Russia oil cap benefiting India: German envoy
German Chancellor’s foreign and security policy adviser, Jens Plotner, on Monday said India is benefiting from the price cap on Russian oil imposed by major economies of the world although New Delhi is not a party to the decision by the West to impose the cap in early December to reduce Moscow’s earnings from fuel that, according to them, is “financing its war against Ukraine”. Plotner said this at a media interaction after his meetings with external affairs minister S. Jaishankar and national security adviser Ajit Doval. Plotner is in India in connection with the visit of German Chancellor Olaf Scholz later this month. The price cap — introduced by G7 countries along with the European Union and Australia — came into effect on December 5 and bars countries from paying more than $60 a barrel for Russian oil. It prevents Russian crude sold for more than $60 from being shipped using G7 and EU tankers, insurance companies and credit institutions. Since the insurance companies and credit institutions are based in G7 and EU countries, this has had a cascading effect, and Russia earlier this month announced that it will cut production from March. Plotner avoided commenting on India’s decision to increase its oil purchases from Russia since the war with Ukraine began on February 24 last year, maintaining that Germany cannot comment on this having been a major consumer of Russian oil and gas for decades. The price cap is designed to reduce Russia’s revenues and its ability to fund the war in Ukraine and limit the impact on global energy prices, particularly for low and middle-income countries. Russia has warned that it will snap oil supplies to any country that joins the price cap plan. As for India’s offer to mediate in the Russia-Ukraine war, Plotner said: “India quite naturally comes into consideration when you deal with these kinds of complicated conflicts. This having been said, at this moment we do not have a shortage of mediators but we have a shortage of Russian willingness to stop this war and get out of its neighbour country…. The Indian angle is very important… the voice of New Delhi is one which is heard very clearly and which is listened to in Moscow and that makes it all the more important.” On his meeting with Plotner, Jaishankar tweeted: “Discussed our expanding strategic partnership and exchanged views on the situation in Europe and the Indo-Pacific.”
How coal gasification can help India reduce its oil & gas import
India has been blessed with large coal deposits, especially in the eastern part of the country. Recent reforms in the coal sector, like commercial coal block auctions, engagement of MDO by Coal India Limited (CIL) for faster development of Greenfield projects, single-window system developed by the Ministry of Coal for the faster clearances, auction of abandoned/discontinued mines by CIL on the revenue-sharing basis and better coordination between Central and State Governments, have paved the path for increased self-dependency in the coal sector. The domestic supply of coal is expected to be more than the requirement for power generation in the next 2-3 years which will ensure that coal is available to other sectors. Due to poor deposits of oil and gas in India, coal can be a way for India to reduce import dependency. And one of the best ways to ensure the clean utilisation of coal is through coal gasification. Coal gasification is a process that is more environment-friendly as compared to the combustion of coal and can be a better option for the future use of coal. Through products derived from Syn gas (produced via gasification of coal), such as Methanol, Ethanol, Ammonia, Ammonium Nitrate, and Dimethyl Ether (DME), imports can be substituted. And syn-gas can also be used for producing Grey/Blue Hydrogen for steel-making and for usage in refineries. With India targeting net zero emissions by 2070, the future of coal depends on coal gasification as the process generates less CO2 and it is also easy to capture CO2produced during the gasification process. Coal gasification strategies consist of four major components, such as — making coal available for coal gasification projects, identifying suitable coal gasification technologies, including Carbon Capture, Utilisation and Storage (CCUS) and setting up coal gasification projects and market dynamics for the end-products which are expected to face a challenge from imported products based on natural gas. Coal availability The coal sector in India has witnessed steady growth over the last eight years. All India coal production in FY22 was 777 MT, with a growth of 8.5 percent over FY21, and registering a substantial increase from 566 MT in FY14. Coal production from captive mines has also registered a 30 percent growth in FY’22 with a production of 86 MT. Similarly, domestic coal offtake witnessed 18.4 percent growth in FY’22, amounting to 818 MT, which is substantially higher than the offtake level of 572 MT in FY14. In FY23, till December, there has been a growth of 16.1 percent in coal production over the last year as the figure settled at 607.3 MT and an increase of 6.9 percent in offtake with 637.2 MT. Five tranches of commercial coal auctions have been successful, consisting of 64 coal blocks with a total peak-rated capacity of 152.4 MT. In FY24, coal production from captive/commercial blocks will also supplement Coal India’s production target of 780 MT and SCCL’s 75 MT and will ensure domestic coal production of 1 BT.
Clean fuel. Indian PSU refiners to set up 137,000 tpa green hydrogen facility by 2030
The Indian public sector oil refineries have together planned to set up 137 kilo tonnes per annum (ktpa) of green hydrogen facilities by 2030. This was revealed by Dr S S V Ramakumar, Director – R&D, Indian Oil Corporation, at the India Energy Week, held recently in Bengaluru. Participating in a panel discussion on green hydrogen, Ramakumar said Indian Oil would first put up a 7 ktpa electrolysis plant at its Panipat refinery. He pointed out that IOC had entered into an agreement with the renewable energy company, ReNew Power and the engineering major, L&T, for putting up green hydrogen plants, not only for IOC but for other refiners also. He pointed out that IOC had entered into an agreement with the renewable energy company, ReNew Power and the engineering major, L&T, for putting up green hydrogen plants, not only for IOC but for other refiners also.
Indian refiners may buy Russian fuel, export own
Some Indian refiners are planning to import Russian diesel and other refined products for domestic consumption so they can free up locally produced fuels for export to the West, which has nearly stopped taking refined products from Russia, according to people familiar with the matter. The European Union has banned the import of refined petroleum products from Russia, including petrol, diesel and jet fuel, from February 5. The European Union, along with G-7 countries, has also placed price caps on Russian refined products. Russia has already become the top supplier of crude to India, accounting for 28% of India’s crude imports, up from less than 1% in 2021. India’s imports of Russian refined products have also risen to record levels in recent months, though mostly limited to fuel oil. They may soon expand to petrol and diesel.
Reliance seeks $12.75 for CBM gas, ONGC wants $9.35
Billionaire Mukesh Ambani’s Reliance Industries Ltd and state-owned Oil and Natural Gas Corporation (ONGC) are separately auctioning natural gas extracted from coal seams at prices linked to Brent crude oil price. Reliance is seeking a minimum USD 12.75 per million British thermal unit for coal bed methane (CBM) from a block in Shahdol district of Madhya Pradesh, while ONGC wants USD 9.35 for the same kind of fuel from North Karanpura in Jharkhand, according to tender documents. Reliance has sought bids for sale of 0.65 million standard cubic meters per day from CBM block SP(West)-CBM-2001/1 for one year beginning April 1, 2023, the company’s tender document showed. It asked bidders to quote a variable ‘v’ as a percentage of dated Brent crude oil price. Starting bid price has been kept as 15 per cent of Brent (‘v’ = 15 per cent). At the current Brent price of USD 85 per barrel, this translates into a price of USD 12.75 per mmBtu. e-bidding will happen on February 24. ONGC has offered 0.015 mmscmd of gas from North Karanpura (NK) block in Jharkhand for 3 years. It asked bidders to quote a premium ‘p’ as a percentage of Brent price. The reserve or bid start price has been kept at 11 per cent of Dated Brent price (USD 9.35 per mmBtu at Brent oil price of USD 85 per barrel). Price of gas “shall be higher of the reserve gas price plus quoted premium (p) or floor price plus quoted premium (p),” ONGC said. The floor price will be USD 1 per mmBtu higher than the domestic gas price (which currently is USD 8.57 per mmBtu). The e-auction of ONGC gas will take place on March 2, it said.
Russia To Sell Most Of Its Oil To “Friendly” Countries: Novak
Russia’s Deputy Prime Minister Alexander Novak announced the country’s plans to sell more than 80% of its crude oil exports to “friendly” countries this year. These “friendly” countries include countries such as China and India, which haven’t participated in product bans, sanctions against Russia, and oil and oil product price capping—as well as Sri Lanka, which is in the throes of an economic crisis. While India has been criticized for its Russian crude purchases, it has maintained that it must make good economic decisions by purchasing the cheapest crude oil possible. After India refines the crude into fuel, it is often exported to the United States and Europe. Novak also said that it is these “friendly” countries that will also receive two-thirds of its refined oil products, adding that the country was also on the hunt for new markets. In addition to its war in Ukraine, Russia has undertaken an energy war against the West—mainly European Union member countries—which has resulted in Russia offering its crude oil at steep discounts to the Brent crude benchmark. It also has resulted in Russia’s budget swinging into a $24.7 billion deficit last month, with state revenues from oil and gas falling by nearly 50% as it was forced to slash the price of Urals. Urals has been trading somewhere near $30 per barrel below Brent. Novak warned last week that there was a risk of lower oil production this year on the back of the EU’s import bans and price caps on Russian crude oil and its oil products. Shortly after this statement, the country announced it would cut its crude oil production by 500,000 barrels per day. But Novak said that Russian crude oil production held fast at somewhere between 9.8 million bpd and 9.9 million bpd last month.
Low Natural Gas Prices Could Cause A Supply Crunch
Earlier this month, the benchmark price for U.S. natural gas fell below $3 per million British thermal units for the first time in almost two years. Forecasts are that it will remain below $3 until at least the middle of the year. The natural gas price drop is already forcing producers to taper production plans just as Europe begins to plan for its summer gas storage refill season when demand is expected to surge. Since the start of the year, U.S. natural gas prices have slumped by 46 percent. The number of drilling rigs in gas-rich parts of the shale patch rose by 48 percent in the first half of 2022 but now this trend is about to reverse as oilfield service providers warn they will be moving equipment out of gas fields, Reuters reports, citing Liberty Energy and Helmerich & Payne. The surge in drilling rig additions last year was quite understandable: a whole new LNG export mark opened up in Europe, and prices for U.S. natural gas ended up averaging $5.46 per mmBtu for the year. This was the highest price for the commodity in more than ten years, according to Reuters. Of course drillers would add rigs. But then the warm winter that provided a much-needed break for Europe changed things. With storage sites full to the brim and demand lower than the seasonal average, Europe stopped taking so much U.S. LNG. Winter in the United States itself was, for the most part, warm, keeping domestic demand down as well. Prices, consequently, fell. But this may spell trouble for the future. In Europe, gas prices remain highly volatile and much higher than they were before 2022. Early this month, after a substantial slump, these jumped once again on forecasts for a cold spell across much of the continent. Germany’s chief of the energy market watchdog, Klaus Mueller, once again warned Germans were saving too little gas. In Asia, there are signs of recovering demand, thanks largely to the lower prices at which gas is being sold. With China returning to normal after a series of Covid lockdowns last year, this demand is expected to increase even further. Yet it might not be enough to push prices to where they were last year because demand from Europe may remain lukewarm. Related: Oil Prices Fall On Renewed Inflation Fears The continent is ending winter with more gas in storage than it usually has at this time of the year. This is the result of Europe’s luck with the weather from November to January. And this means it would need to buy less gas to replenish that storage in the spring and summer. According to Morgan Stanley, Europe’s higher-than-usual levels of gas in storage means that the risk of a supply gap for next winter is much lower than previously suspected. The bank’s analysts, as quoted by Bloomberg, actually expect there to be enough gas in storage in Europe to offset the drop in Russian pipeline flows and secure enough gas in storage for winter 2023/24. Russian gas supplies to Europe this summer will be 18 billion cubic meters lower than they were last year, Morgan Stanley said, and Europe will have 29 billion cubic meters of gas in key EU members by the end of March. The figures appear to be based on Russian gas exports to Europe after the flow cuts and the sabotage of Nord Stream, which took 5 cubic meters of pipeline export capacity offline last summer. Yet all this means that U.S. gas prices will remain lower for longer, and if prices remain lower, so will production. And if this year Europe doesn’t have last year’s luck with the weather, prices could surge once again because even the most nimble U.S. gas producer cannot respond to a sharp change in gas demand in a matter of hours. Forecasts about U.S. gas production are already being revised dramatically. Enverus expects growth of 1.7 billion cubic feet daily this year, down from 3 billion cubic feet. The Energy Information Administration expects a lower price for U.S. natural gas this year, which also suggests lower production. Yet the EIA also forecast an 11-percent increase in U.S. LNG exports this year in its latest Short-Term Energy Outlook. It probably hinges on strong demand from Europe. Meanwhile, traders seem to be anticipating a tighter gas market. According to Reuters, gas futures with delivery dates in early 2024 are trading at over $4 per mmBtu. This could, of course, change over the course of the year, but it does suggest some on the market are preparing to benefit from the possibility of a gas supply tightening before too long. The upside potential, however, may be limited. The EIA noted in its STEO that it expected lower domestic gas demand from the industrial sector because of subdued activity, itself the consequence of runaway inflation. The picture is even grimmer in Europe, where exorbitant gas prices last year prompted many businesses to curb activity and downsize. And this means that there will hardly be a repeat of last year’s gas prices situation that encouraged LNG investors to forge ahead with new capacity plans.
Seven EU Countries Oppose ‘Radical’ Changes To The Energy Market
A group of seven EU member states is calling on the European Commission to think twice before proposing a major overhaul in the EU energy and power market systems, citing concerns that “crisis mode” changes could weaken the single market and deter investments in renewables. “Any reform going beyond targeted adjustments to the existing framework should be underpinned by an in-depth impact assessment and should not be adopted in crisis mode,” Denmark, Germany, the Netherlands, Estonia, Finland, Luxembourg, and Latvia wrote in a letter to the European Commission seen by Reuters. Last month, the European Commission launched a public consultation on the reform of the EU’s electricity market design with the aim “to better protect consumers from excessive price volatility, support their access to secure energy from clean sources, and make the market more resilient.” The seven EU member states opposing “crisis mode” legislation for the long term argue that the system and the EU market need to continue to incentivize investment in renewables, which the bloc considers crucial for reducing dependence on imported fossil fuels and their impact on energy bills. The idea of extending a temporary windfall tax on non-gas generators could undermine investments in renewables, the countries said. Electricity industry group Eurelectric has also voiced concerns over rushed crisis interventions that could have long-term implications on the EU market. “Radical design changes in the midst of a crisis would be detrimental in the long run. Potentially for security of supply, and most definitely for investor confidence. A poorly designed reform could cause a multi-year slump at a time where investments are needed more than ever. Therefore, we suggest to make targeted additions to the current market design,” Eurelectric said in December in a letter to the European Council on energy supply and prices in Europe. “It is of paramount importance to distinguish between emergency measures and a structural reform of the market,” the group said.
Why Russia Finally Decided To Cut Its Oil Production
Just before announcing a 500,000 bpd production cut, Russia’s Deputy Prime Minister Alexander Novak had warned that there was a risk of lower oil production this year. That risk, Novak said, was due to the EU import bans and the price caps on Russian crude and petroleum products. “Yes, there are such risks. But we will assess them in the near future,” Novak told reporters, as carried by Russian news agency TASS. Until today’s announcement, Russia’s oil production and exports had held resilient, defying early expectations of a plunge in supply after the West agreed to impose sanctions on Russian oil in an effort to cut Vladimir Putin’s revenues from energy sales. Novak had said earlier that Russian oil production held at 9.8-9.9 million barrels per day (bpd) in January 2023, close to the levels from November and December 2022, just ahead of the EU embargo and the price cap on crude imports. Russia maintained output in the first week of February, too. Meanwhile, Russia’s budget revenues are sinking due to the low prices of its flagship Urals blend. The discounts at which Russian oil is being offered have led to the price of Urals dropping to around $30 per barrel below the international benchmark, Brent Crude. Due to the low price of Urals in January, Russia’s budget was $24.7 billion (1.76 trillion rubles) into deficit in January, compared to a surplus for January 2022, as state revenues from oil and gas plunged by 46.4% due to the low price of Urals and lower natural gas exports, the Russian Finance Ministry said in preliminary estimates this week. Russia is considering taxing its oil firms based on the price of Brent – instead of Urals – to limit the fallout on the budget revenues due to the widening discount of Urals to Brent, Russian daily Kommersant reported last week, quoting sources. In the budget estimate for January this week, the Finance Ministry confirmed parts of this report, saying that “considering the fact that the relevance of the price of Urals in calculating export prices has diminished, various other approaches are currently being studied to switch to alternative price indicators for tax purposes.” There are, of course, plenty of reasons for Russia to want to boost oil prices, and it appears OPEC+ isn’t going to resist those efforts. But regardless of what other factors are at play, it certainly seems that sanctions, embargoes, and price caps are finally pushing Russian production lower.
India’s solar boom reverses gas momentum, cements coal use: Maquire
India’s rapid advances in solar power production have been widely celebrated for showing how fast-developing economies can accelerate the decarbonisation of their energy systems without jeopardising economic growth. But while the pace of India’s solar rollout has been impressive, the advances have come mainly at the expense of natural gas – they have had little impact on the country’s use of coal as the primary source of electricity. Indeed, India increased the amount of electricity generated from coal in the opening 10 months of 2022 compared with the same period in 2021, and slashed gas-powered generation by nearly 40%, according to data from Ember. This has resulted in a continuing climb in India’s power sector emissions, even as solar’s share of the country’s electricity generation mix has more than doubled since 2019. SOLAR SURGE Between 2017 and 2021, India’s solar power production capacity more than tripled, ranking third globally in terms of solar capacity additions during that window, according to the BP Statistical Review of World Energy. And the country plans to more than double that solar capacity base again by 2025, leaving it highlighted by the International Energy Agency (IEA) as a key driver behind its recent dramatic upward revision to its global renewable energy supply outlook. On paper, such rapid advances in green energy supplies should result in reduced pollution from the country’s energy producers. However, cumulative emissions from India’s power sector have scaled new highs in the opening 10 months of 2022, topping 818 million tonnes of carbon dioxide and equivalent gases. That’s up nearly 7% from the same period in 2021. The main driver of the climb in power pollution has been a 7.7% climb in discharges from coal-fired generation, which accounted for 72% of the country’s electricity and 97% of power sector emissions through October, Ember data shows. GAS SQUEEZE While coal’s share of India’s electricity mix has remained fairly flat at that elevated level, the share of gas-fired electricity has fallen sharply in 2022 to just 1.6%, the lowest since at least 2019. Record high liquefied natural gas (LNG) prices were the main reason behind this downturn in gas use, as cost-conscious utilities balked at paying more than twice as much for spot LNG cargoes in 2022 as the 2021 average. Reduced demand for LNG was also reflected in India’s LNG import totals. These dropped by 16% through November from the same period in 2021, according to ship-tracking data by Kpler. Those sharply lower LNG imports by India – the fourth largest importer in 2021 – freed up LNG cargoes for others in 2022, and helped alleviate the power crisis in Europe resulting from sharply lower Russian pipelined natural gas supplies amid the war in Ukraine. However, for India’s power producers, with limited options for generating base load electricity, less gas simply meant they have had to burn more coal in 2022. This is because while non-emitting solar power adds to overall electricity supplies during the day, India’s overall grid requires a steady supply of base load power at all times, and especially at night. This can be produced effectively by burning fossil fuels. Natural gas had been expected to displace coal as that preferred base load fuel over time in India, thanks to planned investments in gas import infrastructure and pipelines, as well as policy support to scale back use of high-polluting coal in power generation. But the recent surge in gas prices is now threatening to not just stall, but reverse those trends, halting gas-related investments and supporting continuing reliance on coal. Solar will remain the new fuel of choice for utilities developing additional power generation capacity in India, thanks to government subsidies and widespread support for green energy expansions. But if global gas prices remain elevated throughout 2023, Indian electricity producers will continue to burn more coal than ever to generate base load power, undermining the environmental benefits of record-setting renewable supply expansions.