India’s top gas importer Petronet sees ‘huge jump’ in demand as prices ease
India’s top gas importer Petronet LNG expects a ‘huge jump’ in local gas demand for at least six months due to a softening of global prices of liquefied natural gas(LNG), its chief executive A. K. Singh said on Wednesday. Indian gas demand is already showing signs of recovery after global LNG prices fell to about $11 per million British thermal units in Asian markets. Petronet operated its 17.5 million tonnes a year Dahej LNG terminal on the west coast at 97% in April compared to 77% in the three months to March, Singh told reporters on its quarterly earnings call. “If the prices stabilise we can expect a huge jump,” Singh said, adding Indian gas demand was price sensitive. India wants to raise the share of gas in its energy mix to 15% by 2030 from 6.2% at present. Singh said Indian LNG imports could have risen to 30 million tonnes a year had there not been abnormal situations such as the COVID pandemic and Russia’s war in Ukraine. In the fiscal year to March 2023, India imported 20.1 million tonnes of LNG, down from 25.6 million tonnes in 2019/20 according to the government data. “Things are looking quite bright as of now… We expect this trend to continue at least till six months from now,” Singh said. He added demand in the later part of the year would depend on the winter season in the West and its implication on LNG prices.
Indian Gas Exchange volumes up 215% YoY in April
Trading volumes on the Indian Gas Exchange (IGX) rose 215% year-on-year to 1,790,700 mmBtu (~45 mmscm/1.5 mmscmd) in April, as per data released by the exchange. However, the month-on-month, volumes fell 68% due to decreased spot demand as long-term supplies rose. IGX executed a total of 74 trades during the period. According to data, Hazira was the most active delivery point for free market gas, while Gadimoga saw the trading of domestic ceiling price gas. Other delivery points included Dahej, Ankot, Suvali, and Mhaskal. IGX traded a total of 903,650 mmBtu of domestic ceiling price gas during the month, with 785,850 mmBtu traded at the ceiling price of $12.46/MMBtu and 117,800 mmBtu below the ceiling price at $11.5, as per the Ministry of Petroleum and Natural Gas (MoPNG) notification dated 13 January, 2023. The exchange offers delivery-based trade in six different contracts, including Day-Ahead, Daily, Weekday, Weekly, Fortnightly, and Monthly, across six regional gas hubs in India. The Gas Index of India (GIXI) for April was ₹1,075/$14 per MMBtu, down 8% from previous month.
Could Argentina Replicate Brazil’s Offshore Oil Boom?
In January this year, the Federal Court of Appeals in Mar del Plata dismissed a lawsuit brought forward by several environmentalist organizations and the mayor of the coastal resort city against an offshore oil and gas exploration project. The court set strict environmental protection conditions for the companies involved in the exploration works—YPF, Shell, and Equinor—and stipulated that permanent observers are appointed for the project to make sure these conditions are met. With this ruling, the court basically gave what looks like the final push for Argentina’s offshore oil industry. Up until recently, the South American country has been best known in oil industry circles for its massive Vaca Muerta shale formation. It is certainly an important part of the Argentine government’s plans for future export revenues, with its estimated 16 billion barrels of oil and 308 trillion cubic feet of natural gas. But Vaca Muerta is not the only one. “We celebrate this great news for the country. It is estimated that this offshore project could reach a production volume of 200,000 barrels per day, 35% of Argentina’s current production. Undoubtedly, a before and after for the development and growth of our country,” said the Argentine energy minister, Flavia Royon, following the court of appeals’ ruling in favor of the Mar del Plata project. Equinor is set to begin drilling in the CAN 100 block, some 300 km off the Argentine coast, later this year, and if it encounters hydrocarbons, the project, dubbed Argerich, will proceed to the next stage, where the reserves tapped will be assessed. It’s not the only offshore oil and gas project in this new South American hopeful. Earlier this month, the media reported that the energy ministry was organizing a public consultation on an offshore natural gas project near the coast of Tierra del Fuego. The $700-million project dubbed Fenix is being led by a consortium including French TotalEnergies, German Wintershall Dea, and BP’s subsidiary Pan American Energy. Production of natural gas is scheduled to begin in 2025, and peak output is seen at 10 million cubic meters daily over a period of 15 years. The Fenix project should help reverse a decline in Argentine natural gas production, along with expected production boosts in the Vaca Muerta. That’s not all, either. Earlier this year, the Argentine authorities extended an exploration drilling license held by Norway’s Equinor and Argentine YPF by one year. The license is for an offshore area known as CAN 102 in the deep waters off the Buenos Aires coast. Equinor, by the way, had quite an ambitious drilling program offshore Argentina, but it has run into court injunctions courtesy of drilling opponents even as Argentina grapples with what is now a chronic economic crisis and could certainly do with additional export revenues. According to YPF, the Argentine state oil and gas company, the country has reserves of some 31 billion barrels of oil equivalent off its coast. That’s even more than Vaca Muerta’s total reserves, which translate into some 29 billion barrels of oil equivalent. Together, Argentina’s waters and the shale formation make for an impressive set of oil and gas resources—most of them untapped. As for whether these offshore reserves would end up being exploited, with Argentina repeating Brazil’s offshore boom, that remains to be seen. The fact that supermajors are investing in offshore drilling in Argentina suggests they are not banking on peak oil and gas demand. On the contrary, they seem to be banking on the continued relevance of both oil and gas despite the energy transition push governments in the West are swearing by these days.
India calls CREA report misleading and deceptive efforts to tarnish image
Weeks after Finland based independent international research organisation Centre for Research on Energy and Clean Air (CREA) published its report stating India is purchasing cheap Russian crude oil and converting it into refined petroleum products, which are “laundered” in Europe and G7 countries, ministry of petroleum and natural gas rebutted the charges and called the report misleading and a deceptive effort to tarnish India’s image. CREA’s report ‘Laundromat: How the price cap coalition whitewashes Russian oil in third countries’ was published on April 19 had said that India is leading the group of ‘laundromat countries’ that buy discounted crude oil from Russia, refine it, and sell the processed products to European countries, thus sidestepping European sanctions against Russia. The ‘laundromat countries’ mentioned in the report are China, India, Turkey, the UAE, and Singapore. While responding to the same charges, the ministry said on Wednesday, “India is free to import or export goods and commodities within the terms of international law and calling its legitimate business as ‘laundromat’ implies an illegal activity to which India strongly objects. It shows a lack of understanding of global supply demand dynamics and India’s long history as a major refined products exporter. Crude Oil import below $60 from Russia or elsewhere not under any international embargo. There is also no self-embargo by ‘coalition country’ on buying Diesel refiners around the world. To use word like ‘Whitewashed oil’ is disingenuous at best or mischievous at worst,” the ministry said in its statement. “India meets its energy requirements through imports from multiple countries including Russia. India has never shied away from this fact nor is it apologetic about it as evidenced by multiple ministerial statements over the last year. As far as exports go, as the largest democracy and a country governed by law, Companies in India are free to run their businesses as per law & the Govt does not put restrictions on them in their legitimate business pursuits,” it added.
BPCL lowers pet coke prices by up to INR 1,840/t for May ’23
BPCL has slashed pet coke prices by up to INR 1,842/t from its various refineries for May’23 shipments. Current prices: Bina refinery: INR 18,873/t (for rail supply) and INR 16,823/t (for road supply). Kochi refinery: INR 15,301/t (for rail supply), down INR 1,760/t. There is no road supply from this refinery. The material availability at Kochi is estimated at around 70,000-75,000 t.
Petronas to invest Rs 340 billion in Tamil Nadu, 4 other projects get nod
Petronas, Malaysia’s state-owned oil and gas company, will be investing more than Rs 340 billion in setting up a green hydrogen and ammonia plant in southern Tamil Nadu, according to official sources. The Tamil Nadu cabinet, which met under Chief Minister M K Stalin on Tuesday, gave its nod for five projects, including the Petronas one, official sources said. Petronas has been scouting for land to set up a green hydrogen project in southern Tamil Nadu. Other projects approved by the cabinet include Rs 4 billion 00 investment by Caterpillar, a project by amusement park operator Wonderla, and a joint venture investment by an Indian and a foreign firm in the electric vehicle sector. Investment in green hydrogen, a sunrise sector, is pouring into the state which is yet to unveil its green hydrogen policy. According to sources, the policy, which was expected to be announced last month, could take some more time as incentives have already been provided to the companies. Any additional incentives could be a burden on the state exchequer, sources said. Gurugram-based ACME Green Hydrogen and Chemicals Pvt. Ltd. is already setting up a green ammonia and green hydrogen factory in the port town of Thoothukudi at a cost of Rs 524.74 billion. Many global firms like Australian-based Fortescue Future Industries, which is vying to gain first-mover advantage in hydrogen investment, are tying up with Indian companies to set up a plant in the country.
Why Oil Prices Are Plunging Despite Falling Inventories
Oil prices have lately lost their forward momentum, with both Brent and WTI crude plunging this week. A rather puzzling trend is being observed in the oil markets: there’s a big disconnect between inventory data and oil prices. Crude oil inventories have fallen below the five-year average for the first time this year. Last week, implied gasoline demand rose by 992 thousand barrels per day (kb/d) w/w to a 15-month high of 9.511mb/d, taking the month-to-date y/y increase. Despite this positive inventory data, WTI prices have declined from $83.26 per barrel on April 12 to $68.85 on May 3 while Brent prices have declined from $87.33 to $72.54 per barrel over the timeframe. Normally, U.S. inventories and oil prices have a strong inverse relationship, with falling inventories pushing prices higher while rising inventories have the opposite effect. However, large inventory draws over the past couple of weeks have failed to prevent significant price falls. As commodity analysts at Standard Chartered have noted, these dislocations tend to be temporary and come at times when prices are moved primarily by other oil market fundamentals, expectations, broader asset markets and financial flows. In this case, recent optimism regarding OPEC+ production cuts has failed to counter worries about demand linked to a weakening economic backdrop and a hawkish Federal Reserve leading to oil prices remaining range-bound. Further, there are reports that Russian crude shipments remain strong despite sanctions and embargoes: Reuters reported April oil loadings from Russia’s western ports are on track to reach their highest since 2019 at more than 2.4M bbl/day. Thankfully, a cross-section of Wall Street still thinks the energy sector remains good for the long haul. Goldman Sachs has advised investors to buy energy and mining stocks, saying the two sectors are positioned to benefit from economic growth in China. GS’ commodities strategist has forecast that Brent and WTI crude oil will climb 23% and trade near $100 and $95 per barrel over the next 12 trading months, an outlook that supports their upside view for profits in the energy sector. “Energy trades at a discounted valuation and remains our preferred cyclical overweight. We also recommend investors own mining stocks, which are levered to China growth through rising metals prices,” the investment bank stated in a note to clients. Indeed, energy stocks remain real cheap, both by absolute and historical standards. The energy sector is the cheapest of all 11 U.S. market sectors, with a current PE ratio of 6.7. In comparison, the next cheapest sector is Basic Materials with a PE valuation of 10.6 while Financials is third cheapest at a PE value of 14.1 . For some perspective, the S&P 500 average PE ratio currently sits at 22.2. So, we can see that oil and gas stocks remain dirt cheap even after last year’s massive runup, thanks in large part to years of underperformance. Rosenberg has analyzed PE ratios by energy stocks by looking at historical data since 1990 and found that, on average, the sector ranks in just its 27th percentile historically. In contrast, the S&P 500 sits in its 71st percentile despite last year’s deep selloff. Even better, the outlook for the energy sector remains bright. According to a Moody’s research report, industry earnings will stabilize overall in 2023, though they will come in slightly below levels reached in 2022. The analysts note that commodity prices have declined from very high levels earlier in 2022, but have predicted that prices are likely to remain cyclically strong through 2023. This, combined with modest growth in volumes, will support strong cash flow generation for oil and gas producers. Moody’s estimates that the U.S. energy sector’s EBITDA for 2022 will clock in at $$623B but fall to $585B in 2023. The analysts say that low capex, rising uncertainty about the expansion of future supplies and high geopolitical risk premium will, however, continue to support cyclically high oil prices. In other words, there simply aren’t better places for people investing in the U.S. stock market to park their money if they are looking for serious earnings growth. Market Deficit But the biggest reason to be bullish about the sector is that the current oil surplus is likely to morph into a deficit as the quarters roll on. Oil prices have only been treading water since the big initial gains from the shock announcement, with concerns regarding global demand and recession risks continuing to weigh down the oil markets. Indeed, oil prices have barely budged even after EIA data has shown that U.S. crude stockpiles have been falling while Saudi Arabia will hike its official selling prices for all oil sales to Asian customers starting May. But StanChart has predicted that the OPEC+ cuts will eventually eliminate the surplus that had built up in the global oil markets. According to the analysts, a large oil surplus started building in late 2022 and spilled over into the first quarter of the current year. The analysts estimate that current oil inventories are 200 million barrels higher than at the start of 2022 and a good 268 million barrels higher than the June 2022 minimum. However, they are now optimistic that the build over the past two quarters will be gone by November if cuts are maintained all year. In a slightly less bullish scenario, the same will be achieved by the end of the year if the current cuts are reversed around October.
Valve opens wider for city gas distribution companies
The city gas distribution (CGD) sector has received a shot in the arm from the government’s enactment of the Kirit Parikh committee’s recommendations. The government had set up the committee to review the pricing formula for natural gas produced in the country as global energy prices soared. The ceiling of $6.5/MMBtu and floor of $4/MMBtu for domestic natural gas prices will facilitate the government’s agenda to promote CGD and, thus, increase national acceptance of natural gas. Without the ceiling, which will be maintained for fiscals 2024 and 2025 and then increased by $0.25/million British thermal unit (MMBtu) each year, the price would have been $10-11/MMBtu for the first half of fiscal 2024, based on the existing formula Moreover, benchmarking of prices of gas produced by state-owned firms against 10% of imported crude prices — instead of against Henry Hub (the US and Mexico), Alberta (Canada), National Balancing Point (European Union) and Russian natural gas prices — coupled with monthly price revisions from bi-annual revisions will ensure stable domestic gas prices and will help ensure gas prices keep pace with market realities, addressing a historical weakness within the sector. Gas produced from new well or well intervention in the nomination fields of ONGC and OIL, where Administered Pricing Mechanism (APM) prices are subject to floor and ceiling, would be allowed a premium of 20% on these APM prices. This would incentivise investments in this space.
Oil Prices Continue To Slip Even As Crude Oil Inventories Decline
Crude oil inventories in the United fell this week by 3.939 million barrels, the American Petroleum Institute (API) data showed on Tuesday, with analysts expecting a 1 million barrel draw. The total number of barrels of crude oil gained so far this year is still more than 34 million barrels. This week, SPR inventory dropped for the fifth week in a row, losing 2 million barrels for the week to reach 364.9 million barrels—the lowest amount of crude oil in the SPR since October 1983. U.S. crude oil production fell 100,000 bpd during the week ending April 21, to 12.2 million bpd. U.S. production is now 900,000 bpd lower than the peak production seen in March 2020, but 300,000 bpd higher than this time last year. The price of WTI was trading down sharply on Tuesday in the run-up to the data release, below $72 per barrel on renewed market fears over unremarkable industrial data out of China and the possibility that the Feds could hike rates again later this week—both factors could have an impact on global oil demand. Brent crude was also trading down on the day. By 3:30 p.m. EST, WTI was trading down $3.95 (-5.22%) on the day at $71.71 per barrel, a loss of about $5.40 per barrel on the week. Brent crude was trading down $3.93 (-4.96%) on the day at $75.38—down roughly $5.40 per barrel from this same time last week. WTI was trading at $71.62 shortly after the data release. Gasoline inventories rose by 400,000 barrels after falling in the week prior by 1.919 million barrels. Distillate inventories fell by 1 million barrels after increasing by 1.693 million barrels in the week prior. Inventories at Cushing, Oklahoma, increased by 700,000 barrels—after rising by 465,000 barrels last week.
India buying Russian crude, laundering refined products into Europe: CREA report
Helsinki-based Centre for Research on Energy and Clean Air (CREA) has said in a report that India is among the top five countries, including China, that is purchasing cheap Russian crude oil and converting it into refined petroleum products, which are “laundered” in Europe and G7 countries. “We call these five countries that have increased purchases of Russian oil and ‘launder’ it into products shipped to countries having sanctioned Russian oil the ‘laundromat’ countries,” CREA report said. The ‘laundromat countries’ are China, India, Turkey, the UAE and Singapore. The price-cap coalition countries include the European Union, G7 countries, Australia and Japan, it added. The report explained that Russia is forced to offer discounted oil to ensure it is able to find buyers, the laundromat countries are refining larger volumes of imported Russian crude to then export refined products to sanction imposing countries (+10 million tonnes or +26 per cent of refined oil products exported to price cap coalition countries one year post invasion compared to the prior 12 months). This is currently a legal way of exporting oil products to countries that are imposing sanctions on Russia as the product origin has been changed. This process provides funds to Putin’s war chest. The Ministry of Petroleum & Natural Gas (MoPNG) did not respond to the report till the time of going to the press. Private Indian refiners The CREA report has also pointed out that Sikka and Vadinar ports in India are among the top ports that are importing Russian crude oil and exporting refined petroleum products to Europe. The report claims that Sikka port, which serves RIL’s Jamnagar refinery, is the biggest oil product export port to the price-cap coalition countries, and the largest importing port in the world of seaborne crude oil from Russia. It also claims that the Vadinar port is of great value to the Russian oil industry, especially Rosneft. The Vadinar oil refinery, owned by Nayara Energy, is located near the port, and Rosneft possesses a 49.13 per cent share of Nayara Energy. This situation where a Russian company owns an oil refinery in a third country highlights a possible way of circumventing sanctions. Reliance Industries and Nayara Energy also did not respond to the findings of the report till the time of going to the press.