issued on Wednesday. One of the world’s biggest emitters of greenhouse gases, India aims to cut emissions to net zero by 2070, and the shipping minister said three of its ports would initially have bunker facilities for green hydrogen and ammonia. “Our target is to cover all 12 major parts with a green hydrogen bunkering facility by 2035,” Shipping Minister Sarbananda Sonowal told Reuters. The initial ports in the effort are to be Paradip in the east, Kandla in the west, and Tuticorin in the south. “Financing required to turn these ports into green ports is under consideration,” Sonowal added. More than 200 ports dot India’s coastline, which stretches 7,500 km (4,660 miles), in addition to the 12 major ones, all together accounting for 95% of its trade by volume and 65% by value. Authorities want electricity to power at least half the vehicle and equipment needs of major ports by 2030, rather than diesel, and raise that figure further to 90% by 2047. “Whatever initiative we are taking aims to meet the 2070 goal of being a net-zero carbon nation,” Sonowal said. To meet the net-zero goal, at least 40% of India’s electricity will have to come from renewables. To that end, the new shipping guidelines require ports to satisfy at least 60% of electricity needs through renewables by 2030 and 90% by 2047. Also, by 2030, all ports must achieve cuts of more than a fifth in energy consumption on each tonne of cargo versus 2023, the guidelines show. To boost use of gas, the shipping ministry wants ports to set up at least one liquefied natural gas (LNG) bunkering station by 2030 and electric vehicle charging stations in and around port areas by 2025.
GAIL plans $4.9 billion ethane cracker in West India
AIL (India) Ltd, the country’s top gas supplier, plans to build a 400-billion rupee ($4.89 billion) ethane cracker near its liquefied natural gas (LNG) import plant in Western India, two sources with direct knowledge of the matter said, as it seeks to meet an expected surge in demand. Indian companies are boosting their petrochemical production capacity as the expanding economy boosts the need for goods ranging from plastics to paints and adhesives. A cracker produces ethylene, required for products such as plastics. Demand for petrochemicals could nearly triple by 2040, according to estimates by top refiner Indian Oil, forcing companies to make big investments to set up new facilities across the country. GAIL is looking for land in the coastal region of Dabhol in Maharashtra state for the 1.5 million tonnes a year (mtpa) cracker project, one of the sources told Reuters. GAIL operates a 5 mtpa LNG plant at Dabhol. The company plans to import ethane from the United States for the project, the source said. GAIL’s communications office did not immediately respond to a request for comment.
S&P says India will import lesser crude oil this year than expected
Standard & Poor’s expects India to import less crude oil than expected because of flat demand in April. Latest government data shows that oil products demand fell 360,000 barrels per day (b/d) on the month in April 2023. According to data released by the oil ministry’s petroleum planning and analysis cell, year-on-year crude oil demand was up by only 11,000 b/d, or 0.2%, marking it the weakest growth since the contraction in January 2022. The April slump was due mainly to the weakness of LPG, gasoline, and other minor products such as pet coke and asphalt. Demand for gasoil was robust with growth at 156,000 b/d, while growth for naphtha, gasoline, kerosene/jet fuel and fuel oil were more modest, but these increases were largely offset by a decline of 227,000 b/d for minor products. According to JY Lim, Oil Analyst at S&P Global Commodity Insights, India’s gasoline demand rebounded above pre-COVID-19 levels in 2021 and was expected to be some 17.6% higher in 2023. Gasoil demand was expected to be close to 8% above pre-COVID-19 levels this year, but kerosene/jet fuel demand will remain about 19% lower than 2019 levels.
Oil Price Volatility Will Only Get More Extreme
Concerns about the economy and new banking sector jitters have sent oil traders rushing for the exits and cutting their bullish bets on crude oil again. As more speculators leave the market – with open interest in U.S. crude oil futures at its lowest in three years – prices are set for more extreme volatility. WTI Crude, the U.S. benchmark, saw the biggest drop in the net long position – the difference between bullish and bearish bets – in six weeks in the week to May 2, data from the U.S. Commodity Futures Trading Commission (CFTC) showed on Friday. The previous large drop in bullish bets had taken place right before early April when the OPEC+ group surprised the oil market by announcing additional cuts to production between May and December 2023 to ensure the “stability of the market.” The OPEC+ move burned the short sellers, following through with the proverbial promise of Saudi Energy Minister Prince Abdulaziz bin Salman from 2020, “I’m going to make sure whoever gambles on this market will be ouching like hell.” After the production cuts were announced, prices spiked for two weeks until the middle of April, before negative sentiment about the economy and underwhelming Chinese recovery took over again and drove prices back down to the low $70s. WTI Crude even fell below the $70 a barrel mark last week. Speculators have been consistently caught off-guard in the past two months, and many have now opted to stay away. Lower open interest and liquidity in the market is bound to make price swings even more extreme, according to analysts. “In short, the oil market needs more players on the field,” Michael Tran, managing director at RBC Capital Markets, told Bloomberg. But in the week to May 2, money managers cut their long positions and added short positions, cutting their net bullish bets in both WTI Crude and Brent Crude futures and options contracts, data from exchanges showed. Driven by heavy selling in energy, bullish bets on the major commodities futures plunged by one-third in the latest reporting week to the lowest since June 2020, Ole Hansen, Head of Commodity Strategy at Saxo Bank, noted. Brent, WTI, and European gasoil – the proxy for diesel – were the hardest hit by selling. The technical downside break forced speculators to cut their net long position in WTI Crude by 36,000 lots and in Brent by 69,000 lots in the week to May 2. The combined net long position in the two most important crude oil futures and options contracts was slashed by one-fourth, while the net short position in ICE gasoil futures continued to swell to a fresh high in more than seven years. “A nightmare two-month period for momentum traders continued in the week to May 2,” Hansen commented. “During an eight week period the crude oil market has seen a banking crisis, an Opec cut driving a spike and subsequent focus on gap closing, and fresh demand concerns,” he added. Speculators have responded by selling 393,000 lots and buying 213,000 lots, the bulk of these at unprofitable levels, according to Saxo Bank’s head of commodity strategy. The economy in the U.S., the pace of the Chinese recovery, and the upcoming OPEC+ meeting in early June will continue to drive oil markets, while fresh bank runs could quickly sour sentiment again in the coming weeks. Reports emerged last week, when oil prices crashed again, that OPEC+ would hold its June 4 meeting in person. The last time OPEC+ ministers met in person in Vienna was in October 2022, when the alliance announced oil production cuts from November 2022 through December 2023. In the meantime, speculators and momentum traders could be more careful with bets in the oil market, which would leave prices exposed to wild swings in either direction.
India govt panel proposes ban on diesel 4-wheeler vehicles by 2027
India should ban the use of diesel-powered four-wheeler vehicles by 2027 and switch to electric and gas-fuelled vehicles in cities with more than a million people and polluted towns in order to cut emissions, an oil ministry panel is recommending. India, one of the biggest emitters of green house gases, wants to produce 40% of its electricity from renewables to achieve its 2070 net zero goal. “By 2030, no city buses should be added which are not electric…diesel buses for city transport should not be added from 2024 onwards,” the panel said in a report posted on the oil ministry’s website. It is not clear if the petroleum ministry will seek cabinet approval to implement the recommendations of its Energy Transition Advisory Committee, headed by former oil secretary Tarun Kapoor. To boost electric vehicle use in the country, the report said the government should consider “targeted extension” of incentives given under Faster Adoption and Manufacturing of Electric and Hybrid Vehicles scheme (FAME) to beyond March 31. Diesel accounts for about two-fifths of refined fuel consumption in India with 80% of that being used in the transport sector.