India Garners Pricing Benefits of Crude Oil Imports From Russia
ndia till now is on a firm track of sourcing oil cheaply from Russia since the latters invasion on Ukraine. This is against the wishes of the western powers who want to being down the Russian economy by curbing its oil revenue. Nevertheless, the Indian Government has categorically said that it would source what it needs from where the price is advantageous. The Government also said its three oil marketing companies are not buying crude from Russia. However, the private companies are the only ones who are buying, refining and shipping out. According to media reports, India’s exports of petroleum products shot up to USD 78.58 billion time period April 2022 to January 2023. This went from USD 50.77 billion shipped out during the previous year’s corresponding period. Stoked up by the imports of crude oil India’s imports from Russia went up about 384 percent to USD 37.31 billion during April 2022-January 2023. As a consequence, Russia became India’s fourth largest import partner up from 18th position in 2021-22. The increasing oil imports from Russia has made it easy for India by preventing it from paying for the products in Rupees. Shweta Patodia, AVP, Analyst, Moody’s Investors Service said, “Crude oil and international fuel prices have surged following the Russia-Ukraine war. Net realized prices for the oil marketing companies in India, however, have not increased at the same pace which has resulted in significant marketing losses for them. While the marketing losses were steep in the first half of the fiscal year, it has narrowed since then.” After the Russian announced about cutting down oil production following the price cap, Patodia said, “Reduction in oil production from Russia, if not met by a corresponding increase in production from other producers or demand moderation, will reduce the overall supply relative to demand and may strengthen the crude oil prices.” According to a recent credit rating report by ICRA on Oil and Natural Gas Corporation Limited (ONGC), the latter’s subsidiary OVL’s assets in Russia were impacted due to geopolitical issues and normal operations in these are expected to resume shortly.
GAIL imitates Reliance with US ethane plans
India’s largest gas firm GAIL is imitating billionaire Mukesh Ambani-led Reliance Industries Ltd in planning to import ethane from the US to replace natural gas and naphtha as feedstock at its petrochemical plants “In a bid towards diversification of the feedstock, GAIL is looking to import ethane from ethane-surplus countries with matured export terminal infrastructure through water borne transportation to India and transport it further through GAIL’s pipeline systems to demand centres,” the company said in a tender document. It sought quotes to hire a very large ethane carrier (VLEC) for 20 years starting mid-2026 for importing ethane from the US. The ship with capacity of 80,000 to 99,000 cubic metres is targeted to take deliveries from US ports of Marcus Hook, Nederland, Morgan’s Point or Beaumont and deliver ethane at Dahej or Hazira in Gujarat or Dabhol in Maharashtra. GAIL has a petrochemical plant at Pata, near Kanpur in Uttar Pradesh, and is also looking to set up another unit at Usar in Maharashtra. The company had to cut down on run rate at Pata after the government diverted gas supplies from the plant to city gas suppliers. This led to its profitability being impacted and so now the company is looking to supplement the feedstock with ethane. Reliance had in 2014 announced ethane plans in 2014 and started importing the feedstock from the US in 2017. It is importing 1.6 million tonnes per annum of ethane and is using six VLECs for transporting it to India. With ethane replacing propane and naphtha used in ethylene production, Reliance is estimated to have saved about USD 450 million annually. Ethane is expected to be produced in large volumes in North America due to the shale gas revolution, which has generated an abundance of liquefied natural gas (LNG) and liquefied petroleum gas (LPG). It is primarily used as petrochemical feedstock to produce ethylene by steam cracking. Ethylene is the starting material for making a wide range of products — from packaging films, wire coatings, and squeeze bottles as well as plastics and synthetic rubber.
Oil Prices Fall On Fears Of Further Interest Rate Hikes From The Fed
Despite rising earlier this week, crude oil prices are set to end the week with a loss, largely driven by concern that the Federal Reserve is not done with aggressive rate hikes. Both Brent crude and West Texas Intermediate were down in Asian pre-noon trade today, Reuters noted, although the decline was minor, at 0.75 percent. It also quoted economic data from the United States, namely the latest producer price index report, which gained 0.7 percent in January after declining 0.2 percent in December. The PPI report followed the latest consumer price data, which showed that inflation had risen by 0.5 percent on a monthly basis in January and by 6.4 percent on an annual basis—more cause for concern that the Fed will continue with its aggressive approach to inflation control. “Strong U.S. data bolstered concerns over rate hikes and prompted a rise in U.S. Treasury yields, which weighed on oil and other commodity prices,” Fujitomi Securities chief analyst Kazuhiko Saito told Reuters. “Inflation is easing but the path to lower inflation will not likely be smooth,” Jeffrey Roach, chief economist at LPL Financial, told CNBC earlier this week in comments on the latest CPI release. “The Fed will not make decisions based on just one report but clearly the risks are rising that inflation will not cool fast enough for the Fed’s liking.” Another analyst noted to Reuters the recent increase in U.S. crude oil inventories, which, according to him suggested demand was on the wane. Others, however, have pointed out the massive inventory increase the EIA reported in its latest weekly update was the result of a data adjustment. Meanwhile, prices received some support from the IEA, which forecast oil demand will reach a record high this year, driven by China, which will account for 50 percent of the expected demand growth.
Canada’s Largest Gas Producer Finds Way To Sell Its Gas At 10x Its Usual Price
The energy industry in Canada has long lamented the fact that the country is missing out on the global surge in LNG demand, first as a replacement for coal, and now, for Europe, as a replacement for Russian pipeline gas. That Canada, which has 1,373 trillion cubic feet of gas, is late to the LNG party has been mostly the result of federal government policies and environmentalist opposition. Yet despite the multiple challenges, the country’s first LNG terminal is expected to start operating in about two years. Until then, however, one producer has found another way to get its gas to international markets. Tourmaline Oil Corp., the largest natural gas producer in Canada, is sending its natural gas from northeastern British Columbia to the Gulf Coast in Texas by way of Chicago, where Cheniere Energy liquefies it and ships it overseas. It’s a 3,000-mile journey to the Gulf Coast alone—and there are more miles to travel. According to Bloomberg, this is “a record-setting path.” Tourmaline has a 15-year contract with Cheniere Energy for 140 million cu ft of gas daily, which is equal to about one LNG cargo a month, per Bloomberg. And it’s getting paid ten times what gas sells for on the local market. At the AECO hub in Alberta, natural gas trades at around $2 per gigajoule, which is about 1,000 cu ft. Under the deal with Cheniere, Tourmaline is getting $20 per 1,000 cu ft, according to the Bloomberg report. That’s gross, and there are expenses related to the pipeline transportation of the gas across the U.S. and the liquefaction and shipping. However, the bottom line appears to be still substantially above the AECO benchmark. Yet what Tourmaline is sending to Cheniere’s terminal in Louisiana is a small part of what it exports to the U.S. in total on a daily basis. That amounts to 754 million cu ft daily but could grow to above 850 million cu ft this year, according to a recent quarterly conference call. This could rise further to 926 million cu ft by the end of 2024. Recently, there have been warnings that U.S. gas producers are retreating in the production growth department after European—and U.S. gas prices—slumped amid the predominantly warm winter that lowered demand for the commodity. These warnings, combined with signals to the same tune from the industry itself, have suggested the possibility of a gas shortage. While not an immediate danger, it is not unthinkable even as demand remains robust. Yet if Canadian producers can step in and close the supply gap, the risk of a shortage may get well delayed or entirely eliminated. Natural gas in the United States is trading at much lower prices than last year, but natural gas in Canada is trading at even lower prices. And there appears to be a healthy appetite for Canadian gas south of the border if the Tourmaline deal with Cheniere is any indication. It might not be the only but the first one to close such as deal with an LNG exporter, at least until LNG Canada, which is about 70 percent built, is completed. Some in the industry would probably laugh and shake their heads sadly at the fact that Canadian gas has to go all the way to the bottom end of the continent to get exported to international markets instead of this happening at home. Yet the Tourmaline-Cheniere deal proves one important fact about the energy market. This fact is that even with all the opposition that a government could mount against an industry, it’s still supply and demand that have the last word. Right now, this word, or rather words, are “More Canadian gas, please.”
South Asia Returns To The Spot LNG Market As Prices Dip
South Asia is back on the spot market for liquefied natural gas (LNG) as prices have dipped to the lowest in a year and a half, prompting the price-sensitive buyers in the region to buy the fuel which was prohibitively expensive six months ago. South Asian economies India, Pakistan, and Bangladesh have shown signs of activity on the spot LNG market in recent weeks, encouraged by the more than 70% slump in prices since the record highs seen in August 2022. The return of South Asia to LNG purchases could at least partially curb the region’s high coal consumption and imports this year, according to Reuters’ Global Energy Transition Columnist Gavin Maguire. Yet, more gas demand in South Asia – coupled with an expected rebound in demand in China – could also tighten the LNG market and intensify the competition with Europe for spot LNG supply in the summer. This, in turn, will lead to a return of higher spot LNG prices, which the cash-strapped governments of Pakistan and Bangladesh will not be able to afford—again. Asia Spot LNG Drops To Lowest Since August 2021 Last week, Asia’s spot LNG prices dipped – for yet another week – by 8.1% to around $17 per million British thermal units (MMBtu) for March delivery, while LNG for April delivery was even lower, at $16.50 per MMBtu, according to estimates from industry sources cited by Reuters. The price decline, to the lowest level since August 2021, has incentivized price-sensitive LNG customers in south Asia, such as Bangladesh, Thailand, and India, to return to the spot market they abandoned last year amid surging prices. “We are back in the comfort zone of many price-sensitive South and Southeast Asian buyers. Accordingly, we have seen Thailand and Bangladesh most recently,” Kaushal Ramesh, senior LNG analyst at Rystad Energy, told Reuters earlier this month. Related: Oil Falls After EIA Confirms Massive Crude Inventory Build So far this year, Asian spot LNG prices have slid by around 40% and are more than 70% lower from the record $70 per MMBtu in August 2022. South Asia Back To Buying Spot LNG… The markedly lower spot LNG prices have prompted India, Bangladesh, and Thailand to seek to buy LNG cargoes by the middle of this year. Bangladesh is returning to the spot market after halting tenders to buy the fuel in July 2022 as prices soared amid Europe’s rush to procure LNG for this winter without much of the previous supply of Russian pipeline gas. Petrobangla, the state-owned firm arranging LNG imports for Bangladesh, plans to buy between 10 and 12 cargoes on the spot market by June, a senior official at the company told Reuters earlier this month. Spot prices are still higher than contracted supply, and Bangladesh is seeking long-term deals. “We are also trying to secure LNG from long-term partners, but it looks like they are unable to provide this year,” the official said. Global long-term LNG contracts are sold out until 2026, a survey of Japanese companies conducted by the local trade ministry showed at the end of last year. India also expects to boost its LNG imports this year as prices have eased, the biggest gas importer in the country, Petronet, said last month. In India, LNG imports fell by 15.2% in 2022, but the total cost increased by 44.5% due to high LNG prices, the Institute for Energy Economics & Financial Analysis said in a report this week. Bangladesh’s LNG imports fell by 16% last year, while Pakistan’s LNG consumption slumped by 18.9% in 2022 due to high prices and the unavailability of fuel, IEEFA said. “Similar to Bangladesh, Pakistan’s foreign currency reserves are depleting rapidly due to the country’s high dependence on imported fossil fuels and skyrocketing commodity prices,” IEEFA noted. …For How Long? Going forward, rising concerns over fuel supply security and affordability of LNG have downgraded the prospects for LNG demand growth in the region, according to the institute. “In Asia, LNG has now earned a reputation as an expensive and unreliable fuel source, clouding future demand,” said IEEFA. LNG demand in Asia this year is set to increase, thanks to the Chinese reopening and the return of South Asia to the spot market. However, South Asia’s price-sensitive buyers could face another challenge in procuring spot supply later this year as the Europe-Asia competition for attracting LNG cargoes is set to intensify, leading to higher prices. The race to ensure supply for next winter hasn’t even started in earnest yet. Prices are set to hold higher than before the Russian invasion of Ukraine through the summer as Europe will face stiffer competition from Asia for LNG supply. Europe’s natural gas futures point to structurally higher prices for the rest of the year, as Europe will soon have to start filling inventories for the 2023/2024 winter. “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 this week.
India’s fuel sales recovering in Feb as cold wave ebbs
Indian state refiners’ gasoline and gasoil sales rose in the first two weeks of February from the same period last month, preliminary sales data shows, as transport of goods picked up and people drove out more drawn by slightly warmer weather. Sales of gasoil rose to 3.3 million tonnes in the first half of February, a growth of 10.3% from the same period last month, the data showed. Gasoil accounts for about two-fifths of refined fuel consumption in India and is directly linked to industrial activity.
ONGC sees fastest oil output growth in 20 years
India’s largest oil producer ONGC is expecting crude oil output to grow by 4-5pc in the April 2023–March 2024 fiscal year, which if achieved will be its fastest growth in two decades. ONGC told investors on 15 February that following its October-December — the third quarter of India’s 2022-23 financial year — earnings, it sees production of crude oil rising by 1pc in 2022-23, reversing a six-year long streak of declining output. In April-December, production at ONGC’s self-owned fields grew by 0.5pc to 374,000 b/d but total crude oil output, including from joint ventures, fell by 0.4pc in the same period. ONGC, which produces 71pc of India’s oil output, has seen its crude production decline over the past decade as most of its fields are old and ageing, and its new discoveries faced cost escalations and technical delays. The Indian government has over the past few years mulled selling some of ONGC’s biggest fields to private sector entities to boost output but such measures have faced resistance from the state-controlled company. “We have arrested the decline. FY24 (2023-24) is going to be the year we will see the gains of our effort,” ONGC told analysts on the post-earnings conference call. The major gains in oil production will come from KG 98/2 block on the eastern offshore at Kakinada, the largest subsea project in India, where the new floating production storage and offloading (FPSO) unit will start production from May-June 2023, ONGC said. The Kakinada FPSO will see production of 38,000 b/d in 2023-24 and 44,000 b/d in 2024-25, ONGC said. According to earlier projections, peak oil production at the KG-DWN 98/2 block is likely to be around 80,000 b/d, equivalent to 14pc of India’s total output of 570,000 b/d in 2021-22. ONGC is also counting on production at the western offshore blocks to rise by 10,000 b/d in 2023-24 following the deployment of the mobile offshore production unit Sagar Samrat last month. Import dependence The growth in crude output by ONGC will boost India’s efforts at enhancing domestic oil and gas production to reduce dependence on imports. Prime minister Narendra Modi told international delegates at the India Energy Week earlier this month to invest in India’s oil exploration effortsas the country seeks to boost domestic productivity. India imports over 80pc of its crude oil requirements, making its economy vulnerable to shocks such as the one witnessed in March 2022 following Russia’s invasion of Ukraine.
India Cuts Windfall Tax On Crude Oil And Fuels
India, which introduced a windfall tax on its oil industry last year amid the oil price boom, has now cut the levy for crude oil and the export of jet fuel and diesel, Reuters has reported, citing government information. The windfall tax was introduced in July last year as Indian refiners decided to take advantage of solid margins driven higher by robust demand and the energy supply disruptions in Europe. This advantage took the form of ramped-up oil and fuel exports to sell at higher international prices while domestic prices remained subdued. More recently, however, refiners have been stocking up on cheap Russian crude redirected from Europe, possibly in anticipation of higher demand for fuels in the near future, after the European Union embargoed most imports of Russian fuels. Meanwhile, Reuters’ Clyde Russell reported in a recent column that India and China were both raising their imports of Russian fuels. He cited Kpler data showing that Indian imports of Russian fuel oil had gone up to 4.484 million barrels in January. This was three times as much as India imported on average in 2021 and just a little below the record imports of fuel oil from Russia for October, which stood at 4.88 million barrels. Russell also noted that Chinese refiners could use Russian fuel oil to process into higher-value products as long as the price is low enough to make economic sense. Meanwhile, the Economic Times reported that India may soon boost its imports of Russian gasoline and diesel, in addition to fuel oil. Citing unnamed sources, the report said some refiners planned to buy Russian fuels to sell on the domestic market and export their own products to the West. Domestic demand for fuels may be about to rise further later this year as the government considers a cut in fuel tax as part of efforts to bring inflation under control.
State-run fuel retailers may not immediately revert to daily pricing of two auto fuels
State-run fuel retailers Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation have stopped losing money on sales of petrol and diesel, but may not immediately revert to daily pricing of the two auto fuels because of economic and political compulsions, three people aware of the matter said Although international oil prices have softened significantly since their June 2022 peak, these companies do not consider it an appropriate time to restore the daily-pricing mechanism because crude oil prices are volatile, retail inflation is high, and assembly elections are due in crucial states such as Tripura and Karnataka, they added, requesting anonymity. “The fuel price situation has improved significantly as compared to mid-2022. On average OMCs (oil marketing companies) now have positive margins. That is why the Budget has also reduced LPG [liquefied petroleum gas or cooking gas] subsidy for 2023-24. Petrol and diesel are deregulated products and oil companies are free to adjust their retail prices accordingly. There is no provision in the Budget to help oil PSUs for their losses on petrol and diesel,” one of the three, a senior government official, said Budget 2023-24 proposed a ₹22.5709 billion LPG subsidy, 61% lower than ₹58.1250 billion Budget Estimate (BE) for 2022-23, which was later raised to ₹9170.50 in the revised budget (RE) of FY23. Apart from that, the government gave a one-time grant of ₹220 billion to state-run oil marketing companies (OMCs) for their revenue losses on the sale of cooking gas in RE of FY23. State-run OMCs have not changed pump prices of petrol and diesel since April 6, 2022, when they were last raised to ₹105.41 per litre and ₹96.67 a litre respectively in Delhi. In May 2022 the Central government steeply reduced excise duty on petrol and diesel for the second time (the first reduction took place in November 2021; total central excise reduction was ₹13 a litre and ₹16 on the two fuels, respectively) to calm raising inflation. This was also followed by cuts in value-added taxes by several states. Consequently, petrol and diesel rates came down to ₹96.72 per litre and ₹89.62, respectively, in Delhi on May 22, 2022. Fuel rates vary across the country due to local levies.
Russia price caps spur India interest in naphtha, fuel oil, but not diesel
More Indian firms are attracted to buying Russian naphtha as low-cost feedstock for their refineries and petrochemical plants after price caps imposed by Western nations, six refining sources said. Prices for refined products such as naphtha and fuel oil are capped at $45 a barrel by the Group of Seven nations, the European Union, and Australia in a scheme aimed at curbing Moscow funding its war against Ukraine. By comparison, Singapore naphtha traded at $80.03 a barrel on Tuesday on a free on board basis. The price cap was implemented along with an EU ban on Russian oil products imports on Feb. 5. India’s interest in ramping up Russian oil products imports comes after the world’s third largest crude importer became Moscow’s top oil client after China as the West shunned supplies from Moscow. Cheap Russian crude has shaved costs at Indian refiners and boosted margins. Reliance Industries Ltd. (RELI.NS), the owner of the largest refining complex in the world, boosted its imports of Russian naphtha imports in February to about 222,000 tonnes, ship tracking data from Refinitiv showed. Reliance began importing Russian naphtha in September and by the end of January had shipped in about 217,000 tonnes, the data showed. Reliance, already India’s largest buyer of Russian naphtha and fuel oil, would consider increasing imports further, one of the sources said. Its Russian fuel oil imports are set to triple a record of around 4.8 million tonnes between April 2022 and Feb. 2023, the first 11 months of this financial year, from about 1.6 million tonnes in 2021/22, Refinitiv Eikon data showed. State-owned refiners Bharat Petroleum Corp. (BPCL.NS) and Indian Oil Corp. (IOC.NS), which have petrochemical facilities, are also looking for opportunities to buy Russian naphtha, sources said. “So far there is no offer made to us for Russian oil. It is early days… we will definitely buy Russian naphtha if we get it at cheaper rate,” said an official at one of the state refiners. Haldia Petrochemicals Ltd would also consider buying Russian naphtha if the quality and cost are suitable for its plants, two sources at the company said. Reliance, IOC, BPCL and Haldia Petrochemicals did not respond to Reuters’ emails seeking comment. The G7 price caps prohibit Western insurance, shipping and other companies from financing, insuring, trading, brokering or carrying cargoes of Russian crude and oil products unless they were bought at or below the set price caps. NOT DIESEL However, Indian refiners are unlikely to purchase Russian diesel as import costs are high after adding $10–$15 per barrel in freight and insurance costs to the $100 price cap for the fuel. Asia’s benchmark 10-ppm sulphur gasoil prices were at $110.57 a barrel on Tuesday. There is also a windfall tax on diesel exports which makes re-exports uneconomical. “As there is no shortage of diesel in India, any diesel imports from Russia will boost India’s exports, and exports will be charged with the windfall tax,” one refinery executive said. Unlike naphtha that is imported by some refiners and petrochemical makers, India is self-sufficient in diesel production as most refiners are traditionally geared to maximise gasoil output. “Due to its proximity to both Russia and Europe, we believe the Middle East is the best region for Russian diesel imports,” the refinery executive said.