India to remain unaffected by Pakistan’s purchase of Russian oil: Experts
Pakistan placed its first order for discounted crude oil from Russia after the latter diverted most of its supply to Asian countries. India and China have emerged as the major consumers of Russian crude oil since the war broke out between Moscow and Ukraine In March, Russia supplied 1.64 million barrels per day (bpd) of crude to India — becoming the country’s largest supplier. Energy experts believe that India would be unaffected by Pakistan sourcing crude from Russia as India has a much bigger appetite than its neighbour. Hitesh Jain, Lead Analyst at Yes Securities, said, “Pakistan is a small economy. Its (crude oil) requirement is one-sixth of India’s, hence, Pakistan cannot cannibalise India’s share in Russian oil exports.” Pakistan is going through a serious economic crisis as the country’s currency has fallen to a record low. The country, which is highly dependent on imported fuel, is on the verge of economic collapse. Reuters reported that Pakistan will buy only crude oil from Russia, and not refined fuels. Imports are expected to reach 100,000 bpd if the first transaction goes through smoothly, a Reuters report said. Diverting oil to Asian countries Russia has been diverting the supply of its crude oil to Asian countries, especially India and China, at discounted rates as the European Union (EU) and the US have imposed a slew of sanctions on Moscow. “In the medium term, Europe does not seem likely to source crude from Russia. Therefore, Russia is building a relationship with countries in Asia to supply its oil to them. The deal with Pakistan is one such attempt,” said an analyst with a domestic brokerage firm who did not wish to be identified. Russia’s share in India’s import basket, which was less than 1 percent until January 2022, has now increased to over 30 percent. The Eurasian country has been the top supplier of crude to India for the last six consecutive months, from October 2022 to March 2023. Discounted Russian oil One of the major factors for Russia becoming India’s top crude oil supplier is the discounts offered by the country. Experts say that the discounts offered by Russia might go away with Moscow increasing the number of destination countries for its crude. Prashant Vasisht, VP and Co-head of Corporate Ratings, ICRA, said, “Though the availability of Russian crude oil would not be a problem, with more countries buying Russian oil the discounts may go away.” India has been enjoying discounts on Russian crude since February last year. Moneycontrol had reported in December 2022 that India is estimated to have saved over Rs 350 billion by importing cheap Russian crude since February 2022, when Russia sent troops into Ukraine.
Piped natural gas growth remains slow in India despite government push
The government has been pushing for the use of piped natural gas (PNG) in households, with the objective of increasing the share of natural gas in India’s energy basket. But most Indian kitchens still depend on the traditional energy source, liquefied petroleum gas (LPG) cylinders, as the PNG rollout continues to be slow due to infrastructure bottlenecks and even consumer hesitancy. According to government data, over 10 million PNG connections had been provided by city gas distribution (CGD) companies as of 31st January. Compared to this figure, LPG connections had soared to 313.6 million by the end of March. India aims to raise the share of natural gas in its energy mix to 15 percent in 2030 from a little over 6 percent now. Experts say that LPG and PNG have almost the same price in terms of energy units. PNG, however, is more convenient as consumers do not have to bother booking new cylinders “PNG connections are hassle-free compared to gas cylinders but the hesitance lies in giving the one-time security deposit of around Rs 6,000 while getting a new connection. Most people already have LPG connections, so they continue using that,” said Prashant Vasisht, VP and Co-head of Corporate Ratings, ICRA. Companies have lately been offering incentives such as EMIs for the deposit to promote PNG connections, Vasisht added. He, however, pointed out that at times consumers face billing-related issues with PNG connections as well. The Central government wants to provide 123.3 million PNG connections across the country by 2030. PNG price drop Major gas players have reduced prices of domestic PNG this month after the government accepted the Kirit Parikh committee’s recommendations on the gas pricing mechanism. In April, Indraprastha Gas Ltd (IGL) lowered the price of domestic PNG by Rs 5 per unit, bringing PNG prices in the national capital down to Rs 48.59 per SCM (standard cubic metre) from Rs 53.59. On the contrary, the price of a domestic LPG cylinder increased by Rs 50 per cylinder in March. A 14.2 kg domestic gas cylinder in Delhi now costs Rs 1,103, against Rs 1,053 earlier, an increase of 4.75 percent. The price was increased after eight months. Hurdles in PNG expansion Experts say that commercial viability is one of the biggest hurdles in expanding PNG infrastructure across the country. “Laying of pipelines is an expensive process as companies have to dig up roads and get official permissions for various procedures,” said Deepak Jasani, Head of Retail Research at HDFC Securities. Jasani added that in tier 2 and tier 3 cities, the return on pipelines is not assured as many areas in these cities are not densely populated and consumers may prefer to stick with gas cylinders.
Reliance and BP begin commissioning work on Indian flagship deep-water gas field
Indian private-sector giant Reliance Industries and UK supermajor BP have begun commissioning activities at a flagship deep-water asset in the Krishna Godavari basin offshore India’s east coast. Reliance has started testing the floating production, storage and offloading vessel and other subsea structures at the MJ gas in field in the KG-D6 block, with “commissioning activities” under way, according to its latest quarterly results. “As an essential part of the testing, one well has been opened to flow gas through the integrated production system,” it said Reliance noted that the incremental gas production from the MJ field, along with ongoing production from R Cluster and Satellite Cluster Reliance said that the “lower and upper completion campaign” for the MJ wells is progressing as planned Four wells have been completed, with “balance wells” expected to be completed by the third quarter of the 2023-2024 financial year, it added. The ceiling price applicable for gas produced from KG-D6 has been revised to $12.12 per million British thermal units for the first half of the financial year, it stated. Ruby on location The operator earlier said that the Ruby FPSO had arrived at the MJ field last year. Reliance and BP had previously hoped to commission the MJ field by the end of last year, but were delayed by a few months due to an accident involving the FPSO, and bad weather. Upstream reported in October that the Ruby FPSO was involved in a collision with an accommodation barge, causing minor damage to the floater.
India’s RIL ups O2C revenue in FY2022-23 on crude rally
Indian private-sector refiner Reliance Industries (RIL) posted higher revenue from its oil-to-chemicals (O2C) business during the April 2022-March 2023 fiscal year because of a rise in average crude prices and higher price realisation from transportation fuels. RIL’s revenue from the O2C business rose to 5.95 trillion rupees ($72.6bn) in 2022-23, up by nearly 19pc from Rs5.1 trillion a year earlier, the company said in a stock exchange filing. Revenue increased led by the rise in export profits because of higher prices for transportation fuels, despite lower production. RIL said its access to global markets and sourcing of cheaper crude and feedstock from outside India helped improve its O2C margins during 2022-23. But the government’s excise duty on fuel exports, imposed in July last year, trimmed profits by Rs 66.48 billion during 2022-23, the company said. India scrapped its export tax on diesel and reimposed a windfall tax on crude production, in the latest adjustment to its tax scheme on 19 April. Delhi reimposed a windfall tax on crude of about 6,400 rupees/t ($10.63/bl) after previously slashing it to zero. The government also scrapped a Rs0.50/litre export tax on diesel, according to a finance ministry notification. This is the first time that the diesel export duties have been scrapped since the tax scheme was introduced in July 2022, following the continued weakening of Asian gasoil margins. The rise in O2C revenue for 2022-23 came despite a decline during the January-March 2023 quarter. RIL’s O2C revenue during January-March fell by nearly 12pc from a year earlier to Rs1.28 trillion because of sharp falls in crude prices and a decline in realised prices for downstream products, the company said. The export duty on fuel reduced earnings by Rs7.11bn during the quarter, RIL said. RIL’s refinery throughput rose marginally to 77mn t/yr (1.55mn b/d) over 2022-23 from 1.54mn b/d in 2021-22. But throughput rose to 1.61mn b/d during January-March, up by 5.3pc from 1.53mn b/d a year earlier. RIL’s overall profit rose to Rs741bn in 2022-23, up from Rs650bn a year earlier. Profit also rose to Rs213bn during January-March, up by 20pc from Rs178bn in October-December and by 18pc from Rs180bn a year earlier. The company’s gross revenue rose by 23pc on the year to Rs9.77 trillion in 2022-23, driven by revenues from its oil and gas business more than doubling to Rs165bn, as well as gains in other business such as O2C and digital services. The company said its oil and gas segment is poised to make up 30pc of India’s domestic gas production. RIL is set to commission the MJ deepwater gas fields in the Krishna-Godavari (KG)-D6 basin during the April-June 2024 quarter, with production from the field aimed at 12mn m³/d during the April 2023-March 2024 fiscal year. With the commissioning of the MJ fields, gas output from RIL-BP’s KG-D6 block will rise to 30mn m³/d during 2023-24, accounting for 30pc of India’s overall gas production and 15pc of the country’s gas demand.
China’s Economy Is Picking Up, But Oil Demand May Disappoint
China’s economy grew by 2.2 percent on a seasonally adjusted basis in the first quarter (Q1), a massive improvement on the previous quarter’s 0.6 percent growth. Also positive from the economic perspective was that this was the third straight quarterly expansion after China began to ease COVID-19 restrictions in the second half of last year. This said, unlike much of China’s stellar economic growth from the mid-1990s to before the COVID-19 pandemic hit in 2020, this growth may not translate so directly into equally startling rises in the price of oil. The previously very direct correlation between China’s economic growth and oil prices was evidenced in the fact that almost on its own it drove the super-cycle of ever-rising prices for commodities key to its economic growth over that period. One such commodity was oil, which was vital to powering the country’s largely manufacturing-led economic boom during those years. Because of the massive disparity between the sheer scale of China’s energy needs and the paucity of its own oil and gas resources, the country quickly became the big bid in the global oil market. By 2013, it had become the world’s largest net importer of total petroleum and other liquid fuels, and by 2017 it had overtaken the U.S. as the largest annual gross crude oil importer in the world as well. It is unsurprising, then, that many in the current oil market have been waiting for signs of a big recovery in China’s economic growth, believing that it will automatically herald a big bounce in oil prices. The first part of this equation may well be taking place, as not only were Q1’s figures good but they may well become better. “The Q1 [GDP] number surprised to the upside, and the momentum of domestic demand puts upside risks to our 5.5 per cent GDP forecast for 2023,” Eugenia Victorino, head of Asia strategy for SEB in Singapore exclusively told OilPrice.com last week. “Looking ahead, low base effects – including the Shanghai lockdown, which lasted more than 60 days in Q2 2022 – will push up the annual prints in Q2 this year, so, assuming domestic demand remains on a path to recovery in the coming months, Q2 GDP will likely rise to around 8 per cent year on year,” she added. Further signs that China’s economic growth rebound may surprise on the upside have come from its long-beleaguered property sector. Although property price inflation remains in negative territory, prices continue to post monthly improvements, with 64 out of 70 cities now reporting monthly price gains. Home sales have also surprised on the upside, coming from various Tier-1 and Tier-2 cities, with existing homes and China’s state-owned enterprise developers topping the transaction charts, Rory Green, chief China economist for TS Lombard, in London, exclusively told OilPrice.com. There is still caution evident in the market, he said, with the composition of sales indicating that consumers remain concerned about the viability of pre-sales, which make up 70-80 per cent of total transactions. However, highlighted Green, although the speed and magnitude of the rebound in China’s property market remain in question, a bottom appears to have formed in it. This said, the second part of the equation – that a strong Chinese economic rebound will automatically herald a big bounce in oil prices – is far less certain. The first part of China’s massive economic growth was founded on a huge energy-intensive expansion of its manufacturing capabilities. This also involved the mass migration of new workers from the countryside and into the cities, which required a huge energy-intensive infrastructure build-out. This change marked the second phase of China’s economic growth mix. This continued for years, alongside the third phase of China’s economic growth, which was the rise of a middle class that powered domestic consumption-led demand for goods and services. All these phases to date had the net result of increasing China’s demand for energy exponentially, to the point where it is now – for oil alone – around 15 million barrels per day (bpd). This is around 19 per cent of world demand for crude oil. The problem for unreconstructed oil bulls is that the nature of this current phase of economic growth in China is not like any that the markets have seen before. “China’s central leadership is relying on reopening and the removal of negative policies – property, consumer internet, and geopolitics – rather than aggressive stimulus, to drive activity,” TS Lombard’s Green told OilPrice.com. “For the first time, a cyclical recovery in China will be led by household consumption, mainly services, as there is a great deal of pent-up demand and savings – about 4 per cent of GDP – following three years of intermittent mobility restrictions,” he added. For oil prices, he underlined, it is apposite to note that transportation accounts for just 54 per cent of China’s oil consumption, compared to 72 per cent in the US and 68 per cent in the European Union. In 2022, net oil and refined petroleum imports were 8 per cent lower by volume than the pre-pandemic peak, with infrastructure and export-oriented manufacturing partly offsetting lower mobility and less property construction. “Demand drivers should switch this year, with travel rising and property less negative, while infrastructure and manufacturing slow,” said Green. “The certain outcome is an increase in oil demand – we estimate a 5-8 per cent increase in net import volumes – but this is unlikely to cause oil prices to surge, especially as China is buying at a discount from Russia,” he concluded.
U.S. Stresses Importance Of LNG For Europe
Russian President Vladimir Putin belied that his invasion of Ukraine in 2022 would go largely unopposed by the U.S. and its allies for the same reason that he was able to invade the country in 2014 and annex Crimea. That is, that the non-U.S. part of the North Atlantic Treaty Organization (NATO) – Europe – would not to risk being cut off from the cheap and plentiful supplies of Russian gas that they had been using for decades to power their economies. He was wrong this time, for a variety of reasons analysed in my new book on the new global oil market order. Not only were the NATO allies not prepared to roll over this time in favour solely of their own interests but Putin’s actions in Ukraine have re-energised the U.S.-led security, economic, and energy alliance comprising most European countries and many Asian ones as well. To safeguard these gains, the U.S. last week stressed the necessity for the allies to ramp up investments in gas to ensure that never again would the alliance be hostage to the weaponised energy supplies of Russia. Speaking at a G7 ministers’ meeting on climate, energy and environment in Japan, U.S. Assistant Energy Secretary, Andrew Light, highlighted the need for continued investments by the allies in new gas supplies. He also stressed that U.S. liquefied natural gas (LNG) supplies remain critical to European energy security as it continues to reduce its reliance on Russian gas. He added that the U.S. is not concerned about Russia still being able to sell its oil and gas, despite sanctions, as it is allowing countries to buy energy at lower prices. This feeds into the idea that the price cap on Russian energy sales is also part of the U.S.’s broader policy of keeping oil and gas prices down, and with the ‘Trump Oil Price Range’, as also analysed in my new book on the new global oil market order. This is not only for the U.S.-centric economic and political reasons examined in the book, but also because rising energy prices drive inflation higher, in turn pushing fuelling the interest rates used to combat it, and increasing the prospect of recession in many of the U.S.’s allies. Interestingly as well, and in keeping with the geopolitical realignment evident since Russia’s invasion of Ukraine, Light also underlined that the U.S. and its allies are also looking to diversify the supply chains of materials that have long been dominated by China. “We don’t want to be at the mercy of China and put them in the same position vis a vis the rest of the world as Russia has been with Europe,” Light concluded. Prior to Russia’s invasion of Ukraine, the only real flurry of activity in terms of a concerted effort by any group within the European Union (EU) was aimed at ensuring that Russia did not stop supplying its member states with either oil or gas, due to their not being able to pay in the way Moscow preferred. This followed the 31 March 2022 decree signed by President Vladimir Putin that required EU buyers to pay in roubles for Russian gas via a new currency conversion mechanism or risk having supplies suspended. According to an official guidance document sent out to all 27 EU member states on 21 April by its executive branch, the European Commission (EC): “It appears possible [to pay for Russian gas after the adoption of the new decree without being in conflict with EU law],… EU companies can ask their Russian counterparts to fulfil their contractual obligations in the same manner as before the adoption of the decree, i.e. by depositing the due amount in euros or dollars.’” The EC added that existing EU sanctions against Russia also did not prohibit engagement with Russia’s Gazprom or Gazprombank beyond the refinancing prohibitions relating to the bank. Several EU member states made it plain that they would veto any EU proposal to ban Russian gas (or oil) imports – and all 27 EU member states must vote in favour of such a ban for it to come into effect. However, under considerable ‘encouragement’ from the U.S., Germany – the de facto leader of the EU – performed a 180-degree turnaround in its previously fiercely pro-Russian energy stance, bolstered in the first instance by a U.S.-led deal for LNG supplies from Qatar. LNG remains the most flexible form of gas for buyers, being readily available in the spot markets and able to be moved very quickly to anywhere required, unlike gas sent through pipelines. Unlike pipelined gas as well, the movement of LNG does not require the time- and money-intensive build-out of vast acreage of pipelines across varied terrains and the associated heavy infrastructure that supports it. In essence, LNG supplies are the ‘swing gas supply’ in any global gas supply emergency, as was the case back then in the first half of 2022. May of that year, then, saw Qatar sign a declaration of intent on energy cooperation with Germany aimed at becoming its key supplier of LNG. These new supplies of LNG from Qatar would come into Germany through existing importation routes augmented by new infrastructure approved by the German Bundestag on 19 May. This would include the deployment of four floating LNG import facilities on its northern coast, and two permanent onshore terminals, which were under development. These plans would run in parallel with, but were likely to be finished significantly sooner than, the plans for Qatar to also make available to Germany sizeable supplies of LNG from the Golden Pass terminal on the Gulf Coast of Texas. QatarEnergy holds a 70 per cent stake in the project, with the U.S.’s ExxonMobil holding the remainder. The Golden Pass terminal’s estimated send-out capacity is projected to be around 18 million metric tonnes per annum (mtpa) of LNG and the facility is expected to be operational in 2024. Also heavily linked in with the U.S. was a very similar announcement in December
OPEC’s share of Indian oil imports down to 22-year low. Here’s why
OPEC’s share of India’s oil imports fell at the fastest pace in 2022/23 to the lowest in at least 22 years, as intake of cheaper Russian oil surged, data obtained from industry sources show, and the major producers’ share could shrink further this year. Members of the Organization of the Petroleum Exporting Countries (OPEC), mainly from the Middle East and Africa, saw their share of India’s oil market slide to 59% in the fiscal year to March 2023, from about 72% in 2021/22, a Reuters analysis of the data that dates back to 2001/02 showed. Russia overtook Iraq for the first time to emerge as the top oil supplier to India, pushing Saudi Arabia down to No. 3 in the last fiscal year, the data showed. OPEC’s share shrank as India, which in the past rarely bought Russian oil due to high freight costs, is now the top oil client for Russian seaborne oil, rejected by Western nations following Moscow’s invasion of Ukraine in February 2022. India shipped in about 1.6 million barrels per day (bpd) of Russian oil in 2022/23, the data showed, about 23% of its overall 4.65 million bpd imports. The decision by OPEC and their allies, a group known as OPEC+ to cut production in May could further squeeze OPEC’s share in India, the world’s third largest oil importer, later this year if Russian supplies stay elevated.
Built And Financed By India, Mongolia’s First Greenfield Oil Refinery To Be Ready By 2025
Mongolia’s first oil refinery, being built on the outskirts of the capital city, Ulaanbaatar, and funded with Indian assistance, will be completed by 2025, said the country’s Ambassador Dambajav Ganbold. In an interview with a Livemint, Ganbold said the first stage of Mongol Oil Refinery, built with a $1.2 billion Indian soft loan, will be completed at the end of this year. The development assumes significance as Mongolia is entirely dependent on Russia for its energy imports and the new refinery at Altanshiree Soum in the country’s Dornogobi province would help Mongolia meet 70 per cent of its demand domestically. It’s being seen as a major step amid the crisis because of the Russia-Ukraine war and the cost of oil shooting up manyfold. It was in 2015 during the visit of Prime Minister Narendra Modi to Mongolia that an agreement between the governments was made to establish the first oil refinery in Mongolia. The Mongol Refinery is being developed under a government-to-government (G2G) partnership between Mongolia and India. It forms part of the Development Partnership Administration initiative of India’s Ministry of External Affairs (MEA). The project, which is the first greenfield oil refinery in Mongolia, includes a pipeline and a power plant as part of its operations. Upon completion, the refinery will have the capacity to process 30,000 barrels of crude oil per day or 1.5 million tonnes per annum. The refinery project consists of four packages. The first package, or EPC 1, is more than 70 per cent complete right now and will be completed within this year. It was in 2019 when the construction had started on the first phase of the project. The remaining three packages have gone through the tender process and Hyderabad-based Megha Engineering and Infrastructures Limited (MEIL) has been selected. The company would provide would provide EPC (engineering, procurement and construction) services and EPC-3 (captive power plants) at a cost of $790 million using advanced technology. Under the EPC deal, MEIL will build open art, utilities and offsites, along with plant buildings, and captive power plants for the refinery.
Explained: Why are global crude oil prices falling
Global crude oil prices have been falling gradually over the past few months and the trend seems no signs of reversing anytime soon. Oil prices continued their downward trend on Monday due to a range of global factors that have clouded its demand outlook. Rising interest rates and the ongoing global economic slowdown have also impacted crude oil prices, despite the prospect of tighter supplies on OPEC+ supply cuts. Brent crude and US West Texas Intermediate crude were down on Monday, marking their first weekly drop in over a month. Oil prices have been hurt by the growing fears of a recession in the US, which is the top oil consumer in the world. Weak US economic data and weaker-than-expected corporate earnings from the tech sector have cast a shadow over future growth, leading to cautious sentiments about the commodity among investors. CMC Markets analyst Tina Teng told news agency Reuters that the stabilisation of the US dollar and climbing bond yields are pressurizing commodity markets. It may be noted that central banks around the globe are expected to raise interest rates in May in a bid to tackle high inflation. This could further impact demand for crude oil among major oil-importing nations. Moreover, China’s edgy economic recovery after the Covid-19 has also clouded oil demand outlook, even as Chinese customers’ data showed on Friday that the world’s top crude importer brought in record volumes in March. China’s imports from top suppliers Russia and Saudi Arabia were more than 2 million barrels per day each. John Driscoll, director of JTD Energy Services, told news agency Reuters that the recent correction in oil prices is due to mixed economic data and continued central bank intervention. Meanwhile, analysts and traders remained bullish about China’s fuel demand recovery towards the second half of 2023 and as additional supply cuts planned by OPEC+ from May could tighten markets. Analysts at the National Australia Bank expect China’s oil demand recovery to more than offset the slowdown in OECD demand in the near term, while sanctions and supply constraints add upside risks to prices. They said that Brent could rise to $92 per barrel by the end of the second quarter.
GAIL to get 4 LNG cargoes from Germany’s Sefe in May
Indian gas firm GAIL (India) Ltd will get 4 cargoes of liquefied natural gas (LNG) from Germany’s Sefe in May, equivalent to volumes it was getting under a deal with a former unit of Russia’s Gazprom, Chairman Sandeep Gupta said on Monday. Sefe supplied 2 LNG cargoes each in March and April. “Sefe will decide on volumes on a month to month basis,” Gupta told reporters on the sidelines of an event. The resumption of supplies from Sefe is crucial for GAIL, which reported an almost 93% slump in its December quarter profit due to lower gas sales triggered by supply disruptions. GAIL agreed to a 20-year LNG purchase deal with Russian energy giant Gazprom in 2012. The deal was signed with Gazprom Marketing and Singapore (GMTS) for annual purchases of an average of 2.5 million tonnes of LNG. At the time, GMTS was a unit of Gazprom Germania, now called Sefe, but the Russian parent gave up ownership of Sefe after Western sanctions were imposed on Moscow over its invasion of Ukraine last year.