Levy 5% GST on natural gas to reduce fertiliser subsidy
Finance minister Nirmala Sitharaman has said that the tax rate for five petroleum goods – crude oil, natural gas, petrol, diesel and aviation turbine fuel (ATF) – can be fixed under the Goods and Services Tax (GST) as soon as the states give their consent at a GST Council meeting. GST is a ‘single tax’ applied all over India with a set-off provision for tax paid on inputs. The Constitutional Amendment Act, 2016 on GST while providing for the inclusion of petroleum products under its ambit, had kept them ‘zero-rated’. These goods continue to attract central excise duty and state-level value-added tax (VAT). When will the ‘zero-rated’ tag go? The Act has given the power to the GST Council to decide. Rate setting for natural gas under GST – a major input used in the manufacture of fertilisers – has been on the Council’s agenda ever since the tax regime was adopted on July 1, 2017, but a decision was deferred. Will the Council follow up on FM assurance at its next meeting? Meanwhile, let us assess the cost of keeping natural gas zero-rated. At present, natural gas attracts ‘nil’ central excise duty on supplies to fertiliser plants and VAT varying from a high 24.5 percent in Andhra Pradesh to a low 5 percent in Rajasthan. This not only leads to wide variations in the price of natural gas supplied to plants from state to state but also has a cascading effect on its delivered cost. The fertiliser industry gets nearly two-thirds of its natural gas requirement from imported liquefied natural gas (LNG). During October-December 2022, India paid around $35 per million British thermal units (mmBtu). After adding import duty of 2.75 percent (basic 2.5 percent and 10 percent social welfare surcharge), the cost of re-gasification and other charges such as terminal charges, vessel-related charges and port charges, the price rises to $37 per mmBtu. There are other additional costs such as charges for transportation of re-gasified LNG, marketing cost and marketing margins of around $ 2 per mmBtu. The price comes to $39 per mmBtu at the delivery point in a state. The share of imported LNG in total gas supply being two-thirds, its weight in price comes to $26.1 per mmBtu.
OMCs face Rs 50 billion in under-recovery in Q4FY23: Nomura
Oil marketing companies (OMCs) such as Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL) and Indian Oil (IOCL) may have to bear an under-recovery of Rs 50 billion (Rs 50 billion) on the sale of auto fuels in the fourth quarter of this fiscal, brokerage firm Nomura has said. This is significantly lower than the under-recovery numbers reported earlier in the fiscal when the OMCs were estimated to have borne under-recoveries of up to Rs 1 trillion in 9MFY23. The improvement in the bottom line was thanks to a fall in crude prices but the brokerage’s analysts do not believe it will last in the near term and have retained their reduce rating on all three stocks. While blended marketing margins are looking better, on a week on week (Rs 3.3/litre versus Rs 0.7/litre) and quarter-to-date over the previous quarter (Rs 1.7 versus Rs 1.4), they may lose their buoyancy once global demand recovers, the report said. “Based on current crude and product prices, blended marketing margins are at super-normal levels of INR4.4/liter, albeit these are unlikely to sustain in the near-term, in our view, underpinned by a strong global diesel demand and inventory drawdowns in the EU as the bloc is unable to fully offset the supply disruption from Russia,” they wrote in the recent “Energy markets in flux” report.
India’s Dependency on Imported Crude Oil Rises To 87 % during current FY
A robust recovery in the demand for fuel and other petroleum products amid flat domestic crude output has led to India’s dependency on imported crude rising to 87 per cent in April-January from 85.3 per cent in the year-ago period, latest data released by the Petroleum Planning & Analysis Cell (PPAC) showed. The data suggests that that the trend will hold for the last two months of the ongoing fiscal year as well, leading to a higher import dependency for the full year than 85.7 per cent in 2021-22 and 84.4 per cent in 2020-21. The government wants to cut India’s excessive reliance on imported crude oil but stagnant domestic production and continuously rising demand for petroleum products have been major roadblocks. Reducing expensive oil imports is also one of the key objectives of the government’s push for electric vehicles, biofuels, and other alternative fuels for transportation as well as industrial sectors. Over the past few years, the government has also intensified efforts to increase domestic crude oil production by making exploration and production contracts more lucrative for upstream oil companies and opening vast areas for hydrocarbon exploration. Heavy reliance on oil imports make the Indian economy vulnerable to volatility in international oil prices, in addition to having a significant bearing on the country’s trade deficit, foreign exchange reserves, rupee’s exchange rate, and inflation. As per PPAC, which comes under the petroleum and natural gas ministry, India’s domestic consumption of petroleum products in April-January rose nearly 10 per cent year on year to 183.3 million tonnes. However, domestic crude oil production for the period declined by about 1 per cent to 24.6 million tonnes. Crude oil imports in April-January rose 9.4 per cent year on year to 192.4 million tonnes. In value terms, crude oil imports in April-January were at $136.2 billion, against $94.2 billion in the year-ago period, according to PPAC data.
We have many plans in energy sector with India: Saudi Energy Minister
Riyadh (Saudi Arabia), February 20 (ANI): Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman on Monday said that Saudi Arabia has many plans in the energy sector in close coordination with India and these will come to light soon. The Minister made the statement while speaking to ANI on the sidelines of the two-day 2nd edition of the Saudi Media Forum which began in the capital Riyadh with over 1,500 media professionals and industry leaders from Arab and foreign countries joining to discuss the challenges and opportunities in the media industry. “We have so many plans in the energy sector with India and we will see it very soon,” Prince Abdulaziz bin Salman told ANI when asked about Saudi Arabia’s plan in the energy sector with India. Prince Salman’s statement came four months after he visited India, and met top Indian officials as the Kingdom strengthens its energy ties with the second-largest Asian economy.
At 8.96% CAGR, India Biodiesel Market Size to Hit US$ 588.8 Million in 2027
The latest research study “India Biodiesel Market: Industry Trends, Share, Size, Growth, Opportunity and Forecast 2022-2027” by IMARC Group, finds that the India biodiesel market size reached US$ 360.1 Million in 2021. Looking forward, IMARC Group expects the market to reach US$ 588.8 Million by 2027, exhibiting a growth rate (CAGR) of 8.96% during 2022-2027. India Biodiesel Market Outlook: Biodiesel refers to clean and green burning fuels that are produced via the transesterification, pyrolysis, or hydro heating of non-edible and edible oils. They can be broadly categorized into B100, B20, B10, B5, and other types. These biodiesel variants are renewable, carbon-neutral, non-toxic, and cost-effective as compared to conventional sources of fuel. They further prove highly efficient in improving the lubrication of an engine and enhancing engine life. Consequently, biodiesel products find extensive applications across numerous sectors in India, such as agriculture, automotive, power generation, marine, mining, etc. India Biodiesel Market Trends: The inflating prices of petrol and diesel and the rising demand for energy are primarily driving the India biodiesel market. Besides this, the shifting preferences towards replacing traditional fossil fuels utilized in power generation and automobiles for reducing greenhouse gas (GHG) emissions are also positively influencing the market across the country. Additionally, the increasing usage of the fuel variant as a heating agent in both domestic and commercial boilers is acting as another significant growth-inducing factor. Furthermore, the launch of various favorable policies and tax rebates by the government bodies aimed at promoting the utilization of renewable fuels and the escalating investments in the development of new biofuel production plants are expected to propel the India biodiesel market in the coming years.
EU Gas Price Cap: An Exercise in Futility
Last week, the European Union saw a cap on natural gas prices come into effect in hopes of curbing the risk of a repeat of last year’s eye-watering gas price jump to more than $350 per megawatt-hour. That spike in prices, which occurred in the summer after the Nord Stream pipeline—the biggest conduit of Russian gas to Europe—was blown out of commission saw businesses shut down and people gather to protest shy-high electricity bills. And the EU really doesn’t want this to happen again. The agreement for the price cap was no easy feat. It was fraught with problems from the start. Some EU members—the richer ones such as Germany and the Netherlands—opposed the very idea of capping the price of a commodity that sells on a free, unregulated market. Others, such as Spain, Italy, and the Eastern European states, defended the cap as a means of keeping gas relatively affordable. The initial proposal of the European Commission was to cap gas prices at 275 euro per MWh, or $287 if this price remains unchanged for two weeks on the spot market. Also, the price of gas in Europe had to be at least 58 euro above the average LNG price on the spot market for 10 consecutive days within those same two weeks to make matters even more complicated and unlikely to happen. Because of the level of this original price cap, the length of time it had to be in place in order to trigger the cap mechanism, and the LNG-related requirement, that first idea ended up being rejected on the grounds that it is effectively pointless. The Commission came up with a revised one that set the cap at 180 euro per MWh, equal to around $197. The cap would be triggered if prices remained at that level for three consecutive days and if that price was also 35 euro higher than the brand new EU benchmark for LNG prices. While officially approved, the cap mechanism remains largely pointless. Right now, natural gas is trading at around 50 euro, or around $53, per MWh on the EU spot market. The chances of this changing so radically that the cap needs to be triggered are, for now, remote. Gas in storage is at much higher levels than usual at this time of the year, so European buyers will not need to worry about refill season too soon. According to the Wall Street Journal’s Carol Ryan, a late cold snap could potentially empty these storage sites and push gas prices closer to the cap. But, the report notes, traders’ behavior will likely start changing before the TTF benchmark hits 180 euro per MWh. And the first thing they do will be to move their activity from the transparent and strictly regulated stock exchange to the murkier landscape of over-the-counter trades. This was one major concern that traders and ICE were quick to express during the discussions on the level and conditions for the cap. Trader associations and even the European Central Bank said the cap could destabilize the EU financial system. ICE said it could be forced to move out of the EU. “If agreed, the market correction mechanism will be imposed on customers and the market infrastructure with no time for resilient testing and thorough risk management,” ICE told Reuters in December. “It is the responsibility of ICE as the market operator to consider all options if this mechanism is agreed, up to and including whether an effective market in the Netherlands is still viable,” the exchange operator also said. ICE has not moved out of the EU yet, but it has set up a TTF market in the UK, just in case. For now, the circumstances necessary to trigger the cap are not particularly likely to emerge anytime soon. Theoretically, this should make everyone happy. In reality, it’s a bit more complicated. The European Union is ending winter with record-high gas in storage. Yet it bought this gas at prices that were multiple times higher than current prices. And it cannot sell that gas because it would mean losses of billions of euro. In other words, while from a certain perspective, the EU is safe with enough gas to weather any late winter cold spells, from another perspective, the EU is stuck with gas it bought at 100-350 euros, and now this same gas is trading at 50 euro. And at some point, buyers will have to begin buying again for next winter, and prices will be certain to jump, adding to the bill. The gloomy predictions are already out: the IEA’s Fatih Birol recently reiterated his pessimistic view of the near-term global energy supply security by noting LNG competition is set to intensify as China demand increases while supply remains unchanged. We may yet see the conditions for triggering the EU gas price cap. And it would be interesting to see how many sellers will be willing to abide by the EU cap.
GAIL India seeks three LNG cargoes for March-May delivery
GAIL (India) Ltd GAIL.NS has issued a tender to buy three cargoes of liquefied natural gas for delivery into India, said two industry sources on Monday. India’s largest gas distributor is seeking one cargo per month from March to May on a delivered ex-ship (DES) basis into the country’s Dabhol terminal. The tender closes on Feb. 21, said the sources.
India’s Russian Oil Imports Surge To A Record 1.4 Million Barrels Per Day In January
India’s Russian oil imports climbed to a record 1.4 million barrels per day (bpd) in January, up 9.2% from December, with Moscow still the top monthly oil seller to New Delhi, followed by Iraq and Saudi Arabia, data from trade sources showed. Last month Russian oil accounted for about 27% of the 5 million bpd of crude imported by India, the world’s third-biggest oil importer and consumer, the data showed. India’s oil imports typically rise in December and January as state-run refiners avoid maintenance shutdowns in the first quarter to meet their annual production targets fixed by the government. Refiners in India, which rarely used to buy Russian oil because of costly logistics, have emerged as Russia’s key oil client, snapping up discounted crude shunned by Western nations since the invasion of Ukraine last February. Last month India’s imports of Russian Sokol crude oil were the highest so far at 100,900 bpd, as output from the Sakhalin 1 field resumed under a new Russian operator, the data showed. In January, India’s imports of oil from Canada rose to 314,000 bpd as Reliance Industries boosted purchases of long-haul crude, the data showed. Canada emerged as the fifth-largest supplier to India in January after the United Arab Emirates, the data showed. India’s Iraqi oil imports in January rose to a seven-month high of 983,000 bpd, up 11% from December, the data showed.
The IEA Warns Of A Potential Natural Gas Shortage Next Winter
Tight production capacity for liquefied natural gas could lead to shortages next winter, the head of the International Energy Agency, Fatih Birol, has warned. As gas demand from China begins to recover, competition for LNG supply will increase, creating the risk of shortages, Birol told Reuters on the sidelines of the Munich Security Conference. The head of the IEA praised European governments for making “many correct decisions” last year to secure supply, including the construction of more LNG import terminals. He noted, however, that the mild winter had been a stroke of luck for Europe, combined with the demand drop in China amid last year’s lockdowns. “For this winter it is right to say that we are off the hook. If there are no last minute surprises, we should get through…maybe with some bruises here and there,” Birol told Reuters. “But the question is…what happens next winter?” The official noted that some 23 billion cubic meters of natural gas are expected to be added to the global LNG supply this year, which would be equal to some 16.8 million tons. Yet even a moderate recovery in China’s economic activity would absorb 80 percent of that additional supply. Birol then went on to say that this meant Europe may end up short of gas for next winter, saying “Even though we have enough LNG import terminals, there may not be enough gas to import and therefore it will not be easy this coming winter for Europe,” adding that “It is not right to be relaxed, it is not right now to celebrate”. Europe is about to end winter 2022/23 with record high levels of gas in storage, which theoretically means it would need to buy less for the next heating season. Still, last year’s refill purchases featured a solid amount of Russian gas that will not be available this year and will need to be replaced.
Rising energy prices fuel economic growth in Middle East and North Africa
The global oil and gas market has remained resilient in the face of increased uncertainty due to the ongoing Russia-Ukraine conflict, rising interest rates and a host of other factor. For oil-producing countries in the Middle East and North Africa, the rise in oil and gas prices is helping fuel economic growth. Although oil revenues have shaped these countries’ economies for the past seventy years, financial markets’ experts and analysts agree that, this time, the recent rise in oil prices will impact local economies in a more sustainable way, as GCC countries will be using their revenues in financing their economic diversification efforts, leading to more self-sufficient nations. “Middle East producers, and specifically those in the Gulf region, have embarked on ambitious plans to diversify their economies away from oil” says Ritu Singh, Regional Director of Stone X Group Inc. She adds: “These countries are using the windfalls of the currently high oil prices to reshape their economies, and with it, the region.” According to an International Energy Agency (IEA) report earlier this month, global oil demand is set to rise by 2 million barrels per (bpd) this year to 101.9 bpd. The Asia-Pacific region, with a projected growth in demand of 1.6 million bpd, fuelled by a resurgent China, dominates the growth outlook. A report by Deloitte showed that the global upstream industry is projected to generate its highest-ever free cash flows of $1.4 trillion by the end of 2022. The International Monetary Fund (IMF) had earlier projected that Gulf economies will receive up to $1.4 trillion in additional revenues in the next four to five years, as oil prices remain high. The Economist Intelligenc Unit predicted that GCC states and Iraq will benefit the most from international energy market developments in 2023, with GCC states seeing high oil and gas revenue spill over and help to drive business activity in non-energy sectors — especially through state-backed investment in economic diversification projects. “Inflation will be contained across the GCC in 2023 by exchange-rate pegs to the US dollar and fuel subsidy regimes,” the EIU said in a report. Singh said: “Increased demand and persisting geopolitical tensions are changing the landscape of the energy supply chain. Oil and gas prices are likely to remain high, and oil and natural gas producers and exporters in the MENA region stand to be the biggest winners.” In addition to economic diversification, oil-rich Mena countries are raising the profile of their financial markets by launching more regional crude oil benchmarks, such as the Abu Dhabi Murban Crude contract. They’re also taking many of the state-owned companies public in their own stock markets, leading to deeper liquidity and higher appeal for foreign investors. Moreover, oil-producing countries have started to develop mega projects, including NEOM in Saudi Arabia, while seeking to gain more global weight through international investments such as Mubadala’s investment in US Dental Care Alliance which aims at exploring clean fuel projects in Pakistan, and Qatar Investment Authority’s €2.4 billion investment in German power company RWE and $1.5 billion investment in Bodhi, James Murdoch’s media venture in India.