Venezuela Suspends Oil Exports
Venezuela’s PDVSA has suspended most of its crude oil exports for a review of the contractual terms that will be conducted under the new head of the company. The review aims to make sure there will be no payment defaults, Reuters reports, noting that since the imposition of U.S. sanctions on the trade in Venezuelan, PDVSA has had to resort to middlemen to market its oil and this has created complications with payments. Sanctions on Venezuelan oil trade were introduced in 2019 by the Trump administration, and the Biden administration’s decision to ease some of those sanctions came after the resumption of talks last year between the government of Nicolas Maduro and the Venezuelan opposition, which led to the signing of a U.S.-brokered accord between the government and the opposition in order to resolve the country’s political turmoil. The suspension takes place just weeks after PDVSA restarted deliveries of oil to the United States after Washington gave Chevron the green light to return to its operations in the country provided the oil produced from these operations goes to the U.S. Meanwhile, Venezuela’s oil industry, crippled as it is by U.S. sanctions, remains a big earner. In fact, Caracas said it expected income from oil exports to finance as much as 65 percent of the state budget for this year. More specifically, the Venezuelan government has stipulated a budget of $14.7 billion for this year, of which $9.34 billion should come from PDVSA—up 14 percent on 2022. This means that PDVSA will either have to boost production or pray for another surge in international oil prices. Last year, production averaged 600,000 bpd to 700,000 bpd, significantly lower than the target of 1 million bpd President Nicolas Maduro had announced. Now, the contract review will likely also affect both production and, consequently, exports of crude oil.
Could Europe Really Return to Russian Gas?
Germany has ended its reliance on Russian gas. The news made some cheer and others smile sarcastically while they ask to see the bill. Cutting its independence on Russia for natural gas has become priority number one, not just for Germany but for the whole European Union. For now, it’s working. The problem is, this sort of approach can’t work for long. Bloomberg’s Javier Blas made the argument that Europe will start buying Russian gas again in December, noting the obvious price differences between pipeline gas and LNG that comes from halfway around the world. “Europe will probably never go back to the same long-term contracts of the past with Russia, and likely would need to import less gas as time goes by, thanks to renewable energy,” Blas wrote. “But if it is going to keep its chemical, food and heavy industries competitive, it will need some cheap gas. And there is no cheaper gas for Europe than Russia’s.” He then went on to draw a parallel between the war in Ukraine and Iraq’s invasion of Kuwait, which did not end Iraqi oil exports to the United States. It is a convenient parallel, although the situation is rather different, and not just because Iraq was not a nuclear power when it invaded Kuwait. Leaving geopolitics aside, however, the fact that Russian gas is the cheapest for Europe cannot be overlooked. The switch to LNG has cost Europe more than a trillion euros and is still costing it because while gas prices have fallen to levels from before Russia invaded Ukraine, they have not fallen back to levels from 2021 before the gas crisis began. And they may never if Europe continues on its current path. “The Europeans today are saying there’s no way we’re going back,” the head of QatarEnergy and energy minister of Qatar, Saad Sherida al-Kaabi, said this week at the Atlantic Council Energy Forum in Abu Dhabi. “We’re all blessed to have to be able to forget and to forgive. And I think things get mended with time… they learn from that situation and probably have a much bigger diversity [of energy intake],” he added, as quoted by CNBC. This statement must have caused some annoyance in EU political circles, but it certainly echoes the fact that Javier Blas pointed out in his December column: so far, Europe’s economy has thrived thanks to cheap energy. Take away the cheap element of the energy equation, and the economy will suffer. Right now, there’s much cheer that Germany did not slip into a recession last year. Instead, its GDP booked a 1.9-percent gain. That’s certainly good news, but it’s worth remembering that not all economic shocks strike immediately. Some have a delayed effect. Europe’s largest economy may have grown, but what is it going to do when BASF moves some of its business out of the country and never returns it? What is it going to do for all those businesses that are only surviving on state aid? And, ultimately, how long will the government be able to provide this state aid? What’s true for Germany is true for the rest of the EU, too, even though Germany’s Russian gas dependence seems to have been the heaviest. Energy costs are up, and they are about to stay up unless cheap gas returns. Equinor’s chief executive said as much this week. Speaking to the BBC, Anders Opedal said he did not expect gas and electricity prices in Europe to return to where they were before the pandemic. There is “a kind of re-wiring of the whole energy system in Europe particularly after the gas from Russia was taken away,” he said and, noting that the buildup of renewable energy needed to be accelerated, added that “This will require a lot of investment and these investments need to be paid for, so I would assume that the energy bills may slightly be higher than in the past but not as volatile and high as we have today.” Europe may prove unable to “forgive or forget,” and, indeed, so may Russia because pretending Europe was an innocent victim of gas aggression does nothing to erase the fact the EU weaponized its financial and trade clout and used it in the form of sanctions just as aggressively as Russia did its gas. And this means Europeans are going to get poorer on a scale not seen in recent history.
ONGC to start process of merging MRPL with HPCL
ONGC proposes to start the process of merging its refining subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL) with Hindustan Petroleum Corp Ltd(HPCL) to leverage synergies in its refining vertical. “We will start working on the process now,” Chairman ONGC, Arun Kumar Singh, told businessline. ONGC has been considering the merger to leverage synergies and streamline its downstream vertical, he said adding: “A step towards this has been consolidating the refining and petrochemical business around MRPL, by merging OMPL (ONGC-Mangalore Petrochemicals Ltd) with it.” While it is clear that post merger, the MRPL brand will seize to exist, the dynamics of the entire process is yet to be worked out. According to Singh, “merging MRPL with HPCL will in a way help in compensating HPCL’s under-refining capacity (extra which HPCL can sell, but which is beyond its refining capacity).” The merger process will be in keeping with the changing geopolitical dynamics as well as business environment locally existing post Covid. It will also take some time as MRPL is a listed entity and there are SEBI norms to be followed, apart from taxation issues. Merger of MRPL with HPCL will require some transition time as HPCL also happens to be one of the promoters of MRPL. All the three companies involved – HPCL, MRPL and ONGC – are listed and all the processes will have to go through as per the legal requirement. OMPL acquisition Meanwhile, MRPL has completed the acquisition of OMPL. OMPL was jointly promoted by ONGC and MRPL with shareholding in the ratio of 49 and 51 per cent, respectively. The MRPL board on December 3, approved the acquisition of up to 100 per cent of the compulsorily convertible debentures (CCD) issued by OMPL (a wholly-owned subsidiary of MRPL) from the debenture holders for an aggregate consideration of up to ₹10 billion. The fourth quarter of 2021-22 was set as the indicative time period for the completion of the acquisition. OMPL has an aromatic complex in the Mangalore Special Economic Zone (MSEZ). OMPL was incorporated on June 19, 2006, and commissioned in October 2014 at a total project cost of ₹69.11 billion. OMPL produces paraxylene and benzene. These products are sold mainly through exports.
GAIL seeks two LNG cargoes for February delivery
GAIL (India) Ltd has issued a buy tender seeking two liquefied natural gas (LNG) cargoes for delivery into India, two industry sources said on Tuesday. India’s largest gas distributor is seeking the cargoes for delivery during the month of February on a delivered ex-ship (DES) basis into the country’s Dabhol terminal. The tender closes on Wednesday, Jan. 18, added the sources.
U.S. Oil Production Didn’t Reach An All-Time High In 2022, But It Might In 2023
Now that 2022 is behind us, we can review the final numbers for U.S. oil production. The Energy Information Administration (EIA) publishes these numbers, but they are usually two months behind. As such, as I write this they have only reported the monthly oil production numbers through September. Nevertheless, the EIA reports weekly numbers and the four-week average in its Weekly Petroleum Status Report. We can use the four-week averages for November and December to fill in those monthly gaps and get a close estimate of total oil production in 2022. The final number may change slightly in the final reporting, but it would be a small change that doesn’t impact the conclusion that 2022 was the second-highest oil production on record. Production The yearly record thus far is 2019, when annual production reached 12.3 million barrels per day (bpd). If not for the Covid-19 pandemic, 2020 would have probably been higher as the monthly numbers reached 12.9 million bpd just before the pandemic impacted production. But by May 2020, oil production had plunged to 9.7 million bpd, and then began a slow recovery. That dragged the 2020 average down to 11.3 million bpd. Although monthly numbers continued to recover into 2021, the annual average still came in slightly below 2020’s number at 11.25 million bpd. But there was a decent bounce in 2022 to reach 11.85 million bpd. Barring one of those geopolitical events that seem all too common in recent years, 2023 oil production should come in ahead of 2022 production. However, the rate of increase is likely to be more like that of 2021-2022 than the very high production increases seen during the Obama and Trump Administrations. According to the Baker Hughes Rig Count data, at the end of 2022 there were 620 rigs drilling for oil. That was an increase of 140 rigs (29%) from the end of 2021, and nearly back to the ~680 rig level in the months preceding the start of the Covid-19 pandemic in 2020. However, that is still a far cry from the levels of 2014, when the rig count briefly exceeded 1,600. Nevertheless, the 2019 record could be broken in 2023. It will be close. The second half of 2022 saw production levels right at the record level of 2019, and production did increase by half a million barrels per day during that period. If that trend continues into 2023, we may see a new oil production record.
Fluitron Installs First Domestically-Built Hydrogen Dispenser in Faridabad, India
Fluitron LLC, an established developer and manufacturer of industrial-grade gas compression systems, has successfully completed the manufacturing, testing, installation and PESO (Petroleum and Explosives Safety Organization) approval for the first domestically-built hydrogen dispenser in India. This project and its successful introduction is a significant milestone in acceleration of hydrogen technology development in India. This dispenser, which is capable of filling tanks at 350 bar pressure, features two nozzles for light and heavy-duty vehicles and a third nozzle for the future addition of 700 bar hydrogen dispensing. It also integrates a cascading system and pre-cooling protocols specified through international codes and standards. India currently relies heavily on coal and other fossil fuels for electricity generation. Combined with the fact that India is expected to be the world’s most populous country by 2030 (1), an energy crisis is looming. Hydrogen offers several advantages over traditional fuels when it comes to addressing the issue. It produces fewer emissions than fossil fuels while still providing a reliable source of power on demand. It is also relatively inexpensive when compared to other fuel sources like natural gas or nuclear power plants. In addition, it can be easily transported over long distances due to its low weight and high energy density. This makes it ideal for areas with limited infrastructure or access to energy sources. “Hydrogen has the potential to revolutionize how India meets its growing energy needs while simultaneously promoting sustainability and reducing emissions,” said Tom Joseph, Vice President of Business Development at Fluitron LLC. “For more than a decade, Fluitron has provided customers with engineered, customized hydrogen technology solutions for energy storage and use in diverse markets. This investment in hydrogen technology helps ensure that India’s economy continues to grow while improving environmental quality and public health.”
City gas distribution networks to expand, making gas accessible to 70% of population
With the government placing a greater emphasis on gas production from challenging fields, experts predict that gas distribution in cities may improve with a relatively lower cost. The expansion of city gas distribution (CGD) networks across 407 districts has the potential to make gas accessible to more than 70% of the population. These distribution networks will enable the supply of cleaner cooking fuel to households, businesses, and other industrial and commercial facilities, as well as fuel for transportation. According to a report, the government will prioritize gas from challenging fields for compressed natural gas (CNG) and piped natural gas (PNG) households, if the bidding prices are comparable. This approach also has the added benefit of reducing trading margins on gas resale in difficult fields. Prioritizing CGDs would allow them to replace expensive spot gas with cheaper domestic gas. The spot market for gas currently has prices around $20/mmBtu, whereas gas from challenging fields is capped at $12.5/mmBtu. Additionally, according to government regulations, traders are only able to earn a margin of $0.2/mmBtu on gas purchased at $12.5/mmBtu. Traditionally, traders would buy gas from difficult fields at $12.5/mmBtu and resell it at a higher price, closer to the spot LNG prices. Now, Reliance and BPO plan to start an auction of around 6 MMSEMD of gas from challenging fields. Furthermore, it is projected that Reliance and ONGC will produce around 12 MMSEMD of gas in the next 6 to 9 months. If the bidding prices are comparable, this gas will be prioritized for delivery to city gas distribution companies. Currently, city gas distribution companies rely on spot LNG to meet approximately 5 to 10% of their gas requirements. With the availability of cheaper domestic gas, this reliance on spot LNG could be reduced, potentially leading to lower gas prices for consumers.
Will OPEC+ Cut Production In Early 2023?
The OPEC narrative for 2022 was largely about the realities of supply and demand against the backdrop of a post-pandemic war that sparked sanctions and a European energy crisis with the counterweight of a Chinese covid crisis. From the Saudi standpoint, OPEC’s move to cut production by 2 million barrels per day in November last year – while highly controversial in Washington – served to stabilize the market. From the U.S. standpoint, it was all about politics, at a time when the Biden administration had been doing everything in its power – begging, threatening, cajoling – to get OPEC to increase production to bring down oil prices. When OPEC+ responded not only by refusing to increase production but by actually cutting production, it was viewed in Washington as politically motivated – even a concession to Moscow. Numerous articles then began to appear in the Middle Eastern press most prolifically, with GCC officials explaining how OPEC’s moves throughout the year worked to stabilize markets. In October, Saudi Energy Minister Prince Abdulaziz bin Salman bin Abdulaziz told the Saudi state news agency, SPA: “As I have emphasized multiple times, in OPEC+ we leave politics out of our decision-making process, out of our assessments and forecasting, and we focus solely on market fundamentals. This enables us to assess situations in a more objective manner and with much more clarity and this in turn enhances our credibility.” The rationale, based on what the Saudis call “the Ukraine crisis”, which prompted predictions of major supply losses that could see some 3 million bpd taken off the market. Those predictions caused panic and led to oil price volatility. As the prince points out, “these projected losses did not materialize”. The International Monetary Fund (IMF), in a September 2022 paper, notes: “Cyclical oil price fluctuations (as opposed to persistent shifts in levels) drive OPEC’s decisions, suggesting that OPEC’s objective is to stabilize the oil price rather than countering fundamental shifts in demand and supply.” Now, with a war still raging, the million-dollar question is, what does OPEC+ want now, and will it get what it wants by pursuing its stated strategy of patient market stabilization? In its new 2023 oil market outlook, Energy Intelligence posits that OPEC+ is targeting a calmer market for 2023, and a likely price range target of around $80-$90 per barrel, and will, as such, likely move to act if oil starts rising above $100, which would be seen as too volatile and reminiscent of earlier in 2022. Likewise, Energy Intel suggests that OPEC+ will proceed with extra caution this year, noting that while there might be “some tweaks” to the 2 million bpd output cut last November, “any output increase would require a clear demand pickup or supply disruption (e.g. Russia), and is unlikely to be agreed pre-emptively”. The report also predicts that we will only see a bigger cut in output if a recession has a significant impact on demand. Again, while there is a lot of recent talk of a global recession, with an apparent two-thirds of business leaders meeting at the 2023 World Economic Forum in Davos saying it is likely this year, OPEC would not likely act preemptively on this. And in the meantime, Energy Intel predicts that strong growth from Norway, the U.S., Brazil, and others would make an OPEC+ output increase more challenging, as would any issues with the cartel’s “dwindling” spare capacity. While the still-raging war in Ukraine will continue to rock the geopolitical boat, Energy Intel sees less room for a renewal of U.S.-Saudi tensions right now, which is less likely when oil prices are at their current lows. The key aspects of the market that OPEC+ will be monitoring will be Russian oil production and how sanctions and new price caps really affect the numbers. While there have been many reports of sanctions hitting Russian revenues – and plenty suggesting the opposite – a recent account from Bloomberg said Russia’s seaborne crude exports managed to hit their highest level since April last week, which will suggest to OPEC that Moscow will ride this out. But it won’t just be geopolitics that OPEC watches closely. According to Energy Intel, there are some internal cartel issues that could surface, including the potential for the UAE to (once again) become emboldened enough to push for higher quotes, as well as what the report refers to as OPEC’s underlying problem of “unrealistic baseline quotas”. Early on Tuesday, better-than-expected data on Chinese GDP growth may give some support to oil prices, but with COVID uncertainty still putting a chokehold on demand predictions, oil was not expected to respond excessively to this news. The market was also waiting with bated breath for OPEC’s own 2023 oil market outlook later in the day.
Reliance suspends gas auction after govt altered marketing rules
Reliance Industries Ltd suspended a planned auction for the sale of natural gas. E-bidding for the sale of 6 million standard cubic meters per day of gas was originally planned for January 18 but was later pushed back first to January 19 and then to January 24. Reliance Industries Ltd and its partner bp plc on Monday suspended a planned auction for the sale of natural gas from their eastern offshore KG-D6 block after the government altered marketing rules to cap margins. In a notice, Reliance and its partner BP Exploration (Alpha) Ltd (BPEAL) said the auction has been suspended indefinitely. E-bidding for the sale of 6 million standard cubic meters per day of gas was originally planned for January 18 but was later pushed back first to January 19 and then to January 24. On January 13, the Ministry of Petroleum and Natural Gas published new rules for the sale and resale of gas produced from discoveries in deep sea, ultra-deep water and high pressure-high temperature areas with marketing and pricing freedom. It required bidders to state upfront if they were purchasing the gas through the auction for ‘own use as end consumers (including for use of their group entities) or as a trader.” While end consumers were allowed to resale any unconsumed gas, traders participating in the auction were allowed to resell subject to a maximum trading margin of Rs 200 per thousand cubic meters. “In any situation, which may require proportionate distribution of the gas offered under the bidding process, the contractor (company selling the gas) shall offer gas to bidders belonging to CNG (transport)/PNG(domestic) sector, fertilizer, LPG and power sector in that order,” the ministry said, adding any leftover gas shall be offered to other bidders. In the auction that Reliance-bp launched on December 29, 2022, the gas was intended for sale to end consumers who were not permitted to resale any unconsumed gas. Also, there was no clarity on the participation of traders.
US becomes top buyer of India’s refined petroleum goods
The United States has emerged as the top destination for refined petroleum products from India in the month of November. Notably, most of these goods were processed from Russian crude oil that the Asian country imported at a discount. The United States imported oil products worth $588 million in November, bringing imports to their highest level this fiscal year. According to experts, imports increased due to increased demand for crude ahead of the US Christmas season. There has been an increase of 23 per cent in imports of petroleum products by the US as against last year as the country purchased $3.62 billion worth of petroleum products in the eight months to 30 November, 2022. Notably, it was the highest buying by the US in the past five years. Meanwhile, Russia exported crude oil worth $3.08 billion in November to India, making it the second-largest exporter to the country after Saudi Arabia, a data by the commerce ministry stated. Not just the US, Europe’s imports of petroleum products from India in November also showed a remarkable increase with Portugal, Belgium and Italy purchases rose by 1,600, 535, and 17 times respectively. Also, the Netherlands, which is considered to be hub for oil storage, bought 45 per cent more petroleum products from India compared to October. India’s demand for crude oil rose remarkably after the international prices spiked since the beginning of Russia’s invasion of Ukraine. With Russian oil banned in the US and Europe, India has been able to purchase oil at a significant discount. The Netherlands, in November, imported petroleum products including jet fuel, worth $1.26 billion. The UAE was the second largest buyer of refined products from India, importing products worth $667 million in the same month. Also Read Oriano commissions 40 MW captive solar project in Jharkhand and Bihar The elevated road between Airoli and Katai Naka is 88% completed.