Oil and Natural Gas Co to bet on deepwater oil as India seeks to cut import
India, with a fast-growing appetite for crude, is eager to reduce its fuel import bill and bolster energy security, and has encouraged companies like state-controlled ONGC to do more India’s Oil and Natural Gas Corp. is preparing to bet billions of dollars on deepwater and ultra-deepwater exploration, boosting spending in a push that could help one of the world’s top oil importing nations reduce reliance on overseas supply. “Onshore we have more or less drilled, appraised or acquired data in most of the basins,” Sushma Rawat, director of exploration for the state-owned giant, said in an interview. “But there are still large tracts offshore where we have very sparse data, where almost no wells have been drilled.” India, with a fast-growing appetite for crude, is eager to reduce its fuel import bill and bolster energy security, and has encouraged companies like state-controlled ONGC to do more to tap domestic oil and gas reserves. It’s a gamble that, if successful, would yield rewards for producers and for a government looking to reduce its overseas dependence. Rawat said ONGC plans to bid aggressively in upcoming government auctions to increase its exploration acreage to 500,000 square kilometers (193,050 square miles) by March 2026, from around 163,000 square kilometers today. Annual spending will rise to 110 billion rupees ($1.3 billion) from an annual 70 billion to 80 billion rupees. Prime Minister Narendra Modi’s government had set a goal of cutting imports by 10% by 2022 and halve them by 2030, but missed the first target, with import dependence increasing instead. No fresh goals have been publicly announced, but India last year released nearly one million square kilometers of acreage previously closed to exploration for military, environmental and other reasons. Rawat and officials at ONGC want to leverage the opportunity, trying to speed up efforts by striking a string of partnerships with Exxon Mobil Corp., Chevron Corp. and TotalEnergies SE. ONGC holds just over half of the country’s leased exploration acreage, making it an appealing partner. Now the challenge for ONGC is to turn broad agreements into tangible exploration alliances, said Angus Rodger, upstream research director for Asia Pacific at Wood Mackenzie: “The Indian government wants to see new partnerships emerge, between Indian players and the best international explorers.” The global oil majors, wary of the risks associated with India’s offshore potential, are pushing for better conditions from the Indian government, Rawat said, including with the addition of clauses on arbitration, reassurance around the stability of the fiscal regime and on criminal liability.
India’s petroleum consumption broke all records in 2022-23
Indians are using more diesel, petrol, and liquefied petroleum gas (LPG) than ever. In the financial year that ended in March 2023, India consumed 222.30 million tonnes of petroleum products, up 10.2% from the previous year, according to the latest oil ministry data. This is the highest-ever in the history of the world’s third-largest oil consumer. Demand for fuel is deemed a proxy for manufacturing activity, a part of which may be driven by higher government capital spending, according to independent oil market analyst Sugandha Sachdeva. “That means huge demand for construction and infra(structure) leading to more demand for oil products, especially in a pre-election year,” Sachdeva told Reuters. The demand for fuel began recovering in 2021-22 from the hit it took in India during the covid-19 pandemic as industrial activity slowed significantly. India’s increasing demand for crude oil India imports more than 85% of its crude oil requirements, and oil demand is only expected to rise in the coming years. Paris-based International Energy Agency has projected it to increase from 4.7 million barrels per day (bpd) in 2021 to 6.7 million bpd by 2030. Currently, India has a refining capacity of around 250 million tonnes per annum. Plans are underway to notch it up to 450 million tonnes in the next few years. In March, India’s crude oil demand was driven by bitumen, used to build roads. Sales soared 16.5% to 933,000 tonnes from February. Transportation fuels like diesel, which account for 40% of the country’s total consumption, also jumped 11.6% in March to 7.87 million tonnes.
India extends transmission fee waiver for green hydrogen plants -source
India has extended a waiver of transmission fees for renewable power to hydrogen manufacturing plants commissioned before January 2031, as it aims to become the world’s cheapest producer of the fuel, a government official said. The move is expected to cut the cost of green hydrogen – hydrogen produced by splitting water using electricity from renewables – by a fifth. The move will make more green hydrogen manufacturing projects eligible for the 25-year waiver of transmission charges, previously available for projects set up before July 2025, said the source, who declined to be identified because he is not authorised to speak to media. Building large-scale hydrogen and ammonia projects takes three to four years, and it was unlikely many would be commissioned by June 2025, the government official said. The country’s goal is to produce green hydrogen at the lowest rate in the world, at $1-$1.50 per kilogram, down from the present $4-$5 per kilogram. Reliance Industries and Adani Enteprises have announced cost targets of $1 per kg by 2030. Larsen & Toubro, Indian Oil, NTPC, JSW Energy, ReNew Power and Acme Solar are a few other prominent Indian companies that have announced plans to make green hydrogen. Renewable energy, including transmission, makes up 65%-70% of the cost of producing green hydrogen, according to industry estimates. The inter-state transmission charges range from 1-2 rupees per unit of power transmitted. Every one rupee decrease in renewable energy costs reduces the cost of green hydrogen by 60 Indian rupees ($0.73), the official said. The ministry for new and renewable energy did not immediately respond to an email seeking comment. India’s hydrogen mission is estimated to require investments worth 8 trillion Indian rupees ($98 billion) by 2030, including 125 gigawatts of non-fossil-based generation capacity and new transmission lines. India also plans to give green hydrogen producers incentives worth at least 10% of their costs under a $2 billion scheme set to begin before the end of June. The country opposes diluting the definition of green hydrogen to include fuel produced from low carbon energy, as some developed nations have proposed in G20 meetings, Power and Renewable Energy Minister R K Singh recently told Reuters.
Citi Bucks The Bullish Trend, Bets Oil Prices Will Fall
Citigroup has bucked the bullish oil price forecast trend in analyst circles, expecting oil prices to dip instead of rally further despite OPEC+’s efforts in that direction. The bank’s commodity chief Ed Morse noted that China’s post-pandemic recovery was progressing more slowly than initially expected and that could affect demand patterns, ultimately hurting prices. We’re waiting to see what’s really happening with the economy, but it is a slower recovery,” Morse told Bloomberg. “If anything, that will be an end-of-year phenomenon.” What’s more, Citi believes that traders may be underestimating additional oil output potential in Venezuela and Iraq, which, if it materializes, would offset some of the latest OPEC+ cuts. In fairness, Iraq is one of the participants in the latest round of cuts, committing to reduce its oil production rate by 211,000 bpd. Venezuela, for its part, just reported higher oil exports for March after the end of a review into past deals after it emerged that many of the oil cargoes sent overseas had not been paid for. The country exported more than 700,000 bpd of crude last month, mainly thanks to more cargoes being lifted by Chevron, which was recently allowed by the White House to return to Venezuela. Besides Citi, Morgan Stanley is also bearish on oil even after the OPEC+ cuts. In fact, the bank reduced its oil price target after the OPEC+ announcement, arguing that the latest move of the cartel was a probable admission from the biggest producers that demand may not be doing too well in the coming months. “OPEC probably needs to do this to stand still,” Martijn Rats, chief commodity strategist at Morgan Stanley, said. However, the decision “reveals something, it gives a signal of where we are in the oil market. And look, let’s be honest about this, when demand is roaring…then OPEC doesn’t need to cut,” Rats noted.
India’s fuel demand rises 5% in March year on year
India’s fuel consumption, a proxy for oil demand, rose 5% year on year in March, data from the oil ministry’s Petroleum Planning and Analysis Cell (PPAC) showed on Monday. Consumption totalled 20.50 million tonnes. Sales of gasoline, or petrol, rose 6.8% to 3.1 million tonnes while cooking gas, or liquefied petroleum gas (LPG), sales fell 2.7% year-on-year to 2.41 million tonnes. Sales of bitumen, used for making roads, jumped 16.5% month-on-month, and fuel oil use increased more than 2% in March, compared with February.
India remains top destination for Russian Urals oil in April
India remains the main destination for Russia’s seaborne Urals oil, with about 70% of such exports heading to the country, Reuters monitoring and data from two industry sources showed on Monday. Attractive prices for Urals mean good margins for Indian refiners while term contracts between Russian and Indian companies and lower freight rates are also helping keep supplies elevated, one of the sources said. Last month Russia’s Rosneft and Indian Oil Corp announced a supply deal for up to 1.5 million tonnes of Russian oil (11 million barrels) per month from April 1. Urals oil shipments to China, meanwhile, have not increased significantly in April. In the first ten days of the month just one 100,000-tonne cargo was fixed for shipment to the country’s ports, although traders noted that Chinese refineries were asking for late April-early May loading cargoes. Some 280,000 tonnes of Urals will be sent to China from the Al-Hoceima ship-to-ship (STS) facility off the coast of Morocco, to which the oil was supplied in March. “China is buying Urals, but not as actively as was expected,” a trade source involved in Russian oil trading said. “Refiners in other Asia-Pacific countries are also interested, but many are still afraid of sanctions, so marketing is slow,” they added. Urals deliveries to STS facilities in the Mediterranean continue to decline, with no cargoes shipped so far in April. Russia’s Gazpromneft shipped 140,000 tonnes of Urals from Novorossiisk to Myanmar in April, having supplied it for the first time in March.
Oil turmoil: How do Indian markets react when Brent tops $100?
Life is just one darned thing after another. Investing even more so, going by recent events. Just when it seemed the after-shocks of the global banking crisis had subsided, markets were hit by another thunderbolt – this time from the OPEC+ cartel. The Organization of the Petroleum Exporting Countries (OPEC) and their allies, including Russia, on April 2 stunned global markets by announcing production cuts of about 1.16 million barrels per day (bpd). This was on top of the 2 million bpd cuts declared in October 2022. The latest OPEC decision along with Russia’s voluntary production cut of 500,000 barrels per day will take a total of 3.66 million barrels off the market — roughly 3.6 percent of the total world supply. As investors scrambled to digest the latest geopolitical flashpoint, global oil benchmark Brent shot up over 6 percent on April 3 – the biggest one-day jump in a year — to about $85 per barrel. Financial analysts, who just a few days back were wagering on softer crude prices amid the banking crisis, suddenly saw their rosy projections being ambushed by reality.
ONGC To RIL’s Short-Term Realisations May Take A Hit On New Gas Pricing Norms
Revised norms for legacy administered price mechanism fields will impact the short-term realisation of upstream companies even though it be higher than the historical average, according to analysts. The revision is expected to eventually provide stability to upstream companies—such as Oil and Natural Gas Corp. Ltd., Oil India Ltd. and Reliance Industries Ltd.—and city gas distribution firms to withstand extreme price volatility witnessed in the past. The price of APM gas—that was linked to four global gas hubs—had seen extreme volatility in the last seven to eight years. It touched a low of $1.5 per metric million British thermal unit in 2015 and 2021, and witnessed a high of $8.57 per mmBtu for the six-month period ending March 2023. Global gas prices have seen greater volatility since February last year on account of the ongoing Russia-Ukraine conflict. However, under the revised norms, the prices have been linked to 10% of the average of the Indian basket of imported crude. It will have a floor price of $4 per mmBtu and a ceiling of $6.5 per mmBtu. “This would balance the interest of domestic gas producers, in case of extreme volatility, while incentivising the city gas consumers.” said Crisil Ratings in a note. The net realisation, or average selling price per unit, for upstream oil and gas companies like Oil and Natural Gas Corp. is expected to fall by $2 per mmBtu or Rs 6 per standard cubic metre. But it would continue to remain above historical averages, ICICI Securities said in a report. Similarly, for Reliance Industries—which doesn’t have many legacy fields—the decline in realisation will be on account of reduction in the price of high-pressure high-temperature gas on April 1. “RIL’s net realisation is expected to come down by $0.35 per mmBtu or Rs 1/scm, but would still continue to remain above historical averages,” the ICICI Securities report said. The price of HPHT gas was reduced to $12.12 per mmBtu from $12.46 per mmBtu on April 1 by the Ministry of Petroleum and Natural Gas. However, the price of HPHT gas will not be part of the new norms and it will be reviewed separately. According to Nirmal Bang, the decision to withdraw windfall tax was intended to compensate PSU upstream companies for a cut in gas realisation in the event of new natural gas pricing norms. “Any future levy of additional excise duty/cess on motor spirit and high speed diesel, in the event of a secular decline in crude oil, could also improve the savings on CNG versus alternative auto fuels. Such a penal tax could be justified by the government on the grounds of penalising polluting fuels as well as to shore up revenues,” it said in a report. For PSU upstream companies, this policy change is more structural and shows the government’s intent to make ONGC and OIL’s gas business sustainable, said Sabri Hazarika, senior oil analyst with Emkay Global Financial Services. The $4 per mmBtu floor price is higher than the $3-3.5 per mmBtu production cost, while the $0.25 annual escalation in cap would aid in gas markets’ complete deregulation in the long run, Hazarika said.
ONGC To RIL’s Short-Term Realisations May Take A Hit On New Gas Pricing Norms
Revised norms for legacy administered price mechanism fields will impact the short-term realisation of upstream companies even though it be higher than the historical average, according to analysts. The revision is expected to eventually provide stability to upstream companies—such as Oil and Natural Gas Corp. Ltd., Oil India Ltd. and Reliance Industries Ltd.—and city gas distribution firms to withstand extreme price volatility witnessed in the past. The price of APM gas—that was linked to four global gas hubs—had seen extreme volatility in the last seven to eight years. It touched a low of $1.5 per metric million British thermal unit in 2015 and 2021, and witnessed a high of $8.57 per mmBtu for the six-month period ending March 2023. Global gas prices have seen greater volatility since February last year on account of the ongoing Russia-Ukraine conflict. However, under the revised norms, the prices have been linked to 10% of the average of the Indian basket of imported crude. It will have a floor price of $4 per mmBtu and a ceiling of $6.5 per mmBtu. “This would balance the interest of domestic gas producers, in case of extreme volatility, while incentivising the city gas consumers.” said Crisil Ratings in a note. The net realisation, or average selling price per unit, for upstream oil and gas companies like Oil and Natural Gas Corp. is expected to fall by $2 per mmBtu or Rs 6 per standard cubic metre. But it would continue to remain above historical averages, ICICI Securities said in a report. Similarly, for Reliance Industries—which doesn’t have many legacy fields—the decline in realisation will be on account of reduction in the price of high-pressure high-temperature gas on April 1. “RIL’s net realisation is expected to come down by $0.35 per mmBtu or Rs 1/scm, but would still continue to remain above historical averages,” the ICICI Securities report said. The price of HPHT gas was reduced to $12.12 per mmBtu from $12.46 per mmBtu on April 1 by the Ministry of Petroleum and Natural Gas. However, the price of HPHT gas will not be part of the new norms and it will be reviewed separately. According to Nirmal Bang, the decision to withdraw windfall tax was intended to compensate PSU upstream companies for a cut in gas realisation in the event of new natural gas pricing norms. “Any future levy of additional excise duty/cess on motor spirit and high speed diesel, in the event of a secular decline in crude oil, could also improve the savings on CNG versus alternative auto fuels. Such a penal tax could be justified by the government on the grounds of penalising polluting fuels as well as to shore up revenues,” it said in a report. For PSU upstream companies, this policy change is more structural and shows the government’s intent to make ONGC and OIL’s gas business sustainable, said Sabri Hazarika, senior oil analyst with Emkay Global Financial Services. The $4 per mmBtu floor price is higher than the $3-3.5 per mmBtu production cost, while the $0.25 annual escalation in cap would aid in gas markets’ complete deregulation in the long run, Hazarika said.
Russia will…’: Ex-CEA Kaushik Basu explains implications of oil supply cut by OPEC+
A week after OPEC+ announced cuts in oil supply, India’s former chief economic advisor Kaushik Basu on Sunday said the move will help Russia, which is facing severe sanctions from the US and Europe for its military attack on Ukraine. Last Sunday, Saudi Arabia and other members of the OPEC+ oil producers announced voluntary cuts to their oil production. Saudi Arabia would be cutting its oil output by 500,000 barrels per day (bpd) from May until the end of 2023. The production cut is aimed at pushing the crude prices up, which had been declining from nearly $120 in July last year to $70 in the first week of April. On Sunday, Basu said much was being written on OPEC+’s new curb on oil supply and how it would fuel inflation. “The more important implication of this is by pushing up the price it will offset the Western sanction on buying Russian oil,” the economist said. “Russia will sell less but earn more per unit. Total earnings may rise,” Basu, who teaches economics at Cornell University, said. Basu was the Chief Economist of the World Bank from 2012 to 2016. He also served as India’s chief economic advisor from 2009 to 2012 under then Prime Minister Manmohan Singh. In a statement on April 3, the major oil-producing countries said the move of cutting supply was “a precautionary measure aimed at supporting the stability of the oil market”. Saudi Arabia, which is the de-facto leader of the cartel, announced the highest supply cut. The move will also help Moscow from avoiding the pain inflicted on it by the US and Europe by capping the prices of its oil. In December last year, G7 members announced a price cap on Russian oil at $60 per barrel. This price cap applies to crude oil, petroleum oils, and oils obtained from bituminous minerals which originated in or were exported from Russia. However, despite the cap, India and Japan have been buying Russian oil above the set prices. Japan got the US to agree to the exception, saying it needed it to ensure access to Russian energy, The Wall Street Journal reported on April 2. The report further said while many European countries have reduced their dependence on Russian energy supplies, Japan has stepped up its purchases of Russian natural gas over the past year.