Saudi Arabia Is Open To Discuss Non-Dollar Oil Trade Settlements
Saudi Arabia, the world’s largest crude oil exporter, is open to discussing oil trade settlements in currencies other than the U.S. dollar, Saudi Minister of Finance, Mohammed Al-Jadaan, told Bloomberg TV in an interview in Davos on Tuesday. The Saudi signal that it could be open to talks about oil trade arranged in non-dollar currencies could be another threat to the current dominance of the U.S. dollar in global oil trade. “There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal,” Al-Jadaan told Bloomberg TV. “I don’t think we are waving away or ruling out any discussion that will help improve the trade around the world,” the Saudi minister added. The Saudi riyal has been pegged to the U.S. dollar for decades, while the Saudi oil exports continue to support the petrodollar system from the 1970s in which the world’s top oil exporter prices its crude in U.S. dollars. However, Saudi Arabia is willing to deepen its strategic cooperation in oil trade with China, the world’s largest crude oil importer. Last month, China and Saudi Arabia agreed to expand crude oil trade as they upgraded their relations to a strategic partnership during the visit of Chinese President Xi Jinping in the Saudi capital Riyadh. China, for its part, plans to make its own currency, the yuan, more prominent in international oil trade. During a visit to Saudi Arabia last month, Xi Jinping pledged to ramp up efforts to promote the use of the yuan in energy deals, suggesting at a summit in the Saudi capital that the Gulf Cooperation Council (GCC) countries should make full use of the Shanghai Petroleum and Natural Gas Exchange to carry out its trade settlements in yuan.
Ukraine: Time To Review Russian Oil Price Cap
It’s time to review the price cap on Russian crude oil, Ukraine’s foreign minister said on Thursday because the current market price of Urals is below the cap. A coalition made up of the G7 countries as well as Australia and the EU set last year a price cap on all seaborne Russian crude oil. The goal was to reduce Russia’s oil revenue that it could funnel into its war with Ukraine. Russia, however, said it would not play along with the measure and said it would refuse to sell oil to anyone attempting to enforce the price cap. Further, the Kremlin recently said that it had yet to see any cases of price caps on its oil. And therein lies Ukraine’s problem with the price cap, if that is indeed true. Russia’s Urals crude oil grade for delivery to Europe was trading at $54.43 on Wednesday—coming comfortably under the established price cap. “Ukraine is confident it’s time to review the oil price cap given the current market price on Urals is lower than $50 USD per barrel. This decision should ensure a drastic reduction in Russia’s income to finance the war, mass atrocities, and destabilization in Europe and elsewhere.” Ukraine’s foreign minister tweeted Thursday afternoon. The coalition is set to soon implement another price cap—this time, on Russia’s petroleum products. The new cap will go into effect on February 5, although the plan has been criticized for its complex nature, including the dual cap—one for crude products that trade at a premium to crude oil, and another that trade at a discount. The Biden Administration is likely to oppose lowering the current crude oil price cap on Russian crude oil, Bloomberg sources said on Thursday.
Windfall Taxes Will Stifle Oil Industry Investments
Windfall taxes have suddenly become quite popular. With oil and gas companies reaping record profits from the rally in energy commodity prices, governments have been unable to resist the temptation to skim a bit more of these profits. It’s hard to blame them – the energy crisis has pushed most governments in Europe to come up with billions in aid for households and businesses. In the UK, millions have slipped into energy poverty, and the government has had to act urgently, too. India has also imposed a windfall tax on crude oil and fuels. Yet while it seems like an easy way to find some extra money to spend on helping businesses and households survive the cost-of-living crisis, windfall taxes are tricky because they discourage investments. Windfall taxes are counterproductive for the oil industry at a time when oil demand is forecast to outpace supply, Aramco’s chief executive Amin Nasser told CNBC’s Hadley Gamble this week. And they would also discourage investments in decarbonization efforts. “I would say it’s not helpful for them [in order] to have additional investment. They need to invest in the sector; they need to grow the business, in alternatives and in conventional energy, and they need to be helped,” Nasser said. “Decarbonizing existing resources also costs a lot of money,” he said. “So we need to see the support from the policymakers and from the capital markets at the same time. Capital markets [are] putting a lot of pressure also on these companies, where it makes it too difficult for them to make some of these investments and get the right funding and capital,” Aramco’s top executive also said. Indeed, so far, the windfall tax has been presented to the public as something of a punishment for Big Oil for making so much money from oil and gas when millions have been struggling to pay their bills—a well-deserved punishment. There has been no mention of what the impact of these taxes would be on future investment decisions, at least not from politicians. The oil and gas companies themselves have been quite vocal about that impact. UK oil and gas producer Harbour Energy this week announced job cuts stemming from the 10-percent windfall tax that the industry has been slapped with. Shell said the windfall taxes in the EU and the UK will cost it some $2.4 billion. Total estimated the hit from the windfall levy at around $2.1 billion after saying it would reduce investments in the North Sea by a quarter this year. The UK’s windfall tax will cost the French supermajor around $1 billion. Some are going further than complaining. Hungarian energy major MOL is suing the government of Slovakia for the windfall tax it imposed on energy firms. Exxon is suing the entire European Union, arguing it exceeded its legal authority with this move. And the energy industry association in Britain has warned that financing for new oil and gas projects will dry up because of the additional levy. It makes sense that when additional taxes discourage investments, they won’t only discourage specific investments but would rather lead to a comprehensive reconsideration of investment plans, including low-carbon projects. What’s more, the European Union has targeted wind and solar power producers with windfall taxes, too, arguing that they have raked in massive profits from producing low-cost electricity because prices are formed on the basis of gas prices, and these have been sky-high. This, too, has prompted a backlash. All this is happening at a time when the International Energy Agency—a champion for a quick energy transition—forecast oil demand will this year grow by 1.9 million bpd while supply growth slows to 1 million bpd. It’s hardly the best time to discourage any energy investments.
Profitability of oil marketing companies to restore in FY24
The profitability of oil marketing companies (OMCs) will be stretched in the current financial year, ending March 2023, even as international prices of crude oil have softened from the historic highs in March and April 2022, diluting their marketing losses Moody’s Investor Service in a report said that as international prices of gasoline (petrol) and gasoil (diesel) cool on economic slowdown concerns, marketing losses will ease for the three state-owned refining and marketing companies—Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL). Still, overall earnings for FY23, ending on March 31, 2023, will be weak because of marketing losses in the first half, when net realized prices did not increase as much as international prices because of fuel price caps. The rupee’s depreciation against the US dollar further hit profits as oil prices and a large portion of refiners’ borrowings are in dollars,” it added. Rising interest rates and concerns of an economic slowdown have weakened demand for oil products and cooled international prices of transportation fuels. As a result, marketing margins for IOC, BPCL and HPCL have turned positive for gasoline while marketing losses on gasoil have narrowed, it noted. Significant marketing losses earlier in the year will drag on earnings for the OMCs in FY23. Net realised prices for gasoline and gasoil, which account for almost 55-60 per cent of product sales for the three companies, did not increase at the same pace as international prices, resulting in EBITDA losses for the six months through September 2022, Moody’s said. “Despite the recent improvement, marketing margins remain below historical levels. We expect marketing margins to normalise only when the refining and marketing companies’ net realised prices for gasoline and gasoil are allowed to freely align with international prices. This will likely happen only in 2024 after the conclusion of general elections in India,” it added. Clarity on fuel pricing in India is credit negative for the refining and marketing sector. If companies continue to incur losses from fuel price controls and are not compensated by the government in a timely and predictable fashion, their fundamental credit quality will weaken. However, their final ratings will likely remain unchanged because of a high likelihood of extraordinary government support incorporated in their ratings.
Japan’s Crude Oil Imports Increase For The First Time In A Decade
Crude oil imports in Japan, the world’s fourth-largest crude buyer, jumped by 8.5% annually in 2022, the first yearly increase in a decade, while the value of crude imports nearly doubled to a record, data from the Japanese Finance Ministry showed on Thursday. Last year, many large energy importers – including resource-poor Japan – focused on energy security after the Russian invasion of Ukraine and the spike in commodity prices as a result of the war. So Japan imported last year a total of 156.62 million kiloliters of crude oil, or 2.7 million barrels per day (bpd), according to the data. The value of the imports surged by 91.5 % compared to 2021 and hit $103 billion (13.27 trillion yen), due to the jump in oil prices and a weakening of the Japanese yen. The average price of crude per kiloliter of imports hit the highest level on record in data going back to 1979, according to the finance ministry. Meanwhile, Japan’s imports of LNG fell by 3.1% in volume but almost doubled in value as it surged by 97.5%. Thermal coal imports for power generation rose by 2.5% but the value jumped by 196.7% after global thermal coal prices hit records last year following the Russian invasion of Ukraine and the EU ban on coal imports that came into effect in August. To limit its dependence on fossil fuel resources it has to import, Japan is bringing back nuclear power as a key energy source, looking to protect its energy security in the crisis that has led to surging fossil fuel prices. The Japanese government confirmed in December a new policy for nuclear energy, which the country had mostly abandoned since the Fukushima disaster in 2011. A panel of experts under the Japanese Ministry of Industry decided that Japan would allow the development of new nuclear reactors and allow available reactors to operate after the current limit of 60 years.
A Lesson From The Energy Crisis: We Need More American Oil & Gas
At the start of 2023, the main U.S. oil lobby resumed calls on the Biden Administration to increase access to domestic oil and gas resources, reform the permitting process, and reverse the hostile rhetoric toward the industry, which could bolster America’s energy security if given the right incentives to do so. The American Petroleum Institute (API) issued a report outlining a plan for the 118th Congress to “make, move and improve America’s energy.” “As consumers face growing energy costs, API urges policymakers to take a more realistic approach and ensure that American natural gas and oil are prioritized as long-term strategic assets,” the oil lobby said. The U.S. has the resources to ensure homegrown production of oil and gas, which in turn would ensure that America doesn’t deepen its reliance on foreign resources, according to API. “If America doesn’t lead, others will,” API President and CEO Mike Sommers said. Global oil and gas demand is expected to continue rising this year and in the coming years, he said in the State of American Energy 2023 keynote address last week. “That demand will be met one way or another. If America does not meet it, it will be met by countries that do not share our security interests, environmental standards, or values.” Sommers called on the Administration and the new Congress “to craft and enact bipartisan policies to make, move, and improve American energy.” “Last year, our friends in Europe learned the hard way that energy security is national security. It’s time to implement that lasting lesson here in America, with business and government working together.” API’s report, entitled “The Solution is Here” focuses on three pillars—make, move, and improve—that is, policy recommendations to boost oil and gas production, increase takeaway capacity to demand centers, and support innovation in solutions to lower the industry’s carbon emissions. In energy production, the problem, as identified by the API, is that there isn’t enough energy to meet rising demand. Despite the recovery in oil and gas demand post-Covid and despite the dire need for non-Russian energy in Europe after the Russian invasion of Ukraine, “Since the end of World War II, no presidential administration over its first 19 months in office leased as few acres on federal lands and waters for oil and natural gas production as the Biden administration,” the API said. The policies to address this problem include the Administration increasing access to federal offshore and onshore drilling and signaling government support for needed energy investments, according to the oil and gas industry body. The Biden Administration is currently finalizing the next five-year offshore leasing program, which has been delayed by several months already, creating yet more uncertainty for the U.S. oil industry, which has had to grapple with numerous mixed messages from Washington since President Biden took office. In oil and gas transportation, America lacks sufficient infrastructure to meet demand as permitting and review delays block necessary infrastructure, the API said. Ten major infrastructure projects, reflecting $34 billion in capital expenditures, were canceled, stalled, or were at risk of cancellation due to permitting and review delays in recent years, API noted. The canceled projects include four natural gas projects in Appalachia that could support 4.6 billion cubic feet per day of production needed by families and businesses in the region. “In fact, many homes in Boston use fuel oil or imported natural gas for heat, because they lack access to cleaner American natural gas. That’s the sad irony of blocking pipelines on environmental grounds,” the API’s Sommers said in his keynote address. API calls for reforms in the permitting and review processes, uniform environmental reviews with established time limits, an end to FERC overreach of permitting authority, an end to steel tariffs to alleviate supply-chain bottlenecks, and the use of performance-based regulation to help advance new technologies. The global energy crisis, the result of a post-pandemic surge in demand and a war in Europe, won’t be resolved by asking other countries to produce more, Sommers said. “We won’t resolve it by tapping the nation’s emergency petroleum reserve. That’s a band-aid, not a cure,” he added. “The solution is right here in America, right under our feet. We just need to seize it.”
Searching for oil and gas
There is no alternative to stepping up domestic production for greater energy security. To reduce its vulnerability to high and volatile global energy prices, India must make efforts on a war footing to increase the levels of relative self-sufficiency by stepping up domestic oil and gas production over the medium-term. Unfortunately, however, this is not happening. Domestic crude production, for instance, has been steadily declining, from 38.1 million metric tonnes in FY12 to 29.7 mmt in FY22. Till November this fiscal, production at 19.6 mmt is not different from a year earlier, according to the Petroleum Planning & Analysis Cell. Domestic production is falling sharply for various reasons including declining output from old and marginal fields. India lacks the technological capability for deep water exploration. There have also been no major hydrocarbon discoveries of late either. India is currently increasing expenditure on seismic surveys of domestic hydrocarbon assets. Domestic producers and global giants clearly must be incentivised to explore and produce more as costlier energy prices imply a higher import bill and inflation besides straining the current account, which is the broadest measure of India’s goods and services transactions with the rest of the world. The big question is how likely is an increase in domestic output. Grounds for cautious optimism in this regard were indicated in a speech of the petroleum and natural gas minister, Hardeep Singh Puri, at the Voice of the Global South Summit last Friday. Puri said India will see an investment of $58 billion in exploration and production (E&P) of oil and gas by 2023, and global majors like Chevron, ExxonMobil, and TotalEnergies are showing interest. Prima facie, this is indeed a huge number considering the capex plans of state-owned oil giants and the largest private player and the relatively modest cumulative FDI equity inflows in petroleum and natural gas till September 2022. ONGC plans to spend $4 billion to increase exploration from FY22 to FY 25. The Vedanta Group, too, plans to triple its production and account for 50% of India’s oil production. ONGC and ExxonMobil have an agreement to collaborate on E&P in deep waters off the east and west coasts. Whether ExxonMobil is an investor or just a provider of technological services is far from clear. TotalEnergies, for its part, has inked a deal with the Adani Group to invest $50 billion in green hydrogen production over the next 8-10 years. Expectations of big-ticket investments in E&P stem from plans to double the current net area being explored for oil and gas to 500,000 sq km by 2025 by reducing the prohibited or no-go areas in India’s exclusive economic zones by 99% and incentivising the discovery of potential basins like in the Andamans, Kutch-Saurashtra, and Mahanadi by E&P players at the government’s cost. India has around 26 sedimentary basins covering an area of 3.3 million square kms, of which only seven category 1 basins have established commercial production of oil. Prospecting the remaining areas entails a huge amount of resources and technology. Over the years, the sedimentary basin exploited has remained stagnant at 6-7%. On the floor of Parliament, the petroleum minister stated that this has gone up to 10% since 2016, and the expectation is that it will rise to 15% very shortly and go on to 30% after that. This is the frontier that must be tapped if the drive to step up domestic production is to bear fruition.
India’s Russian oil binge drags down OPEC’s share to lowest in 2022
Russia became the third-largest oil supplier to India in 2022, making up about 15% of total purchases, dragging down OPEC’s share to the lowest in more than a decade, data obtained from industry sources show. Refiners in India, the world’s third-biggest oil consumer and importer, have been gorging on Russian oil sold at a discount after some Western companies shunned buying from Moscow following its invasion of Ukraine last February. In 2021, Russia was at the 17th spot, supplying about 1 per cent of India’s overall imports. Last month India’s oil imports from Russia surged to an all-time high of 1.25 million barrels per day (bpd), about a quarter of overall 4.9 million bpd purchase, the data showed. India’s December oil imports were the highest in seven months as refiners were drawn to Russian oil due to the deeper discounts offered ahead of a Dec. 5 embargo by Europe and a price cap by the European Union and G7 nations to cut Moscow’s oil revenue. Members of the Organization of the Petroleum Exporting Countries (OPEC), mainly from the Middle East and Africa, saw their share in India’s crude imports shrinking to 64.5 per cent in 2022, from a peak of 87 per cent in 2008, a Reuters analysis of the data since 2006 showed. Still, Iraq and Saudi Arabia remained India’s top two suppliers last year. “India’s oil imports from Russia would continue to rise this year as well mainly because of discounts if there are no further stringent actions by the Western countries targetting Russian oil,” said an official at an Indian refiner who declined to be named as he was not authorised to speak to the media. Russia remained the top oil supplier to India in December followed by Iraq and Saudi Arabia. Higher intake of Russian oil reduced India’s appetite for African grades, whose share in 2022 imports declined to a 17-year low while that of Latin America plunged to the lowest in 15 years, the data show. In April-December, the first nine months of this fiscal year, Russia replaced Saudi Arabia as the second largest oil supplier to India, while Iraq remained on the top spot, the data showed. Imports from Russia, about a fifth of India’s oil imports in April-December, led to OPEC’s share falling to about 61.5 per cent, according to Reuters calculations.
Gas Flowing To Freeport LNG, Restart Timeframe Unchanged
Refinitiv data showed gas flowing to the Freeport LNG plant that’s been shuttered since going offline in June after suffering damage from an explosion. The gas flows, according to an anonymous Reuters source, were within the plant’s pre-treatment facility and were maintaining the flare system. Last week, Freeport LNG denied the Reuters’ rumors that Freeport LNG would delay its planned startup from the second half of January until February, telling Oilprice.com that Freeport LNG had “no change to our restart timeline. We are still targeting the second half of this month for the safe, initial restart of our liquefaction facility, pending regulatory approvals.” Freeport, responsible for some 20% of total LNG exports from the United States and generating $35 billion in revenue during the first nine months of 2022, served Europe well last year as the continent looked to squelch a growing energy crisis this winter. US natural gas futures spiked nearly 7% earlier in the day before retreating to a still robust 5.64% increase at 2:00 p.m. ET, coming off an 18-month low on Monday on reports of colder weather that lie ahead over the course of the next two weeks, and as the data showed gas flowing to Freeport LNG, sparking hopes that the United States could once again ratchet up LNG exports, easing heavy domestic inventories with export capacity restricted since June. Freeport LNG confirmed to Oilprice.com on Tuesday that they are still targeting the second half of this month “for the safe, initial restart of our liquefaction facility,” adding that there was “no change in our timeline.” Freeport did not comment on whether it had filed the necessary restart request with federal regulators.
U.S. Natural Gas Demand Set To Climb As Cold Weather Closes In
A forecast for a coming cold spell prompted a rise in the price of natural gas in the United States on Tuesday as it pointed to stronger demand for the commodity. On Wednesday morning, however, natural gas prices were falling once again as mild weather set in and storage levels remained above the five-year average. There will be some upward pressure on U.S. natural gas prices throughout the month as the cold spell is forecast for the final week of January. Even with a brief rebound, natural gas prices in the United States remain much lower than they were last year, when at one point they flirted with $10 per million British thermal units as U.S. LNG exports broke record after record to satisfy Europe’s demand for gas. On Tuesday, the first trading day for this week in the U.S., natural gas futures were trading at close to $3.7 per mmBtu. In the early hours of Wednesday morning, those prices dropped back below $3.5. The weather forecast that pushed natural gas prices higher will begin to materialize this weekend, when Arctic weather will move down into the United States and more specifically into the western and central parts of the country. “Cold air will finally advance into the East next week, resulting in below normal temperatures covering most of the U.S.,” helped by “several reinforcing cold shots into the northern U.S.,” NatGasWeather said, as quoted by Natural Gas Intelligence. The cold spell will probably only have a temporary effect on gas prices because production continues to grow and limit the upside potential of prices. At the same time, with prices so much lower now, there may be a limit to production growth in turn, Reuters reported earlier this month. U.S. natural gas production this year is seen gaining 2 percent, and another 2 percent in 2024. However, if prices remain low, producers may get discouraged to boost production in a market that may well swing into a surplus soon. “2023 is gearing up to be oversupplied by more than 5.0 bcfd (billion cubic feet per day), which justifies the downward trend in prices,” an energy consultant from East Daley Capital told Reuters.