Cheap Oil Is Fueling Economic Development In Asia
The collapse of Silicon Valley Bank and Signature Bank shook up the U.S. banking system, possibly more strongly than news reports and government officials made it sound. A run on banks was barely avoided, and far from everyone believed Treasury Secretary Janet Yellen when she said the system was safe and sound. And oil prices took a dive. Fears of more trouble in the U.S. banking sector—and in the European one, after UBS had to take over Credit Suisse to save it—are still gripping markets. Reinforcing expectations of an economic slowdown, these fears have served to lower oil prices despite fundamentals that suggest prices should be higher. And when oil prices are lower, poorer economies benefit. The Wall Street Journal reported this week that while the Fed, the European Central Bank, and the Bank of England are all still in rate-hiking mode, central banks in Southeast Asia have either stopped monetary tightening or are preparing to wrap it up. The report cited India, Malaysia, Indonesia, and the Philippines as examples and went on to note that in the past three months, oil prices have shed some 10 percent and are also down by about 38 percent since last year’s peak. With the economies of Southeast Asia largely insulated from any potential fallout in case of a banking crisis in the West, they are likely to outperform developed ones, the report suggested, even though the most export-oriented among them would likely suffer adverse effects in case of a greater slowdown in Western growth. Asian developing economies, in other words, are about to outperform the developed ones—because they have access to cheaper oil, partly because of the West’s sanctions on Russia and partly because of that same West’s banking troubles. In the West, meanwhile, governments are focusing on reducing the demand for oil and gas by planning massive buildouts of wind and solar power. These buildouts will cost billions, and building the supply chains for them will also cost billions because both Europe and the United States are starting more or less from scratch since China dominates current supply chains. Speaking of China, the Asian powerhouse is set to be one of the biggest winners from the current situation. It is the world’s largest oil importer, and any downward trend in prices is good for it. China also has a 5-percent growth target for this year, and while analysts have called that disappointing, it is only disappointing compared to Chinese growth in previous years. Compared to growth rates expected in the EU this year, for example, China’s target is huge. Brent crude is currently trading at less than $78 per barrel as of the time of writing. West Texas Intermediate is close to $70 a barrel. While fears of a banking meltdown seem to have started to subside, it will be a while before this affects prices. In confirmation of that, Reuters; John Kemp reported earlier this week that hedge funds are dumping oil futures and other contracts at the fastest rate in six years in anticipation of a credit crunch and a consequent recession. It is these fears of a recession in the West that will be harder to shake off. Some analysts argue that the recession is already here. Others prefer to debate definitions and whether a recession is indeed such a bad thing. While this goes on, however, fears and economic growth trends will continue pressuring oil prices until supply tightens palpably, which most analysts seem to expect to happen in the second half of the year. Because of the tightening oil supply, prices will inevitably start rising at some point, and they may well rise considerably. Until then, however, the developing nations of Asia could stock up on more affordable crude to help power their economies.
Gas retailing in Indian cities needs fewer but bigger players
Natural gas retailers in India, the world’s fourth-biggest LNG buyer, need consolidation to bring economies of scale, according to a top official of a gas supplier. “There is a lot of global interest,” Hardip Singh Rai, chief executive officer of Think Gas, told Bloomberg Television in an interview. “When any upstream player looks at where do we go to really benefit from growth in the gas market, India is the place where everyone is looking,” Rai told Bloomberg’s Haslinda Amin and Yvonne Man Wednesday. The city gas distribution sector has been expanding at a fast pace. There have been some new initiatives, including the government’s priority to supply cheaper gas to households, fuel stations and industries in cities to meet Prime Minister Narendra Modi’s goal of raising the share of gas in India’s energy mix to 15% by 2030 from 6%. There are some four dozen players, against just half a dozen operators supplying diesel and gasoline to retail outlets. India is one of the largest potential market for gas across the globe, Rai said. The sector consolidation will ultimately happen, but regulatory restrictions could limit the momentum, he said. Established by private equity firm I Squared in 2018, Think Gas operates across 13 districts in India, spread over five states. I squared Capital is planning to sell about 30% in the gas distributor, which may value the firm at more than $1 billion, people familiar with the matter said earlier this month. India’s gas demand is likely to get a boost this year on the back of planned expansions in gas pipeline infrastructure, regulatory changes and a decline in gas prices, Rai said.
The centrality of CGD in India’s natural gas story: A perspective
India is on track to become the world’s third-largest economy by 2030 with a projected annual average growth rate of 6-7 percent. Energy sector will be central to this trajectory. In this context, India’s gas story has been one of tremendous — and yet untapped — potential. On the heels of a rapid increase in 2011 and 2012, when the country used 160 million metric standard cubic meters per day (MMSCMD), gas consumption slowed quite a bit to a low of 124 MMSCMD in 2015 amid a decrease in domestic production and unaffordability of regasified liquefied natural gas (RLNG). But over the past seven years, the trend reversed and is once again on an upward trajectory, reaching about 150+ MMSCMD in 2021 thanks to better affordability in global markets and a rapid rise in city gas distribution (CGD). In 2011, CGD accounted for only 10 percent of consumption — an amount that has since doubled to 20 percent. In the 2021 United Nations Climate Change Conference (COP26) summit, Prime Minister Narendra Modicommitted India to an ambitious five-part “Panchamrit” pledge, a vital foundation for the global pathway to the ambitious 1.5 ̊C global warming target. For that to happen, natural gas will need to play a central role as a bridge fuel over the next few decades. With the dual objective of meeting India’s net zero aspirations and reducing dependencies on imports, the government’s target to more than double the share of natural gas in the energy mix from today’s 6 percent to 15 percent by 2030 aims to cement this role. With the combination of the role of energy and the potential of natural gas to be a bridge fuel, India’s demand for natural gas could reach 360 MMSCMD by 2050 (see figure). However, there will be a paradigm shift in the consumption patterns of individual sectors. Demand from traditional consumers such as power, fertilizers, and refineries is expected to contribute less to this growth story because of the proliferation of economical options such as renewable energy, green hydrogen, and green ammonia, but CGD’s estimated growth from 30 MMSCMD to 210 MMSCMD by 2050 could fuel India’s growing demand for natural gas. This accelerated growth trajectory of the CGD segment, particularly until 2040, is unique to India. The successful completion of the 11th bidding round by the Petroleum and Natural Gas Regulatory Board (PNGRB), resulting in coverage for about 98 percent of the population and 88 percent of the territory, and the aggressive minimum work program (MWP) commitments from most players will spur the growth of CGD. Within CGD, the segments set to disproportionately drive demand will be compressed natural gas (CNG) and the industrial segment, albeit at different times. Considering the growing support from original equipment manufacturers transitioning from diesel vehicles, higher levels of vehicle ownership, and favorable economics, CNG demand is on track to grow at 10 percent CAGR until 2040. In the industrial segment, the growth story of micro, small, and medium enterprises along with better access to natural gas, regulations on heavy-polluting fuels, and limited penetration of green alternatives and electrification because of the cost economics will drive momentum after 2040. In addition, tailwinds from structural factors such as a regulatory push, infrastructure investments, the ecosystem’s maturity, and customer awareness have positioned CGD as a compelling clean-energy investment option with one of the lowest capex requirements per ton of CO2 reduction among other comparable options. Although the long-term story is robust, navigating the shifting CGD landscape in the short and medium term is crucial. On the supply side, declining reserves of price-controlled administered price mechanism (APM) gas, record-high RLNG prices due to global networks being in flux, and reforms such as open access will pose a threat. In addition, the growing adoption of electric vehicles and other green alternatives could chip away at demand from key sectors, and the expiration of marketing exclusivity in GAs will have a detrimental effect on supplier power. CGD players will need to address these developments to be resilient and agile. Moving from today’s supply-led focus to a customer-led focus will be essential for immediate and sustained development. In light of the sector’s paradigm shift, the winners—either incumbents or new entrants — will need to do seven fundamental things differently to create a sustainable advantage: Set your sights on market expansion. Market expansion powered by targeted sales acceleration programs and developing unique propositions suitable for different segments based on affordability and reach will be a crucial element for success. Source smartly. With more supply-side challenges, curating an optimum sourcing portfolio will dampen the effects of the volatile gas supply market, which is particularly relevant considering the black-swan events in recent years. With limited APM reserves and a significant price differential between APM, non-APM domestic gas, and term and spot LNG gas purchases, strategic sourcing will be essential to gaining a competitive advantage. Adopt differentiated go-to-market models. Traditionally, this sector has been a supply-led space. Adopting a customer-centric sales and marketing setup will be vital for success—differentiated by customer segments, accelerated sales through hyperlocal marketing, contract restructuring, a feet-on-the-street channel, social media, and above-the-line, below-the-line, and digital marketing strategies. Activate your inorganic muscle. Identifying options for strategic acquisitions can provide terrific growth opportunities to penetrate this space. Keeping a pulse of the market in terms of available options and leveraging an agile inorganic engine will also be vital. Partner, partner, partner. Forward-thinking CGD players will need to move away from a traditional commodity sales mindset and toward a solution provider mindset. Leveraging strategic partnerships along the supply chain to co-develop the natural gas ecosystem and improve the end-to-end customer experience will be imperative. Deploy digital-first models. A powerful customer engagement platform supported by an intelligent service network, deeper data analytics, and more flexible data management is a no-regret move for all players. Tighten capex management practices. Given the high capex and complexity of CGD projects, project management can be complicated. Most projects end up above budget or behind schedule or both.
Sri Lanka in talks with India on oil pipeline to Trinco
Sri Lanka is in talks with India to build an oil pipeline to transport fuel to the Eastern Port of Trincomalee, President Ranil Wickremesinghe had told energy investors, according to a statement from his media office. There were on-going discussions on “bringing an oil pipeline from India to Trincomalee,” the President had said.Trincomalee has a World War II-era 99 tank farm. A part of the tank farm is under the control of Lanka India Oil Corporation. The rest is under joint control of IOC and Ceylon Petroleum Corporation. LIOC Managing Director Manoj Gupta said high level discussions and studies were underway for a finished product pipeline. Trincomalee has been identified as a potential port for green hydrogen due to the availability of renewable energy in Northern Sri Lanka, President Wikremesinghe had said
Government extends deadline for eighth oil and gas exploration licensing round amidst investor demands
The government has once again extended the deadline for accepting bids in the eighth oil and gas exploration licensing round, to May 16, the Directorate General of Hydrocarbons (DGH) said on its website. The eighth round under the open acreage licensing policy (OALP) was launched on July 7 last year, with a bid submission deadline of September 6. Since then, the deadline has been extended several times. The last deadline was March 30. The DGH hasn’t given any reason for the extension but the oil ministry officials say the investors are demanding an extension. In the eighth round, ten oil and gas blocks have been offered. In the first seven rounds, 134 blocks have been awarded.
Indian demand for Urals crude keeps Russia’s exports up
India was the biggest buyer of seaborne Urals oil in March and the country’s demand for the grade means Russia has to maintain high exports, two traders said and Refinitiv Eikon data showed on Monday. Refiners in India, which in the past rarely bought Russian oil, because of high transport costs, have emerged as key oil clients for Russia, snapping up crude rejected by the West since the Ukraine conflict began in February 2022. In March, India’s purchases of Urals oil accounted for more than 65% of total seaborne exports of Urals, Refinitiv data showed. Traders said the rising demand from Indian refineries is forcing Russia to support exports despite Moscow’s pledge to cut oil output. Last week, Deputy Prime Minister Alexander Novak said Russia was very close to achieving its target of cutting crude oil output by 500,000 barrels per day (bpd) to around 9.5 million bpd. In April, Russia may continue to maintain high oil exports to meet India’s refiners needs, traders said. Seasonal maintenance on Russia oil refiners will allow the state to do so. Russian Urals oil loadings in March are expected to increase by 4% on February. “India is very actively buying Russian oil, it is profitable compared to alternatives. They ask for serious volumes and we need to deliver,” said a trader in the Russian oil market. Demand from Indian buyers supported prices for Urals oil, traders said. The discount for Urals has declined by about $8 per barrel compared with mid-January, Novak said last week. Traders said the rise in Urals oil loadings has tightened the tanker market, which is already facing constraints because of sanctions. This is why shippers are using Suezmax tankers, designed for the transport of 130,000-180,000 tonnes, to ship 100,000-tonne cargoes from the Baltic ports. At least 11 tankers from the March loading plan that loaded Urals cargoes from Baltic ports were Suezmax size vessels, according to the traders. The cost of freight for Suezmax and Aframax vessels remains the same due to a shortage of Aframax tankers, which typically carry around 70,000 to 120,000 tonnes. The cost of Urals oil transport from Baltic ports to India rose this week to $8.5-8.7 million, two traders said. The freight cost for this route was estimated at $7.9-8 million last week.
Russia says oil sales to India up 22-fold last year
Russian Deputy Prime Minister Alexander Novak said on Tuesday that Russia needed to focus on boosting energy exports to so-called “friendly” countries, as he said Russian oil supplies to India jumped 22-fold last year. Novak said energy revenues accounted for 42% of Russia’s federal budget in 2022 and said the country’s energy industry was sustainable, despite the challenges faced by Western sanctions.
EU Could Let Member States Block Russian LNG Imports
The European Union is considering allowing individual member states to block LNG imports from Russia without slapping sanctions on Russian gas, a draft document seen by Bloomberg News showed on Tuesday ahead of a meeting of the EU energy ministers. The proposal would allow individual member states to prevent Russian LNG exporters from booking capacity at Europe’s LNG import facilities. The push to give EU members the power to temporarily block LNG imports from Russia is led by Russia’s EU neighbors Finland, Estonia, Latvia, Lithuania, and Poland. Even if the mechanism to block Russian LNG without sanctions is endorsed by the EU energy ministers, the individual EU governments would still need to consult with other EU countries, the European Commission, and other EU institutions. The European Commission and some EU members have already called for a reduction of imports of Russian LNG which have jumped since the Russian invasion of Ukraine and the resultant reduction in the supply of Russian pipeline gas. The Spanish government has urged LNG importers not to sign new deals to purchase Russian LNG as the biggest buyer of Russia’s LNG in Europe looks to reduce dependence on Moscow’s gas, sources familiar with the matter told Bloomberg last week. Earlier this month, EU Energy Commissioner Kadri Simson urged all EU member states and all companies not to sign new LNG import contracts with Russia. The European Union has managed to significantly cut its imports of Russian pipeline natural gas over the past year, but now it should stop all LNG imports from Russia, Simson said. While pipeline supply from Russia has slowed to a trickle, Europe has raised imports of LNG, including LNG from Russia. Russia’s LNG supply to Europe jumped by around 20% last year from 2021, according to Refinitiv Eikon data cited by Reuters. All Russian LNG exports rose by 8.6% in 2022 to around 45 billion cubic meters, more than half of which went to Europe, per Refinitiv Eikon’s data.
IndianOil Plans Paradip Petrochemical Project
Indian Oil Corp has granted “stage-one” approval for establishing a petrochemical complex at Paradip, Odisha. The estimated cost for the project is $7.4 billion, making it the state-owned group’s largest-ever investment in a single location. The complex will include a world-scale cracker and downstream units for polymers such as PP, HDPE, LLDPE and PVC, as well as chemicals like phenol and isopropanol. Output from the complex is expected to provide feedstock and vitalize growth in key downstream industries that include plastics, pharmaceuticals, agrochemicals, personal care and paints. Indian Oil did not give a timescale for the project, which it said would be a growth driver for turning the company into a major petrochemical player while also strengthening India’s self-reliance. The oil and gas group is currently building an integrated paraxylene (PX) and purified terephthalic acid (PTA) facility at Paradip, to come on stream in 2024. Technip Energies is providing engineering, procurement, construction and commissioning services on the facility, which will be integrated with the site’s refinery and produce 800,000 t/y PX and 1.2 million PTA.
Gas, makes for a solid climate future
With a growing population of 1.3 billion and rapid urbanisation, India is the third-largest consumer of energy. Currently, 80% of the India’s energy needs are met by coal, oil and solid biomass. Coal largely dominates and accounts for 56% of the total energy mix, maintaining its strong position in power generation and being a fuel of choice for many industries such as iron and steel. Renewables and natural gas take a small share but have started to gain ground. At the same time, India is the third-largest emitter of greenhouse gases, with coal contributing 66% of its CO2 emissions. India is aiming to reduce its carbon footprint by 1 billion tonnes of emissions by 2030 and achieve net-zero emissions by 2070. To move towards this long-term goal, the current energy mix needs to undergo a major shift – reducing our dependability on coal by over 20% and increasing the shares of renewables such as wind, solar, biofuels & small hydro to 10% and natural gas to 15% in 2030. Government of India has also announced plans to develop an integrated hydrogen economy in the same period. Though the hydrogen market is growing rapidly as the government is actively promoting the use of hydrogen across various industries, it is still in its early stages and requires heavy investments in the future. It is a long road ahead before India can switch completely to renewable energy and/or electric mobility. As the country moves towards cleaner sources of energy, natural gas, becomes a critical part of India’s transition strategy – the bridge between the current fossil fuel led energy mix to the zero-emission fuel mix in the future. Piped natural gas (PNG) and compressed natural gas (CNG) can be used to reduce the country’s emissions significantly, without compromising on the energy needs.