Asia’s LNG demand continues to slide
Asia’s demand for liquefied natural gas (LNG) continued to fall in the first quarter of 2023 compared to last year, despite lower global prices and ongoing gas demand destruction in Europe. Declining LNG imports in the key Asian markets of Japan, China, and South Asia outweighed increasing demand in South Korea, Taiwan, Thailand, and Singapore, according to data from IHS Markit and Bloomberg New Energy Finance (BNEF). The results represent the sixth consecutive quarter of year-on-year (y/y) declines in Asian LNG imports, a trend which began even before the Russian invasion of Ukraine rocked global LNG markets. The invasion caused Europe to increase LNG imports by 60% last year, pulling cargoes away from Asia and causing spot market prices to spike. As a result, Asia’s annual LNG demand fell by 7% in 2022. A record warm winter, along with healthy storage levels and gas demand destruction in Europe, has brought global LNG prices down since the start of the year. Even so, European LNG imports increased 6.6% y/y in the first quarter and global prices remain well above historical averages. Meanwhile, LNG demand in the two largest markets, Japan and China, has fallen even from lower baseline levels in 2022. LNG demand in key Asian markets remained tepid in 1Q 2023. China’s LNG demand fell by 2% y/y in the first quarter of 2023 and 14% compared to the first quarter of 2021. Many expect Chinese LNG demand to recover sharply this year after Chinese buyers reduced purchases by 20% in 2022 due to high prices and a COVID-19-related economic slowdown. However, a surge in China’s domestic production and increasing imports of pipeline gas from Russia will likely squeeze the need for LNG — a more expensive, flexible gas supply source. In 2022, pipeline imports and domestic gas production were up 9% and 6%, respectively, as LNG imports plummeted. This year, China has re-exported record high volumes of LNG to other countries, indicating weak domestic demand.
Compressed biogas expansion to help India meet its energy needs: Oil Minister Puri
Union Minister of Petroleum and Natural Gas Hardeep Singh Puri said speedy expansion of compressed biogas (CBG) will help India in meeting its additional energy requirements from domestic sources. India is dependent on imports for 85 percent of its crude oil needs and over 50 percent of its natural gas requirements. Speaking at the Global Conference on Compressed Biogas (CBG), Puri said, “The government has an ambitious target to set up 5,000 commercial (CBG) plants by 2024-25 and produce 15 million metric tonnes of CBG, which will replace other gases which are being used in the country,” The oil minister added that 46 CBG plants have already commissioned and sale of CBG has started at more than 100 retail outlets. Compressed biogas or CBG—a biofuel—is similar to compressed natural gas (CNG) as both are compressed methane but CBG is produced from agriculture waste. Development of CBG plants in the country would reduce its dependence of imports of natural gas.
Iraq’s Oil Exports Still Seeing 450,000 bpd Hiccup
Turkey still hasn’t resumed the flow of crude oil from Iraq, with 450,000 bpd in Iraqi oil exports still offline, anonymous sources told Reuters on Friday. The International Chamber of Commerce (ICC) ruled three weeks ago that Turkey must pay Iraq $1.5 billion in damages for receiving oil from the semi-autonomous Kurdistan region in Iraq without Baghdad’s permission from 2014 to 2018. Turkey responded by halting the flow of crude oil overseen by the Kurdistan Regional Government. The flows have not resumed despite a temporary agreement that was signed between Iraq and the KRG more than a week ago. Reuters sources have suggested Baghdad has not yet requested that Turkey reopen the pipeline. Turkey previously stated that it wishes to negotiate the $1.5 billion payment, and it wants a resolution on another arbitration case involving the same oil exports to Turkey from the KRG, except this one covers shipments from 2018 onward. Turkey is holding out for in-person negotiations to take place, Reuters sources said. The fallout of the halted flows are multifaceted, with the KRG stripped of more than half a billion dollars in oil revenues, 450,000 bpd of crude oil taken off the global market, and Iraq petitioning a U.S. federal court to enforce the arbitration award. Baghdad said earlier this month that it would work on passing a federal law detailing how oil export revenues would be shared with the Kurdistan Regional Government, referring to it as “a crucial step towards ending the long-standing dispute,” and “creating a positive and safe atmosphere to finally approve the national oil and gas law.” A deal ending the long-running dispute between Erbil and Baghdad could be reached, but until Turkey reopens the pipeline, their efforts to reach an agreement could be fruitless.
Green measures. Clean energy transition panel: Ban diesel 4-wheelers in cities with million-plus pollution by 2027
The Energy Transition Advisory Committee (ETAC), which was tasked by the Centre with creating a clean energy transition roadmap, has suggested banning diesel-operated four-wheelers from million-plus populated cities by 2027. The panel, chaired by former Oil Secretary and Advisor to Prime Minister Tarun Kapoor, also suggested not adding any more diesel-operated city buses in urban areas in a bid to adopt clean fuel in urban public transport in about 10 years. The recommendation assumes importance as the Automotive Research Association of India (ARAI) in a September 2022 report revealed that the transport sector contributes up to 20 per cent of the PM 2.5 emissions, a key air pollutant. Replacing intra-city transport, which is currently dominated by diesel-operated vehicles, with electric vehicles (EVs) will also reduce dependence on costly imported fossil fuels India has cities with million-plus population such as Lucknow, Kanpur, Bareilly, Nasik, Thane, Nagpur, Gwalior, Chennai, Madurai, and Coimbatore. Among them, the most polluted ones include Delhi and the NCR region, Mumbai, Kolkata, Patna, Kanpur, and Hyderabad. The government has made the transition of public transport to e-mobility its top priority, which can be judged from the fact that of the total $1.3 billion corpus under the Faster Adoption and Manufacturing of Electric Vehicles (FAME)-II scheme, around 35 per cent is for e-buses and 25 per cent for electric 3-wheelers in public transport. In March, a Parliamentary panel on EVs urged the government to frame a comprehensive national policy on electric vehicles incorporating the State-level and international best practices. City transport The ETAC projected that city buses are likely to be electric, and city transport has to be a mix of electric buses and Metro by the end of the current decade “By 2030, no city buses should be added, which are not electric. CNG may continue till 2035, but diesel buses for city transport should not be added from 2024 onwards. Long-distance buses will have to be a mixture of electric with battery swapping and CNG/ LNG,” it has suggested. Recommendations The panel said, “Long-term focus on transitioning to EVs with CNG as transition fuel (up to 10-15 years). Vehicles with flex-fuel capabilities and hybrids may be promoted in the short and medium terms. This can be done through the application of fiscal tools like taxation.” It added. “No diesel city buses addition be allowed in urban areas, to drive towards transition towards clean fuel urban public transport in about 10 years.” The panel stressed extending the FAME-II scheme beyond March 2024. Considering public transport offered by State Transport Undertakings (STUs) face challenges of limited charging infrastructure and upfront financing, the scheme may include suitable and graded provisioning for expanding charging infrastructure for city buses.
Russia’s oil export hit near three-year high in March despite Western sanctions
Moscow’s exports of crude oil and oil products rose in March to their highest level since April 2020, jumping by 600,000 barrels a day, the International Energy Agency (IEA) said in its monthly oil report in April 14. The rise lifted Russia’s estimated revenue from oil exports to $12.7 billion last month. While Russia’s oil revenues rebounded by $1 billion to $12.7 billion, they were still down 43 per cent compared to a year ago as Russia is forced to sell its barrels to a more limited pool of customers who can negotiate greater discounts. The most significant are a ban on Russian seaborne crude imports into the European Union and a refined oil products ban on such as diesel into the bloc. Following Moscow’s invasion of Ukraine in February 2022, the West has imposed a slew of sanctions against Russia including price caps on its crude oil and EU embargoes. But Russia, the world’s second-largest exporter of crude, has found willing buyers in India and China to replace European customers. Still, sanctions have made a significant dent in Russia’s coffers. Last week, the government said declining energy revenues had contributed to a budget deficit of 2.4 trillion rubles ($29 billion) in the first three months of this year. Its overall income plunged nearly 21 per cent compared with the same period in 2022, Reuters reported. Russia retaliated by slashing its production by 500,000 barrels per day, and its partners at the OPEC+ oil cartel shocked the markets by announcing their own output cuts earlier this month. The Paris-based agency said much of the increase was due to a rise in oil product exports, which returned to pre-Covid levels as they climbed by 450,000 bpd to 3.1 million bpd. In March, Russian crude oil exports rose by 100,000 bpd to 5 million bpd with India effectively replacing China as Moscow’s main market in Asia, last month. Additionally, the IEA also said that the oil product shipments destined for the EU almost doubled between February and March to 300,000 bpd.
Oil Prices On Track For A Fourth Consecutive Weekly Gain
Crude oil prices are about to record their fourth consecutive week of gains after OPEC said in its monthly report that supply is about to tighten further. The latest Monthly Oil Market Report showed OPEC’s combined daily average output at 28.8 million barrels for March, which was 86,000 bpd less than the average for February. Yet OPEC also said in its latest report that the oil market was in for a substantial supply deficit later in the year that would only worsen with time. Further contributing to higher prices, the head of the International Energy Agency, Fatih Birol also warned of a tighter oil market in the second half of the year. Traders are anticipating the IEA’s own monthly oil market update, due out later today. An additional bullish factor for prices came from Russia, where there are signs of lower production, according to analysts. “Russian exports are showing signs of weakening as production is reported to have been curtailed by 700,000 barrels per day (bpd),” ANZ analysts said in a note, quoted by Reuters. According to the news agency, if the IEA reports a revised demand outlook and the revision is downward, this could put a lid on oil prices for a while. On the other hand, the latest oil import data from China showed a 22.5-percent annual increase for March, suggesting that even if there were still signs of an economic slowdown it was not in China when oil demand was concerned. On top of all this, the dollar has been sliding for five weeks now, boosting the attractiveness of crude oil since the commodity is overwhelmingly traded in the greenback. The slide itself reflects expectations that the Fed could soon announce the end of its rate hike program, even though inflation remains above the central bank’s target.
Asia Spot LNG Prices Hit 21-Month Low
South and Southeast Asia are tentatively returning to the spot LNG market as prices have dipped from record highs in August to the lowest in nearly two years. India, Pakistan, Bangladesh, and Thailand were more active on the market last month than in February, looking to import cheaper LNG. Chinese demand also ticked up in March despite a still uncertain full-year LNG import trend for 2023, according to tanker-tracking data and industry players. China And South Asia Drive LNG Demand China, India, Bangladesh, Pakistan, and Thailand saw March LNG imports rise compared to February, per data from Kpler cited by Reuters’ Asia Commodities and Energy Columnist Clyde Russell. However, overall Asian imports were only slightly higher in March as the developed economies in north Asia – Japan and South Korea – reduced LNG imports at the end of the winter, as usual. South and Southeast Asian customers were tempted by the lowest spot LNG prices in 21 months. In the week to April 6, spot LNG prices for May delivery averaged $12.50 per million British thermal units (MMBtu), flat compared to the prior week, per industry sources estimates quoted by Reuters. The price has slumped by 67% since December 2022 and by 82% from a record high of $70.50 per MMBtu seen in August 2022, when natural gas prices spiked globally as Russia cut pipeline supply to Europe and the EU went on a buying spree to procure LNG for the winter. The lower LNG spot prices attracted Indian buyers. Kpler estimated that India’s imports in March had risen to 1.84 million tons, up from 1.27 million tons in February, which was the lowest monthly total since January 2017. China also raised LNG imports, to 5.55 million tons in March, compared to 4.95 million tons in February and 4.77 million tons in March 2022. Prices To Determine Pace of LNG Imports Going forward, prices will determine whether south Asia will continue buying spot LNG. Intensified competition between Asia and Europe will drive prices higher, which in turn will reduce the purchasing power of price-sensitive LNG importers such as India, Bangladesh, and Pakistan. “Going forward, it will be a tug of war for the marginal cargo. We do see more shift of flow into Asia and of course the prices of the LNG in Europe and Asia will, to some extent decide where the cargoes will be flowing,” Oystein Kalleklev, the chief executive of shipping firm Flex LNG, said on the company’s earnings call in February. China, after a historic drop in LNG imports in 2022, is likely to see a recovery this year, but the rebound will depend not only on the economy after the reopening but also on prices. Unless natural gas prices globally remain bearish for a sustained period of time, Chinese LNG imports could stay weak this year, the biggest natural gas supplier, China National Petroleum Corporation (CNPC), says, as carried by Energy Intelligence. Booming domestic production and Russian pipeline imports would limit China’s LNG import growth, Wood Mackenzie said in an analysis last month. In the consultancy’s base-case scenario, China’s LNG imports would be 71 Mt (97 bcm) this year, just 7.4 Mt (10 bcm) more than in 2022 and still far lower than the 80 Mt imported in 2021. European Competition Spot LNG pricing will depend to a large extent on Europe’s demand for the fuel. Europe continues to attract the majority of the rising U.S. LNG exports and will look to stock up on gas for next winter as it cannot rely on the weather and a second consecutive warmer-than-usual winter for lower gas withdrawals. Warmer winter weather and subdued LNG demand from Asia helped Europe fill storage sites to adequate levels before the heating season 2022/2023 and exit that season with inventories well above historical averages. More than 50% full gas storage sites in April is good news for Europe’s efforts to fill up the storage ahead of the 2023/2024 winter. This will be the second winter without much of the Russian pipeline gas, but Europe hasn’t seen a truly long cold winter period without that gas yet. So the race will be to attract as much LNG as possible now that more LNG import terminals in Europe have started operations. “The EU will have to match whatever Asia is willing to pay plus a premium in a bidding war to keep LNG imports flowing to the EU,” SEB analysts wrote in a note last week. U.S. LNG exports hit a record high in March, with Europe attracting more than 70% of all U.S. cargoes, per Refinitiv Eikon data cited by Reuters. So far in April, more than 75% of the U.S. LNG cargoes have headed to Europe, according to energy data analysts at RBN Energy. “Exports to Europe remain at ultra-peak levels,” RBN Energy noted. Historically, the U.S. exports more LNG to Latin America in the spring as the southern hemisphere prepares for peak winter demand, while Europe and Asia have just seen winter end. “Last spring and summer, U.S. LNG exports to Latin America did rise somewhat, but to a much lesser extent compared to the prior years as Europe’s demand to refill storage and replace Russian gas surged. This spring is off to a similar start, with exports to Latin America creeping up, at the expense of exports to Asia,” RBN Energy said.
Urja Ganga pipeline takes cheaper gas to hinterland
The ‘Urja Ganga’ pipeline, India’s most ambitious project taking environment-friendly gas to so-far untouched areas, has taken the benefit of lower natural gas prices to the hinterland, helping expand adoption of the cleaner fuel, official sources said. Traditionally, natural gas was available for use as fuel to generate electricity, make fertilizer or turn into CNG and cooking gas was available only in the Western and Northern parts of the country, as pipelines taking the fuel from source to users were limited to these parts. In October 2016, work on laying a 2,655-km pipeline from Jagdishpur in Uttar Pradesh to Haldia in West Bengal, Bokaro in Jharkhand and Dhamra in Odisha began. The line was extended to Guwahati in Assam from Barauni in Bihar, a length of 726 km, to take the fuel to hereto-unconnected states in the East. The Jagdishpur-Haldia-Bokaro-Dhamra Pipeline (JHBDPL), popularly called the Pradhan Mantri Urja Ganga pipeline, is now ready to supply gas to the eastern states of Bihar, Jharkhand, Odisha and West Bengal, official sources said. This has helped pass on the benefit of reduction in CNG and piped cooking gas prices to consumers in these regions following the government decision to cut input natural gas prices. About Rs 5-7 reduction in rates has now reached consumers in 20 towns and cities in the hinterland. Gas pipeline is the cheapest mode of transportation of gas. Sources said to carry gas to the eastern states of India, state-owned gas utility GAIL (India) Ltd was authorized to lay JHBDPL. The government provided 40 per cent viability gap funding amounting to Rs 51.76 billion for execution of JHBDPL. Further, as a part of JHBDPL, GAIL is also laying Barauni-Guwahati pipeline which shall act as a source for North East Gas Grid pipeline being executed with 60 per cent viability gap funding amounting to Rs 55.59 billion to connect all the North Eastern states to natural gas source and supply gas to all parts of the country. The Pradhan Mantri Urja Ganga pipeline will connect all the geographical areas (more than 90) spread over the states of Uttar Pradesh, Bihar, Orissa, West Bengal and further to the North Eastern Region of India. With the completion of this project, the North Eastern/ Eastern part of India becomes an integral part of the gas-based economy with twin benefits of cheapest transportation of gas through Urja Ganga and gas pricing reforms, they said. Under the unified tariff regulations recently notified by sector regulator Petroleum and Natural Gas Regulatory Board (PNGRB), transportation tariff has been cut by about 50 per cent to Rs 99.90 per million British thermal units for the eastern parts, helping make the clean fuel more affordable. Last week, the Cabinet Committee on Economic Affairs approved the revised domestic natural gas pricing guidelines for gas produced from nomination fields of state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd. The price of such natural gas shall be 10 per cent of the monthly average of Indian crude basket and shall be notified on a monthly basis. The price for gas produced from nomination fields of ONGC/OIL shall have a floor and a ceiling. This has resulted in reduction of gas price from USD 8.57 per mmBtu to USD 6.5 per mmBtu. The reforms will lead to significant decrease in prices of piped cooking gas for households and compressed natural gas (CNG) for transport, they said adding the reduced prices shall also lower the fertilizer subsidy burden and help the domestic power sector.
GAIL seeks LNG cargo for May delivery to Dhamra terminal
Adani Total, in which French oil and gas major TotalEnergies has a 50% stake, has a 20-year take-or-pay contract to provide regasification services to state-run Indian Oil Corp (IOC) for 3 million tonnes of LNG per year at the Dhamra terminal. GAIL has a similar deal for 1.5 million tonnes per year.
Russian oil to India may be hit by OPEC and drive for higher prices
The drive by OPEC and its allies to boost oil prices is lifting Russian crude along with it, prompting concerns from India’s banks that cargoes could breach the $60-a-barrel cap. State Bank of India and Bank of Baroda informed refiners they will not handle payments for oil bought above the limit, said a refinery executive involved in seeking financing for the company’s Russian oil purchases, who asked not to be identified as he isn’t authorized to speak publicly. Banks in the South Asian nation are keeping a closer watch on prices at loading ports, before shipping and logistics costs are added, executives said. Spokespeople at State Bank of India and Bank of Baroda didn’t immediately respond to requests for comment. India, along with China, emerged as key buyers of Russian crude after most others shunned its supplies following the invasion of Ukraine. The South Asian nation has taken advantage of cheaper barrels, purchasing record volumes and elevating Russia to its top supplier above Iraq and Saudi Arabia. While India imports Russian oil on a delivered basis that takes into account logistics and other costs, banks are demanding details on so-called free-on-board prices to ensure they fall at, or below $60 a barrel. That level exempts them from European Union sanctions which ban the use of shipping, banking and insurance from members of the bloc. Russia can still transport and sell oil at any price if it doesn’t use G-7 and EU services and vessels, though that provides fewer options. OPEC+ jolted markets earlier this month after announcing a surprise production cut. Brent — the international benchmark — surged as much as 8% following the move and has edged higher since, trading above $87 a barrel on Thursday. Russian crude trades below Brent, but should the benchmark rise above $95 a barrel, it will pull prices of oil from the OPEC+ producer above the cap, the refinery executive said. Another executive at a Mumbai-based refiner said companies could look to utilize other Indian banks that have little overseas exposure and are willing to process payments without fear of upsetting the US. The rise in oil prices may complicate the signing of long term supply deals with Russian suppliers. Indian Oil Corp., the nation’s largest state-run refiner, has already inked an agreement with Rosneft PJSC, but other smaller processors are finding contract negotiations hard going. Crude trading above the cap could lead to fewer tankers willing to transport cargoes, which would put a squeeze on Russian flows to India, said Serena Huang, an analyst at Vortexa Ltd. A smaller fleet would also raise freight costs and make the economics less attractive, according to Huang.