Russian Oil Companies Told To Comply With Ban On Oil, Oil Product Exports
Russian Prime Minister Mikhail Mishustin has signed an agreement demanding that all Russian oil companies comply with a previous order that disallows any exports of Russian crude oil or crude oil products to any buyer that adheres to the price cap mechanism. It should be noted that Russian companies failing to comply will face no penalties, according to Upstream. Mishustin’s resolution, signed this week, bans Russian oil producers from signing sales contracts with any buyer engaged in the price cap clause imposed by the G7. The resolution calls on producers to submit a declaration to Russian customs for each cargo sold, attesting to the fact that the price-cap mechanism hasn’t been used. Russian customs, then, will review old and new crude oil export contracts—and customs reserves the right to stop any cargo that violates Putin’s decree. Even more convoluted, the decree requires all Russian crude producers to track the progression of the seaborne cargoes from the point of origin to its final destination, which means they will have to obtain and review contracts from third parties every time the crude changes hands along the journey, to make sure the price cap clause isn’t included. If a producer discovers that the price cap clause is included in some paper after the crude oil has left the point of origin, it has 30 days to remedy the violation, with five additional days granted to notify customs if they were unable to fix it. Again, there are no stated penalties for failing to comply. Last month, Russia shipped crude oil to India under the price cap mechanism in what was the first sign that the oil-producing giant could acquiesce to the Western criteria.
WoodMac: $100 Price Cap On Products Won’t Cripple Russian Refiners
The Western-invoked price cap on Russian refined products coming into effect on February 5 won’t “severely impact” Russian refiners, WoodMac said on Tuesday. Mark Williams, WoodMac’s Research Director of Short-Term Refining & Oil Products, said that the oil products cap would have a minimal impact of Russia’s refining runs and distillate exports. “With Russian Urals trading at US$40/bbl on an FOB basis, capping the price at US$100 per barrel and US$45/bbl respectively would still see Russian refining margins of US$20-US$30 per barrel,” Williams said, adding that “At these levels, Russian refining economics are still very strong, so the incentive to refine crude into oil products remains high.” According to WoodMac’s Alan Gelder, VP of Refining, Chemicals and Oil Markets, Russia’s refiners could have a difficult time finding other barrels for its distillates that typically go to Europe. But if the price cap ends up being as high as it is proposed to be, Russia could still afford to discount its distillates by $200 a tonne vs. market benchmarks before it was uneconomical. Gelder sees the next few months are particularly volatile as trade flows reshuffle, with potential buyers choosing to forgo their reputation to get their hands on cheap Russian diesel. Still, “We do not see the price caps having any additional impact on trade flows at the currently proposed levels, but if flows to new markets continue to develop as pricing discounts widen there remains an upside risk to both Russian refining crude runs and distillate exports in 2023,” Gelder added. The $100 proposed price cap is being considered after the G7 came up with a range of prices based partially on the price of Russian crude oil, which is already subject to a price capping mechanism.
Reliance stops local petcoke sales, boosts imports -sources
Reliance Industries (RELI.NS) has stopped selling petroleum coke within India and boosted imports of the product to turn it into synthetic gas to power its refineries, according to two sources familiar with the matter and trade data. Petroleum coke is a carbon intensive solid residue left over from coking units in oil refineries that break down residual oil into more highly valued products. Petcoke, as it is known, can be used as a coal substitute in both steelmaking and in power plants. Reliance had been depending on liquefied natural gas (LNG) to run its refinery complex and selling the petcoke locally but it is now gasifying its petcoke amid rising LNG prices. With Reliance’s petcoke no longer available domestically, India’s imports are likely to rise, after doubling last year because of higher demand from cement makers, who use the petcoke to manufacture the building material. Reliance was the country’s biggest domestic supplier until 2021. “They slowly started reducing supplies (to local markets) in the middle of last year, but now it has come to a complete stop,” one of the sources, a petcoke trader, said. Reliance did not immediately respond to a request seeking comment. Both sources declined to be named as they are not authorised to speak to the media. I-Energy Natural Resources, a solid fuels trader in India’s Gujarat state, said prices of petcoke delivered to India rose last week as cement manufacturers increased their imports since it is still cheaper than overseas coal. “There is a very limited supply of domestic petcoke to end-users, and this has made players to procure from the international market,” I-Energy said in a note on Monday. Trade data reviewed by Reuters shows Reliance also imported over 192,000 tonnes of petcoke in the four months to January amid higher internal demand. That compared with about 110,000 tonnes in the eighteen months ending September. “They have previously bought petcoke from overseas at a discount for internal consumption, and exported the petcoke they produced for a premium,” said the second source, a former Indian buyer of Reliance’s petcoke. “But now, they are using everything they produce and also importing,” the source said.
Economic Survey 2023 sees silver lining in imports as crude oil prices soften
The recent softening in the prices of crude oil augurs well for India’s petro imports, said the Economic Survey of India. “On the imports side, notwithstanding uncertainty surrounding the outlook on global crude oil prices, the recent softening in its prices augurs well for India’s POL (petroleum, oil and lubricants) imports,” said the Economic Survey 2022-23, which was tabled in Parliament by the Finance Minister Nirmala Sitharaman on January 31. Crude oil prices declined to $78 a barrel as of December 2022, while the retail selling price of petrol and diesel moderated due to a cut in excise duty and Value Added Tax (VAT) by the state governments. This comes after energy imports by India jumped in the nine months ended December 2022 as domestic demand remained high amid the global energy crisis. Among imported commodities, the highest surge was reported in petroleum, crude and petroleum products, followed by coal, coke and briquette, according to the data released by the commerce and industry ministry on January 16.
Vedanta offers 90,000 b/d crude from west India blocks
Indian private-sector resources firm Vedanta has offered to sell 90,000 b/d of crude to domestic refiners from two oil blocks it operates in west India. Vedanta is offering to sell 82,000 b/d produced at its RJ block in Barmer, Rajasthan state and another 8,000 b/d from its Cambay block in Gujarat state, request for proposal (RFP) documents reviewed by Argus show. The crude being offered by Vedanta accounts for around 16pc of India’s 570,000 b/d production in the April 2021-March 2022 fiscal year. Deliveries from both blocks will start from 1 April 2023 until 31 March 2024. The price for the crude sold will be benchmarked to dated Brent prices, Vedanta said. India in July 2022 allowed domestic crude producers from fields awarded before 1999 freedom to sell their production in the domestic market but continued to ban exports. The government earlier fixed the buyers for oil produced from older fields. Only state-controlled, private-sector and joint-venture refiners in India are eligible to participate in the competitive bidding process, according to the RFP documents. The due date for technical bids is 7 February with the final results scheduled before 10 February. The Cambay Block CB/OS-2 was awarded in 1998 under a production-sharing agreement (PSA) to a joint venture of Vedanta, state-controlled upstream firm ONGC and domestic private-sector firm Invenire Petrodyne. The PSA for the Barmer Block RJ-ON-90/1 in 1995 went to a joint venture of Vedanta, ONGC and Vedanta subsidiary Cairn Energy Hydrocarbon.
AG&P speeding Philippines, India LNG terminals development
Global LNG logistics company Atlantic Gulf & Pacific International Holdings hopes to start operations at its first Philippines LNG import terminal between March and May while aiming to expand its presence globally, President AG&P LNG Terminals and Logistics, Karthik Sathyamoorthy, said. “We are going through a very interesting time within the LNG space … we are a demand creator [developing and building LNG terminals] to unlock demand in emerging economies,” Sathyamoorthy told S&P Global Commodity Insights in an interview, adding that within Asia, the company was advancing projects in India, Indonesia, and Vietnam. Singapore-headquartered AG&P’s LNG import terminal in Philippines — PHLNG — is being commissioned in two phases and comes at a time when production at Malampaya, the country’s primary gas field, has been declining, making the development of the country’s LNG infrastructure more critical. PHLNG, located at Batangas Bay, comes with a capacity of up to 5 million mt/year and is based on a floating storage unit — Ish — to be leased on a long-term basis with onshore storage and regasification facilities, Sathyamoorthy said. In February 2022, AG&P said it had inked a long-term charter agreement with ADNOC Logistics and Services for the supply, operations, and maintenance of Ish — a 137,512 cu m FSU — to be chartered for 11 years with an option to extend by another four years. The second phase of the PHLNG project comprises two onshore tanks of 60,000 cu m which are already under construction. Their integration with the main terminal was planned by mid-2025, Sathyamoorthy said. The primary customer for PHLNG is the power sector and because the terminal sits adjacent to the Illijan power plant it will secure base load supplies for Illijan and likely beyond, Sathyamoorthy said. “Because we have a customer committed to our capacity, we feel we are in the best place to continue to expand, provide additional supply and integrate demand downstream,” Sathyamoorthy said. Penetrating India “For us, after the Philippines, India is a corner key market for us and we have over the last five years invested significantly,” he said, noting the company already had a strong downstream infrastructure business in India after it won licenses for city gas distribution business in 12 geographical areas. Traditionally, India’s demand primarily was led by gas-based power and gas to power always has a pricing issue because the alternative has always been coal and the affordability of LNG prices has always been questioned, Sathyamoorthy said. However, a new set of demand is being created by city gas whereby LPG cylinders to households are being replaced by piped natural gas, he said. The licensing regime for city gas over the past few years has meant that a license holder has committed to invest and develop infrastructure over the coming years, which is positive for the country’s gas demand prospects, he said, adding that AG&P itself has committed to close to $2 billion of capital investments over the next eight years. “We are bullish about India’s demand story…so we also wanted to develop a terminal at Karaikal which we haven’t fully canceled or scrapped yet,” Sathyamoorthy said. Karaikal LNG, to be owned and operated by AG&P was planned with an initial capacity of 1 million mt/year and was targeting to supply natural gas to power plants, industrial and commercial customers within a 300-km radius, the company said in February 2020. In December 2021, AG&P said it had signed an agreement with ADNOC L&S to utilize Ghasha, an ADNOC L&S LNG carrier with a capacity of around 138,000 cu m, as an FSU for AG&P’s proposed LNG import terminal in India. Pandemic-related curbs had led to a delay in the terminal’s development initially, Sathyamoorthy said. However, the company was also contemplating alternative locations based on the spread of its city gas licenses to “strategically supply all of our city gas locations,” Sathyamoorthy said. Selecting a geography with a potential longer-term growth for LNG demand in India was another consideration for exploring other locations, he said. “In 2023, we will go ahead and finalize the terminal for which we want to go forward with the construction…By 2025, we should have an operating LNG terminal in India,” Sathyamoorthy said. “We are looking at a 5 million mt/year terminal in India as well for AG&P and primarily we will use some part of that capacity for our own demand and use the terminal to on sell capacity to other demand holders as well.”
Windfall Taxes Sweep Through The Global Energy Sector
Over the past two years, global energy companies have enjoyed record profits amid high commodity prices, with the International Energy Agency estimating that net income by oil and gas companies doubled from 2021 to 2022. Those high oil and gas prices have translated into high fuel prices for consumers, drawing the ire of the public and governments everywhere and sparking populist moves in response. The European Union, the UK and India have already introduced windfall taxes on oil and gas companies. On September 30, 2022, the Council of the European Union agreed to impose a “temporary solidarity contribution” on energy companies that realize “above a 20% increase of the average yearly taxable profits since 2018”. This tax will be levied on top of whatever taxes these companies already owe in their individual countries. A windfall tax is a one-time surtax levied on a company or industry when unusual economic conditions result in large and unexpected profits. Others, such as the Netherlands, Norway and the United States are currently considering them. According to a recent Wood Mackenzie report, while 2022 was the year in which the idea of the windfall tax and the villainization of Big Oil reached a new peak, this year will likely see more momentum if oil prices remain high. If prices drop, windfall taxes could be eliminated; however, Wood Mackenzie views this as “unlikely”, noting at the same time that some windfall taxes have expiration dates and clauses for modification based on oil prices. Overall, WoodMac warns that windfall taxes will distort the market and even risk prolonging–or delaying–the energy transition. How? If fossil fuel prices are lower, demand will increase and render renewables less attractive. In the meantime, governments have found another way to benefit from soaring oil and gas company profitability–taxing share buybacks, such as has been done in the U.S. and proposed in Canada. Dividends could also be taxes more heavily. Both methods, suggests Wood Mackenzie, would actually “incentivize reinvestment, thus promoting jobs and additional energy supply”. “A tangle of long-term ambitions will drive upstream regulators and investors toward the big fiscal themes to look for in 2023, from windfall taxes to renewed interest in gas policy terms,” according to WoodMac’s 2023 outlook. The Windfall Tax Report Card–So Far United States Back in October, President Biden threatened to slap a windfall profits tax on American oil and gas companies if they fail to use their “outrageous” bonanza to expand oil supplies in a bid to lower fuel prices. However, he is yet to follow through on his threat but instead American companies have to face a different beast: buyback tax. As part of the new Inflation Reduction Act that President Biden signed in August is a new 1% tax on corporate share buybacks. Oil and gas companies will bear the brunt of the new tax because they have dramatically increased buybacks as a favored way to return excess cash to shareholders. “My message to the American energy companies is this: You should not be using your profits to buy back stock or for dividends. Not now, not while a war is raging,” Biden said in October. Biden has scolded U.S. oil producers saying they fail to appreciate the free-market capitalism windfall made possible by American democracy nor sympathy for their retail customers. In 2022, U.S. oil company share buybacks increased 1,043%, dwarfing the 64% increase for S&P 500 while dividends were up 33%, more than three times the rise for all the companies in the index. Total free cash flow of the 23 companies in the S&P 500 Energy Index increased 2.3 times to $201 billion, with free cash for Exxon Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) increasing 150% to $60 billion and $36 billion. Meanwhile, Valero Energy Corp.’s (NYSE: VAL) free cash flow grew five-fold to $9 billion from the previous four quarters. United Kingdom Back in November, the UK government announced plans to increase a windfall tax on oil and gas producers’ profits to 35% from the previous rate of 25%. The new rate, which will apply from 1 January 2023 until March 2028, is part of a raft of budgetary measures aimed at tackling the cost of living crisis and shoring up the UK’s finances. Normally, UK oil and gas companies operating on its continental shelf are subject to a 40% tax rate, much higher than the 19% rate on corporate profits for companies in other sectors. The new levy now means that companies like BP Plc.(NYSE: BP) and Shell Plc.(NYSE: SHEL) will now fork over 75% in taxes, up from 65% in 2022. Germany Starting December 1 2022, the German government introduced a 33% windfall profit tax that will potentially generate a revenue of between one and three billion euros. Dubbed the “EU energy crisis contribution”, the tax is likely to affect dozens of energy companies and will target their 2022 and 2023 profits. The new levy will affect oil, gas and coal companies whose profits for 2022 and 2023 exceed by 20% or more than their 2018-2021 average. However, the tax has a major drawback: according to Katharina Beck, spokeswoman on financial matters for the Greens, the planned levy can be circumvented on a large scale by companies moving profits abroad. “The draft of the finance ministry for windfall profit levy for oil and gas companies falls well short of what is necessary,” Beck said in a statement carried by Reuters. Finland In December, the Finnish government proposed a temporary windfall tax on profits from the country’s electricity companies as part of a European Union response to soaring power costs. The proposed 30% tax would apply to any profits exceeding a 10% return on capital in 2023, with the government estimating it could bring in between 500 million and 1.3 billion euros ($533 million-$1.9 billion). If the Finnish government goes ahead with its plans, it will join Germany and the UK as the other EU members that have introduced a windfall tax to energy and power
IOCL asks CNG firms to stop supply to 35 pumps
The Indian Oil Corporation Ltd (IOCL) has asked CNG distribution companies in Gujarat to discontinue CNG supply to 35 petrol pumps whose monthly sale of petrol and diesel is less than 1,00,000 litre. The IOCL has asked the dealers to furnish a bank guarantee for sale of CNG. In view of the development, the Federation of Gujarat Petroleum Dealers’ Association (FGPDA) has threatened to stop selling CNG at 600 pumps across Gujarat from mid-February. Petrol pumps sell CNG in the state under tie-ups between oil marketing companies like IOCL, HPCL and BPCL and gas distribution companies like Sabarmati Gas, Gujarat Gas and Adani Gas. According to FGPDA, IOCL shot off a letter to these gas distribution companies asking them to discontinue CNG supply to 35 pumps, without informing the dealers. Most of these 35 pumps are in remote and rural areas where CNG supply is essential. FGPDA president Arvind Thakkar said, “IOCL officials have not given any reason behind this action. They asked these pumps to furnish a bank guarantee for 20 days for CNG sale because the monthly petrol and diesel sale at these pumps is less then 1,00,000.” Thakkar said the petrol-diesel sale has nothing to do with CNG sale and these pumps have been selling CNG for the past 8 to 10 years. “There was no condition like this at the time of starting this facility,” he said. According to the dealers, they pay to the CNG distributor company the next day and there was no issue of outstanding. “The bank guarantee would require a huge investment for each dealer,’’ they said. CNG coordinator of FGPDA, Gopal Chudasama, said: “We are going to represent this issue to the state government as well as higher officials of IOCL on Monday. If the issue is not resolved, we will call a meeting of all CNG dealers and may discontinue selling CNG at 600 petrol pumps across state for an indefinite period.’’
Can India Take Advantage Of Its Enormous Green Energy Potential?
“The world needs India to avert climate catastrophe,” a CNN headline blared late last year, before asking the crucial follow-up question: “Can Modi deliver?” India aims to reach net-zero carbon emissions by 2070, but so far progress on climate goals has been uneven, to say the least. The South Asian nation’s decarbonization progress over the coming months and years can make or break the global fight to keep average temperatures at or below 2 degrees Celsius above pre-industrial averages. India currently produces the third-most carbon dioxide emissions in the world, after China and the United States. As India has industrialized and its population has continued to grow, the subcontinent’s energy needs have skyrocketed. According to figures from the International Energy Agency, Indian energy consumption has more than doubled since the year 2000, and over 900 million Indians have gained access to electricity over the last two decades. And the country is just starting its development journey. India’s federal power ministry projects that national electricity demand will expand by up to 6% every year for the next ten years. India is on track to overtake China as the most populous country in the world, and it has already established itself as a major economic and cultural force on the global stage. India also has some of the greatest potential for green energy production in the world, creating a massive opportunity for Modi’s India to place itself at the forefront of the green energy revolution and give the economy – currently bogged down by high energy prices on the global market – a major boost. According to a brand new report from the Global Energy Monitor, India is in the top seven countries for prospective renewable power. The country already has plans for gargantuan solar and wind farms in the works, and if the country’s planned buildout of 76 gigawatts of solar and wind power by 2025 comes to fruition, it will successfully avoid the use of almost 78 million tons of coal per year, leading to savings of up to 1.6 trillion rupees ($19.5 billion) annually. While these projects are a major step forward for India, and the savings could serve as a major incentive to keep going, getting to carbon neutrality by 2070 is going to take a lot more investment – and a lot more grit. While green energy is gaining a foothold in India, it’s going to be very, very difficult to wean the subcontinent off of coal. India depends on fossil fuels for 70% of its energy mix, with coal taking the lion’s share. According to figures from ember-data, India installed 168 gigawatts of coal-fired generation from 2001 to 2021, almost double the addition of solar and wind energy combined over the same period. At present, just 10% of India’s energy mix comes from renewable energies, and the country missed its 2022 target to install 175 gigawatts of renewable energy to the total level of domestic power production. Only four out of India’s 28 states met their renewable energy targets last year. What’s more, most of them failed by a discouragingly wide margin. “Most states have installed less than 50% of their targets and some states such as West Bengal have installed only 10% of their target,” the Associated Press reported this week. The country’s next target is to install a total of 450 gigawatts of clean energy by 2030, and meeting this is going to require a massive acceleration of India’s current rate of renewable capacity buildout. For all of India’s investing and pledging related to building out green energy, the reality is that India just isn’t ready to give up on coal. At COP26 in Glasgow, India led a last-minute charge to change language related to phasing out coal in the conference’s final joint agreement. This move highlighted the tightrope that Modi currently has to walk: India has to phase out coal for the benefit of the climate and its international diplomacy, but it also can’t sacrifice its own development and growth. For many developing countries, the current pressure to rapidly decarbonize their economies feels a lot like having to pay for the first world’s sins. Developed countries have burned fossil fuels with little to no recompense for over a century, and have robust economies to show for it. India wants its chance to do the same – an understandable enough sentiment, but a sentiment that could have devastating consequences for the entire world, now and in future generations.
Petroleum Pipeline Project: second phase works accelerated
The second phase works under Nepal-India Cross-Border Petroleum Pipeline Project have been accelerated. Construction of physical infrastructures including petrol tank and ‘transmix tank’ has been started at the depot located at Amalekhgunj of Bara under Nepal Oil Corporation Provincial Office. Office Chief Pradeep Kumar Yadav said construction works have been forwarded by completing all necessary preparations. Two petrol tanks with the capacity of 4,100 kilolitres, two transmix tanks with the capacity of 250 kilolitres, 24 automatic re-fillers, pump house and lab would be constructed under the project. Likhita Infrastructure Pvt Ltd has got responsibility to construct all infrastructures within a year. Nepal Oil Corporation and Indian Oil Corporation are jointly investing in the project. Nepal Oil Corporation will invest around Rs 1.54 billion and Indian Oil Corporation around Rs 750 million in the project, added Yadav. A target has been set to bring the project into operation from coming English New Year by completing the project within this December. Following this, petrol would be supplied into Nepal through the pipeline. At present, only diesel is being supplied through it. Although there is possibility to supply both petroleum products and kerosene through the same pipeline, Nepal is importing petroleum products through tankers due to a lack of space to store it. Following the construction of the project, all petroleum products and kerosene will be supplied through the pipeline. This would reduce technical losses and environment pollution, and save transport expenditures, said Yadav, adding that Nepal would save approximately Rs 150 million annually from it. With this, storing capacity of the Amalekhgunj depot would increase to 24,840 kiloliters diesel and 16,630 kiloliters petrol. The process to install two tanks with capacity of storing 5,000 petroleum products each has started in line with the government’s policy to store them for 90 days, he said. Religare Construction Pvt. Ltd. has won the contract for the project.