India sets hydrogen targets
As part of its aim to achieve its net zero carbon emission goal by 2070, the Indian government has released a blueprint for its National Green Hydrogen Mission which has set consumption targets for various industries, including the oil and gas and fertilizer industries. “The overarching objective of the mission is to make India the global hub for production, usage and export of green hydrogen and its derivatives,” according to a mission statement issued by the Ministry of New and Renewable Energy (MNRE) on 13 January. The green hydrogen mission was approved by the government on 4 January which aims to provide incentives worth over rupee (Rs) 197.44bn ($2.4bn) for the development of 5m tonnes/year green hydrogen production capacity and an associated renewable energy capacity addition of about 125 gigawatts (GW) by 2030. The south Asian nation is expected to have the capacity to produce 5m tonnes/year of green hydrogen by 2030, with the potential to reach 10m tonnes/year with growth of export markets, the MNRE said. India consumes around 5m tonnes/year of grey hydrogen, of which around 99% is used in the petroleum refining industry and for the production of ammonia for fertilizers. The government expects to develop its green hydrogen capacity in two phases beginning the fiscal year ending March 2023 (2022-23). In the first phase, the government plans to notify mandatory green hydrogen consumption targets for big hydrogen consumers such as the oil and gas, fertilizer, and shipping sectors. The government released its draft Green Hydrogen Mission statement in 2022 which stated that oil refineries would be required to replace 30% of their grey hydrogen use with green hydrogen by 2035, beginning with 3% in 2025. Fertilizer production should run on 70% green hydrogen by 2035, beginning with 15% in 2025 and urban gas distribution networks must replace 15% of their fuel volume by 2035, starting with 5% in 2025. The latest mission statement released on 13 January proposes to substitute all ammonia-based fertilizer imports with domestic green ammonia-based fertilizers by 2034-35. For this, the government plans to initially set up two plants each of green hydrogen-based urea and diammonium phosphate (DAP). Shipping and port operations are key sectors that are expected to drive the future green hydrogen demand and trade. State-owned Shipping Corp of India (SCI) has been asked to retrofit at least two ships to run on green hydrogen derived fuels by 2027 as part of the country’s aim to build hydrogen-powered shipping lines. SCI is India’s largest shipping line and owns and operates around one-third of the Indian tonnage, and services both national and international trades, as per the company website. State-owned oil and gas companies like Indian Oil Corp (IOC), Hindustan Petroleum Corp Ltd (HPCL), Bharat Petroleum Corp Ltd (BPCL), Oil and Natural Gas Corp (ONGC), among others, will be required to charter at least one ship each to be powered by green hydrogen or derived fuels by 2027. Currently, these companies charter about forty vessels for transport of petroleum products. The companies will be required to add at least one ship powered by green hydrogen or its derivatives for each year of the green hydrogen mission. Additionally, there are plans to develop green hydrogen-fueled vessels, and also to set up refueling hubs at Indian ports. The government expects to set up green ammonia bunkers and refueling facilities at least at one port by 2025 and plans to extend the facility to all major ports by 2035. It also plans to develop supply chains and capabilities to support future exports of green hydrogen/ammonia from India. In the initial phase, India expects to set up at least two green hydrogen hubs in the vicinity of oil and gas refineries and fertilizer plants. Other plans include retrofitting older city gas distribution networks to use green hydrogen blended gas while new gas networks will be built to be compatible with high blend ratios of hydrogen, the government document stated. The government also plans to explore the possibility of blending green hydrogen-based methanol/ethanol in auto fuels. It aims to set up necessary infrastructure and refueling stations along highways to ensure easy availability. “This will enable hydrogen-fueled buses and commercial vehicles to ply on such routes,” the MNRE statement said. The government also aims to increase the use of green hydrogen in steel production. “Upcoming steel plants should be capable of operating with green hydrogen. Greenfield projects aiming at 100% green steel will also be considered,” it said.
China’s Reopening May Not Lead To A Major Jump In Oil Prices
China has undergone three distinct phases in its reaction to COVID-19 since the Wuhan Municipal Health Commission reported the first small cluster of cases of ‘pneumonia’ in Wuhan city in Hubei Province on 31 December 2019. The first phase was the quick implementation of the ‘zero-COVID’ policy that allowed for the fast economic bounce back of China in just the second quarter of 2020. This was a time when elsewhere more than 3.9 billion people in more than 90 countries or territories having been asked or ordered to stay at home by their governments. The second phase was marked by repeated lockdowns in various areas of China, including several of its major cities, as outbreaks of COVID-19 and related strains of the virus prompted full lockdowns under the strict ‘zero-COVID’ policy. The third phase was prompted by nationwide protests against such continued all-encompassing lockdowns and comprised of the effective shelving of the policy that, in turn, has led to huge waves of infections and deaths. The next phase, which may well arrive earlier than many people expect, is likely to be the bounce back of China’s economy. To put this economic bounce back into context: the massive disparity between China’s enormous economy-driven oil and gas needs and its minimal level of domestic oil and gas reserves meant that China almost alone created the 2000-2014 commodities ‘super-cycle’, characterised by consistently rising price trends for commodities used in a booming manufacturing and infrastructure environment. As late as 2017, China’s high rate of economic growth allowed it to overtake the US as the largest annual gross crude oil importer in the world, having become the world’s largest net importer of total petroleum and other liquid fuels in 2013. More specifically on the economic side of the equation, from 1992 to 1998, China’s annual economic growth rate was basically between 10 to 15 percent; from 1998 to 2004 between 8 to 10 percent; from 2004 to 2010 between 10 to 15 percent again; from 2010 to 2016 between 6 to 10 percent, and from 2016 to 2022 between 5 to 7 percent. For much of the period from 1992 to the middle 2010s, much of this activity was focused on energy-intensive economic drivers, particularly manufacturing and the corollary build out of infrastructure attached to the sector, such as factories, housing for workers, road, railways and so on. Even after some of China’s growth began to switch into the less energy-intensive service sectors, the country’s investment in energy-intensive infrastructure build-out remained very high. It is extremely difficult to gauge the current level of infections and deaths from COVID-19 and its related strains, as China’s National Health Commission (NHC) stopped publishing daily COVID-19 case data on 25 December 2022, a practice that had been in effect since 21 January 2020. However, during a recent press conference, Kan Quancheng, a senior official in Henan – China’s third most populous province – revealed that nearly 90 percent of people there had now been infected with COVID-19 and its related strains, which equates to around 88.5 million people in just that province. Cases have risen to these levels in large part due to the zero-COVID policy and its strict implementation, as only extremely limited immunity to the virus has been allowed to develop. At the time of effectively shelving the zero-Covid policy, China still did not have an effective vaccine against the disease or any variant thereof, despite offers from all major vaccine-producing countries to make such supplies available to it. China also did not have an effective post-infection anti-viral, again despite offers from several Western countries to make such anti-virals and post-infection treatments available to it. Adding to these negative factors, as highlighted by OilPrice.com recently, is that China suffers from an extreme shortage of intensive care unit capacity in hospitals. Although this unrestrained surge of COVID infections has caused an even deeper impact on activity in the near-term – which Eugenia Victorino, head of Asia strategy for SEB in Singapore exclusively told OilPrice.com likely dampened to 2022 GDP growth of 2.8 percent – China’s annual Central Economic Work Conference (CEWC) signalled in the middle of December that boosting growth will be the priority in 2023. “Investments in research and development in high tech sectors will be accelerated, specifically in new energy, AI, biomanufacturing, and quantum computing,” she said. “Although the CEWC called for greater market access for foreign capital especially in modern services industry, the long-term policy direction of greater self-reliance in key sectors will be maintained and on fiscal policy, public spending will ‘maintain the necessary intensity’,” she added. “Therefore, there are upside risks to our 5.5 percent GDP growth forecast for 2023,” she concluded. With COVID infections having peaked on the east coast, and although a difficult time lies ahead for central and rural China, activity will begin to accelerate by March at the very latest, thinks Rory Green, chief China economist for TS Lombard, in London. “We noted in December that China was looking to kick-start consumer activity and sentiment in 2023, a message emphasised in [Premier] Xi Jinping’s New Year speech,” Green exclusively told OilPrice.com “Beijing is trying to reset domestic and international economic and political relations by toning down ‘Common Prosperity’ and ‘Wolf Warrior’ rhetoric and, more important, delivering stronger growth,” he added. “We think that China is rapidly moving from COVID coma to reopening boom and that a GDP target of ‘above 5 percent’ will be established for 2023 and that Xi will look to report GDP comfortably above that floor,” he underlined. This said, it may be that the previously near-automatic feed-through of increased China economic growth on oil prices is not as marked this time around as in previous years. “China’s central leadership is relying on reopening and the removal of negative policies – property, consumer internet, and geopolitics – rather than aggressive stimulus, to drive activity,” Green told OilPrice.com. “For the first time, a cyclical recovery in China will be led by household consumption, mainly services [as]
The Truth Behind European Big Oil’s Bet On Hydrogen
Back in 2020, the European Union set out its new hydrogen strategy as part of its goal to achieve carbon neutrality for all its industries by 2050. The regional bloc outlined an extremely ambitious target to build out at least 40 gigawatts of electrolyzers within its borders by 2030, or 160x the current global capacity of 250MW. The EU also plans to support the development of another 40 gigawatts of green hydrogen in nearby countries that can export to the region by the same date. The EU also aims to have at least 6 gigawatts of clean hydrogen electrolyzers installed by 2024. But it appears European oil majors are only willing to dance to their own tune. A new study on behalf of Transport & Environment (T&E) has revealed that whereas Shell Plc (NYSE: SHEL), BP Plc (NYSE: BP), TotalEnergies SE (NYSE: TTE), ENI S.p.A (NYSE: E) and Repsol SA (OTCQX: REPYY) are actively investing in hydrogen, the lion’s share of their green investments are aimed at lowering the carbon intensity of their refinery operations rather than developing green transport fuels. Indeed, the study has found that of the refining sector’s €39 billion in planned investments in alternative fuels till 2030, nearly 75% will go towards increasing biofuels production. New advanced biofuels (HVO) plants will receive €2 to €3 billion in investments, doubling production capacity to 10 megatonnes by 2030, with the T&E analysis saying that’s 4 times higher than what can be sustainably sourced in the EU. “Oil producers are promoting hydrogen as their big bet for the future, but in reality their investments in green hydrogen are pitiful. Instead they are focusing their new refining capacity on biofuels which cannot sustainably supply the world’s transport needs. This is not an industry pushing the boundaries of clean technology,” Geert Decock, electricity and energy manager at T&E, has said. The oil refining industry is one of the key consumers of hydrogen right now, but most refineries are using “gray hydrogen”–derived from fossil fuels, rather than clean, green hydrogen. The T&E study says that oil companies plan to invest around €6.5bn in so-called ‘low carbon’ blue hydrogen to clean up their production processes, double what they are spending on the production of green hydrogen and e-fuels. “Where oil producers are investing in hydrogen, most is going towards replacing dirty gray hydrogen operations with blue hydrogen, which still uses polluting fossil gas. Instead of wasting their time on easy, short-term solutions, oil refiners should switch to producing green hydrogen and e-fuels for ships and planes today,” Geert Decock has concluded. Betting On Hydrogen Still, European governments are betting increasing amounts of cash on a hydrogen revolution in a bid to reduce carbon emissions and meet its industrial ambitions. European Commission President Ursula von der Leyen recently promised a €3 billion investment vehicle, dubbed a hydrogen bank, that will “help guarantee the purchase of hydrogen” by spurring demand using money from the EU Innovation Fund. The continent has already seen €13 billion in state aid approvals for national and cross-border projects so far. These include €5.4 billion for Hy2Tech, a cross-border initiative that aims to perfect hydrogen technology; €5.2 billion for Hy2Use which will invest in applications in hard-to-decarbonize sectors such as cement, steel and glass; more than €2 billion for German projects in steel; €220 million for a Spanish plant and €194 million for a Romanian plant. The EU hydrogen strategy comes with a hefty price tag estimated at $430B. The European Commission has set a target to boost hydrogen’s share to 14 percent of the EU’s final energy demand by 2050. Last year hydrogen accounted for a mere 2.5 percent of the world’s final energy demand. Good news for natural gas companies: Although Brussels clearly favors “green” hydrogen produced by renewable energy, it has signaled that it will also encourage the development of “blue” hydrogen that is produced from natural gas paired with carbon capture and storage (CCS). The EU has said that hydrogen will play a key role in helping decarbonize manufacturing industries and the transport sector. The organization says it will support blue hydrogen during a “transition phase,” although it has not mentioned it in its topline targets. The bloc plans to invest €18 billion in blue hydrogen projects. The decision by European policymakers to support blue hydrogen came after years of hard lobbying by more than 30 energy companies including ExxonMobil, ENI, Shell, Total, Equinor ASA (NYSE: EQNR) and other European natural gas companies which called for a ‘‘technology-neutral strategy’’ arguing that renewables such as wind and solar cannot grow fast enough to power the “clean hydrogen” sector to meet decarbonization goals. The signatories have claimed the green hydrogen industry is currently too small to spark the growth of a large-scale European hydrogen economy in the space of just a decade.
RBI sees need for ‘oil-proofing’ economy amid global shocks
The Reserve Bank of India has in a new report underlined the need to achieve energy security amid the global uncertainties impacting oil supplies and prices. “The need for oil-proofing the Indian economy – its financial and real sectors, from shocks or adverse geopolitical events cannot be overstated. This also points to the need for a policy for promoting energy security and sustainability…It would also be prudent on the part of regulators to be vigilant of the potential contagion from global crude oil price movements given their wider implications for systemic financial stability,” the report said. Meanwhile, insiders said that India has already aggressively started looking at ways which could boost energy security by enhancing use of alternative fuels. The country’s domestic demand for fuel has seen a steady jump of 3 per cent, which is higher than the global average of around just 1 per cent. Currently India, which consumes five million barrels of petroleum daily, imports about 85 per cent of its total crude requirements. Petroleum Minister Hardeep Singh Puri has said that measures are afloat to facilitate switching to gas and hydrogen. The minister said that India was able to navigate through the most formidable energy crisis the world has seen since the 1973 oil crisis due to its four-pronged energy security strategy — diversification of energy supplies, increasing exploration and production footprint, using alternate energy sources, and meeting energy transition through the gas-based economy, green hydrogen and EVs. The Narendra Modi government has laid the emphasis on increasing production of ethanol from various items such as sugar molasses, sugarcane and other materials which have sugar content. India has already reached the set target of blending 10 per cent ethanol with petrol. The target is to touch 20 per cent blending by 2025. It was only 1.53 per cent in 2013-14. The increased use of ethanol will boost India’s renewable energy segment while leading to a huge saving of foreign exchange.
India’s Russian oil imports top 1 mn barrels a day in December
Russia supplied 1.19 million bpd of crude oil to India in December alone. Russia’s crude oil export to India surged to a new record in December 2022. Moscow has remained the top oil supplier of India for consecutive months. According to data from energy cargo tracker Vortexa, India imported crude oil from Russia 1 million barrels per day for the first time in December. Russia supplied 1.19 million bpd of crude oil to India in December alone. This was higher than 909,403 bpd crude oil India imported from Russia in November and 935,556 bpd in October 2022. The previous record for most crude oil imports from Russia was in June 2022 when India bought 942,694 bpd, according to Vortexa. Russia, which in October 2022 for the first time surpassed traditional sellers Iraq and Saudi Arabia to take the No.1 spot, now makes up for 25 per cent of all oil imported by India.
The good times may be over for liquefied natural gas, for now
Liquefied natural gas is no longer shaping up as the hot commodity for 2023, with prices plummeting and supply seen outpacing new demand in 2023, Avi Salzman wrote in Barron’s this week. LNG producers likely will add 20M metric tons of LNG capacity to the market this year while annual demand grows by just 10M tons, according to Morgan Stanley analyst Devin McDermott. Chinese demand for LNG fell ~20% in 2022 amid strict COVID lockdowns, and even as demand started to crawl back late last year as China began to reopen, analysts do not see it returning to previous levels until late in 2023, with lower cost sources of energy taking priority, which may limit spot LNG demand; demand may actually decline in India, as the power and industrial sectors switch to cheaper fuels. The drop in prices likely will hurt earnings of companies in the industry, McDermott said, expecting Cheniere Energy to earn just $8B in EBITDA this year, compared to Wall Street consensus of $9.8M, while New Fortress Energy likely will make $1.2B in EBITDA, vs. expectations for $1.8B. Several stocks in the sector already are falling after rising sharply in 2022: Cheniere (LNG) has slipped 6% in the past month. Golar LNG (GLNG) is down 8%, and New Fortress (NFE) is off 13%. Front-month February Nymex natural gas closed -7.8% to $3.419/MMBtu this week, down for four straight weeks and six of the past seven. Meanwhile, crude oil futures jumped to their largest gain in three months this week.
U.S. Natural Gas Prices Plummet Despite Inventory Drop
Natural gas prices in the United States have plunged and remained low despite a sharp drop in inventories at the end of 2022. Reuters’ John Kemp reported today that working gas stocks in underground storage in the U.S. had ended last year 9% below the five-year average for that time of the year, falling by three percentage points in just two weeks. The reason for the sharp slump was the cold spell that gripped much of the United States, driving much higher demand for gas. Prices, however, have remained low thanks to fast growth in production, which has outpaced both consumption and export growth, Kemp added. As a result of these developments, gas prices have dropped by as much as 50 percent in less than a month, Bloomberg reported this week. The decline is expected to continue this year as well as production growth continues to outpace demand growth. “The market does not need this incremental growth and will ultimately need to force the curve lower to push rigs out of the market,” a TPH analyst said this week, as quoted by Bloomberg. Front-month gas futures on Wednesday were cheaper than $3.70 per mmBtu, down from $9.60 per mmBtu in August last year, Reuters’ Kemp noted. Yet some forecast continued price volatility because of the war in Ukraine and the Western sanctions on Russia. “Alternative supplies are being developed, but it will take years for Europe to replace Russian gas, so price volatility is likely to remain a feature of the market for some time,” Michael Rosen, chief investment officer at Angeles Investments told Barron’s this week. Morgan Stanley is more upbeat, noting weaker gas demand from Europe thanks to the warm winter, which means more U.S. LNG would be freed to go to China, where the reopening of the economy will feature higher energy demand. “We see a much more manageable global supply/demand outlook for this winter and the next,” the bank’s analysts said in a note, quoted by Bloomberg.
India sets hydrogen, ammonia consumption targets for some industries -govt
India has set green hydrogen consumption targets for some industries, so as to generate demand for cleaner fuel in its quest to reach net zero by 2070, the government said on Friday, as it unveiled its policy for green energy. One of the world’s biggest emitters of greenhouse gases, India approved a plan of incentives worth more than $2 billion last week to develop a green hydrogen production capacity of 5 million tonnes a year by 2030. Asia’s third-largest economy wants to use green hydrogen to replace grey hydrogen, produced using gas, as it moves to decarbonise sectors such as oil and fertilisers. Green hydrogen is a zero-carbon fuel made by electrolysis, using renewable power from wind and solar to split water into hydrogen and oxygen. India’s top refiner Indian Oil Corp, top power utility NTPC Ltd and conglomerates including Reliance and Adani group have announced plans to build green hydrogen projects. To gradually build a hydrogen-powered shipping lines, India has set a goal for its largest fleet operator, the state-run Shipping Corp of India, to retrofit at least two ships to run on green hydrogen-based fuels by 2027. All the state-run oil and gas companies that charter 40 vessels for fuel transport will also have to hire at least one ship powered by green hydrogen each year from 2027 to 2030. “Green ammonia bunkers and refueling facilities will be set up at least at one port by 2025,” the government said in its policy document. “Such facilities will be established at all major ports by 2035.” India aims to end imports of ammonia-based fertiliser by 2034 to 2035, replacing them with locally produced green ammonia-based soil nutrients. The government will also invite bids to set up two domestic green hydrogen-based urea and diammonium phosphate plants. The policy also requires new steel plants to be capable of operating on green hydrogen.
China Books Its Second Annual Oil Import Decline In A Row
China imported 10.17 million barrels of crude oil daily last year, down by almost a percentage point from 2021. This was the second annual decline in imports in a row after 2021 also saw lower imports than 2020. Citing data from the Chinese customs authorities, Reuters reported today that the drivers behind the decline were weaker demand and lower refining margins. In the last quarter of the year, however, Beijing started issuing higher fuel export quotas and imports picked up. Seen as a move to support the Chinese refining industry, the higher fuel export quotas have continued this year as well, spurring expectations of higher oil demand from the world’s biggest importer and pushing prices up. Crude oil imports in December came in at 11.3 million barrels daily the report noted, which was the third-highest monthly number for 2022 and was the result of more buying of Saudi oil as the Kingdom cut prices for Asian clients. On the headwind side, Covid-related lockdowns sapped potential demand growth last year but they also gave reason to forecasters to expect a strong rebound this year, the way global demand for oil rebounded after the 2020 lockdowns. Meanwhile, the country’s refiners continued buying discount Russian and Iranian oil, including new Russian oil grades that were until recently largely shipped to Europe. Along with India, China has become Russia’s largest oil client. Despite the decline in oil imports for 2022, China has been one of the main drivers behind oil prices during that year. Every lockdown announcement weighed on prices and every report of the pending reopening of the country pushed the benchmarks higher. This year, too, China is at the top of analysts’ lists of factors that will influence the movement of oil prices. There is a consensus that if China’s economy reopens fully, Brent could shoot up above $100 a barrel again, with some, like hedge fund manager Pierre Andurand, seeing it as high as $140 per barrel if that happens.
Where Are Oil Prices Heading In 2023?
At the beginning of 2023, several factors are at play in determining the short and medium-term trend in oil prices this year. Supply and demand concerns, tightening monetary policy globally, expectations of a material slowdown in economic growth and possible recessions, and China’s reopening with a Covid exit wave are all impacting crude oil prices. During the first week of the year, oil prices tumbled by 9% in the first two trading days for the worst start to a year since 1991. The price of Brent Crude dipped to below year-ago levels for the first time in two years, possibly suggesting that “broader inflation has peaked and could fall rapidly in the coming months,” Reuters columnist Jamie McGeever notes. The annual change in the U.S. benchmark, WTI Crude, has also turned negative several times over the past two months. The base effects, that is, prices and the inflation rate compared to the same time last year, are falling and could signal deflation in energy commodities, which could intensify the drop in broader inflation to closer to the Fed’s 2% target, according to McGeever. Still, the Fed isn’t abandoning its hawkish stance and determination to fight inflation which is “persistent” and at an “unacceptably high level,” according to the minutes of the Federal Open Market Committee (FOMC) from the December meeting released this week. “No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023. Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time,” the Fed said. “Participants concurred that the inflation data received for October and November showed welcome reductions in the monthly pace of price increases, but they stressed that it would take substantially more evidence of progress to be confident that inflation was on a sustained downward path,” according to the FOMC minutes. This week, Federal Reserve Bank of St. Louis President James Bullard said that the prospects of a soft landing for the U.S. economy have increased compared to the autumn of 2022, thanks to a strong and resilient labor market. “The policy rate is not yet in a zone that may be considered sufficiently restrictive, but it is getting closer,” Bullard said in a presentation on Thursday. Nevertheless, concerns about a recession persist. The current weak oil demand in both the U.S. and China adds to the immediate-term bearish outlook on oil prices. “Oil is trying to rally but demand concerns are keeping the gains small.? The Saudis are slashing prices as the short-term crude demand outlook seems like it won’t quite get a major boost from a robust China reopening,” Ed Moya, Senior Market Analyst, The Americas, at OANDA, said on Thursday when oil prices inched higher after the massive selloff on Tuesday and Wednesday. However, the weekly EIA report indicated that implied gasoline demand fell last week by the most since March 2020, and crude oil and distillate demand posted significant declines from a week ago, Moya noted. ING strategists said on Thursday, “The oil market is looking better supplied in the near term and risks are likely skewed to the downside. However, our oil balance starts to show a tightening in the market from the second quarter through to the end of the year, which suggests that we should see stronger prices from 2Q23 onwards.” According to broker PVM Oil, “There is no doubt that the prevailing trend is down, it is a bear market.” “Readily available Russian crude also played its part in the continuous move lower and so did the co-ordinated SPR release. The question now is whether these forces will be at play throughout 2023 and whether the cheapening of oil prices will be the main theme this year.”