G7 price cap on Russian oil won’t impact India; green hydrogen policy soon, says Hardeep Singh Puri
The European Union (EU) and Group of Seven (G7) nations decided to cap the price of Russian seaborne crude oil at $60 per barrel as of December 5. However, the decision is unlikely to impact India, as its exposure to Russian crude oil is minimal, Union Minister of Petroleum and Natural Gas Hardeep Singh Puri has said. “Russia is not our top supplier of oil; our traditional top suppliers are Iraq, Saudi Arabia, and the UAE,” Puri told BQPrime. In FY22, India imported 53 percent of its oil from these countries. In FY23, between April and September, 52 percent of India’s crude oil imports came from these countries, he added. Impact of G7 Russian oil price cap Even though the oil minister remained optimistic about India, he said if Russia refuses to sell crude oil at the capped price or cuts down production, it will affect the global supply chain. It will put pressure on producing countries to meet the energy demand, resulting in a spike in crude prices. Russia exports close to 4.5 million barrels of oil per day, which is roughly five percent of global production. “We have a situation where two major producers—Iran and Russia—are under some form of sanctions and one major consumer, China, is under lockdown,” Puri said, adding, ”the producers, OPEC+, have decided to cut supplies in their last meeting, so the markets are in a state of flux.”
Crude one-upmanship: G7 oil price cap on Russia turns on the US tap
Crude oil shipments from the US to India rose to the highest levels in November since the conflict began in Ukraine in late February, sparking hopes of a resurgence in oil flows from the US to the subcontinent, reveals shipping data. Shipments from the US have surged as Western nations prepare to impose additional sanctions on Russian crude flows. The US shipped around 450,000 barrels per day of crude last month to India, over twice that of shipments in September and October, according to data from London-based commodity intelligence provider Vortexa. That compares with around 200,000 barrels per day in October and September, shows data. The February volumes were over 500,000 barrels per day, says Vortexa, which calculates crude flows using the ship-tracking software. Delivered volumes of the US crude were as high as 700,000 barrels per day in February, shows Indian Customs data, which reports delivered cargo. Their data tends to differ from the ship-tracking data offered by commodity data analytics companies. The US volumes plunged in May to as low as 101,000 barrels per day – the lowest this year. “While Russian volumes are still strong, there is a marked increase in barrels from the US in November to India – likely a result of the wide Brent-West Texas Intermediate (WTI) spread,” says Matt Smith, a senior analyst at Paris-based commodity data provider Kpler. The spread was as high as $9.3 in mid-November, meaning the US benchmark was much cheaper last month. Washington has been concerned over losing billions of dollars in oil export revenues to Russia after Moscow became the biggest supply source for India since September, partly displacing US oil. It expects flows into India to stabilise after the Group of Seven nations and Australia agreed on a $60-per-barrel price cap on exports of Russian oil from December 5. The cap is close to the $67-per-barrel price of the Russian Urals blend, which itself is at a discount of about 20 per cent to the Brent – a pricing benchmark for the Atlantic Basin oil – and at a 16 per cent discount to the WTI – a US oil benchmark. The delivered cost of the US crude to India in September was $104 per barrel, while Russian grades were cheaper at $90 per barrel.
Kirit Parekh Panel Recommends 20% Premium For New Gas Production By ONGC, OIL
The Kirit Parikh committee which recommended a floor and ceiling price for natural gas produced from legacy fields of state-owned producers to moderate input price for CNG and fertilizer, has favoured paying ONGC and OIL a premium of 20 per cent over such price for any new gas production they add from old fields. The panel, which submitted its report to the oil ministry last week, has recommended benchmarking price of natural gas produced from ONGC and OIL’s legacy or old fields, called APM gas, at 10 per cent of cost of crude oil imported into India, according to a copy of the report seen by PTI. This rate would however be subject to a ceiling or cap price of $6.5 per million British thermal unit, until a full deregulation of prices is implemented in 2027. There would also be a floor of $4 with a view to cover for cost of production and at the same time keeping cost for fertilizer, power and CNG, which use gas as input raw material, at manageable levels. The basket of crude averaged about $83 per barrel in December. Going by recommendation of the committee, the price for APM gas, which makes up for 60 per cent of all gas produced in the country, should be $8.3 per mmBtu (10 per cent of imported oil price). But Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) will be paid only $6.5 in case the recommendation for ceiling and cap price of the committee is accepted by the Cabinet headed by Prime Minister Narendra Modi.
India To Keep Purchasing Russian Oil After Sanctions Go Into Effect
India said that it would continue to purchase Russian crude oil even after the embargo and price cap go into effect on December 5, an official in the Indian Oil Ministry said on Friday. India has consistently stated its intention to continue to purchase whatever crude oil makes the most financial sense for the import-heavy country. The Indian Oil Ministry official, cited by Attaqa, said that the sanctions placed on Russian oil—specifically on Western shipping and insurance services—won’t apply to India because they intend to use non-Western services to transport seaborne Russian crude oil into India. With Poland finally on board, the EU agreed to cap the price of Russian crude oil at $60 per barrel—higher than the levels at which Russia’s Urals are currently trading. Russia has promised to stop shipments to any country employing the price cap. But the price cap only applies to countries hoping to use Western ships and Western insurers—which means it won’t apply to India. The $60 per barrel G7 price cap and EU embargo on Russian crude oil will go into effect on Monday, December 5. An embargo on crude oil products will follow in February. Analysts are mixed in their forecasts on how the crude oil price cap and embargo will affect the oil markets. With India and possibly China continuing to purchase Russian crude without the help of Western services, it will water down the effect of the sanctions. But industry insiders have also noted that there are a limited number of non-Western ships and insurers that can bring Russian oil to markets. Last week, both China and India were purchasing crude oil from Russia at a massive $33.28 discount to Brent, meaning they are already purchasing well underneath the price cap.
Russian oil sanctions are about to kick in. And they could disrupt markets in a big way
Upcoming sanctions on Russian oil are set to be “really disruptive” for energy markets if European nations fail to set a cap on prices, analysts warned. The 27 countries of the European Union agreed in June to ban the purchase of crude oil from Dec. 5. In practical terms, the EU — together with the United States, Japan, Canada and the U.K. — want to drastically cut Russia’s oil revenues in a bid to drain the Kremlin’s war chest following its invasion of Ukraine. The right oil cap A proposal discussed earlier this week suggested a limit of $62 a barrel, but Poland, Estonia and Lithuania refused to agree to it, arguing it was too high to dent Russia’s revenues. These nations have been among the most vocal in pushing for action against the Kremlin for its aggressions in Ukraine. Speaking to CNBC’s Julianna Tatelbaum Wednesday, the Dutch energy minister said a cap on Russian oil prices was “a very important next step.” “If you want effective sanctions that are really hurting the Russian regime, then we need this oil cap mechanism. So hopefully we can agree on it as soon as possible,” Rob Jetten said.
Alternative energy: IOC to set up new company for green business
Indian Oil Corporation (IOCL), India’s largest oil marketing company, is planning to set up a new company to house its alternative energy businesses, according to sources aware of the development. IOCL is already present and has ambitious expansion plans in biofuel, biogas, green hydrogen, EV mobility and EV batteries, among others. It is venturing into green hydrogen production and is targeting 5% of hydrogen produced by it as green hydrogen by 2027-28 and 10% by 2029-30. “The new company will be formed next year. Discussions are in advanced stages with FIIs and other stakeholders on formalising a structure for the company,” said an industry official aware of the matter. IOCL declined to comment on the development. The state-owned refiner and oil marketing company is also working in alternative energy areas to provide renewable energy solutions such as 2G ethanol from agri waste, fuel cell technology for automobiles, biodiesel production from solar power, and energy storage devices. “A separate company will not only bring in better valuation for IOCL’s renewable assets but also allow the company to rope in strategic partners and monetise assets easily, something it has not been able to do in other segments,” said the second official aware of the development.
Domestic gas producers must have complete pricing freedom, recommends govt-appointed panel
The Kirit Parikh committee, the government-appointed panel to review the gas pricing formula, on Wednesday recommended a floor of $4 for legacy gas fields and suggested that a cap of $6.50/mmBtu be put on gas prices sold by ONGC and Oil India. While the ceiling price recommended in the report submitted to the Oil Ministry is $6.50/mmBtu and it will be gradually raised by $0.50/mmBtu every year, Kirit Parikh told CNBC-TV18 in an exclusive interview. He noted that while the administered pricing mechanism (APM) gas pricing is still determined by the government on the basis of a formula, domestic producers must have complete pricing freedom, which is the only way to up local production. He added that APM gas price is expected to come down from $8.50/mmBtu. “We want to provide adequate returns to city gas distribution companies,” he said, adding that the panel has proposed complete liberalisation of APM gas by January 1, 2027. Difficult gas fields should see liberalisation by January 1, 2026. Parikh pointed out that India needs to increase its share of gas consumption from 6 percent currently and needs to protect consumers from getting implicitly subsidised gas. He added that lowering import prices will impact domestic producers and the government should look at giving complete freedom on pricing. The Kirit Parikh panel has sought a link in the gas price to imported oil. In addition, the panel believes gas must be included in GST, stake compensation should be for five years and the caps on gas prices must be removed in three years.
Oil Prices Could Sink Without Further OPEC+ Action
Oil prices could sink if OPEC+ acts in line with market expectations and agrees to keep production quotas stable for another month, some analysts told Reuters. The OPEC+ group meets on Sunday—although this meeting was recently determined to be a virtual one. The virtual nature of the meeting has signaled to some that the group would refrain from making big changes to its production plans for January. If OPEC+ does fail to make big changes to its production quotas—that is, if it fails to cut production even more—oil prices could fall. OPEC+ agreed to drastically cut its production quotas by 2 million bpd last month, which first went into effect in November. The actual cut delivered by the group, however, was expected to be much more modest, somewhere around 1 million bpd, because several OPEC+ members were already producing under the new quota before it even hit. OPEC+ could take a wait and see approach at this meeting and leave things mostly unchanged, pending a clearer picture of the fallout from the G7 embargo on Russian crude oil and China’s covid outcomes. According to PVM Oil analyst Stephen Brennock, “a further cut in production cannot…be ruled out. Failure to do so risks sparking another selling frenzy.” Brennock did not specify how low prices could fall in that scenario. Energy Aspects Amrita Sen also does not see OPEC+ shifting gears just yet, while EBS analyst Giovanni Staunovo said that weaker Chinese demand and the threat of more SPR releases from the United States could prod OPEC+ to cut production further. Brent crude prices were trading up $1.62 per barrel on Thursday afternoon, to $88.59—a 1.86% rise on the day.
Russian Upstream Oil And Gas Investment Set To Plunge By $15 Billion
Investment in the upstream oil and gas industry in Russia could decline by $15 billion this year as a result of Western sanctions, Rystad Energy has calculated, saying the total for the year could end up around $35 billion. The analytical firm noted that Russian upstream investments stood at $45 billion last year, increasing from $40 billion in 2020. Before Russia’s invasion of Ukraine, upstream investments in the country were expected to rise to $50 billion in 2022, but sanctions have begun to bite and investment is set to decline substantially amid the exodus of Western oil companies from the country. According to Rystad, investments would remain lower than normal until at least 2025 but this would likely affect smaller oil companies, while Gazprom and Rosneft will be able to continue spending as they were spending until this year, the company said. The situation appears to be particularly worrying for the LNG industry, where several large-scale projects have been delayed because of sanction-related problems with technology and funding. “The war in Ukraine has cost the Russian oil and gas sector dearly, with project investments taking a significant hit. Covid-related disruptions in 2020 dragged down spending but this year looks set to be the start of a multi-year slump that will make the Covid years pale in comparison,” said Swapnil Babele, a senior analyst with Rystad. The worst affected projects will be Greenfield ones, the analytical firm also said, with investment in new field development set to decline by 40 percent this year from last, to $8 billion from $13.7 billion. Next year Rystad does not expect any significant new oil and gas projects to receive approval amid the lingering effects of Western sanctions. In 2024, however, there will be a boost in production as Gazprom begins extraction from one new field and Rosneft launches production at one of the fields comprising the giant Vostok Oil project.
Russia: Oil Price Cap Is An ‘Anti-Market Measure’
The planned price cap on Russian oil is an anti-market measure that will have devastating effects on all and could significantly complicate the situation on the global markets, Maria Zakharova, spokeswoman for Russia’s Foreign Ministry, said on Wednesday. “We have repeatedly said that the introduction of the so-called ceiling on Russian oil prices is not just a non-market mechanism, it is an anti-market measure,” Zakharova said at a briefing, reiterating that Russia would not supply oil to countries that will have joined the price cap mechanism. The ongoing disagreements over the actual price cap within the EU show how “detached the initiative is from the economic reality,” Zakharova said. “The creation of a certain cartel of buyers sets a very dangerous precedent in global trade,” the spokeswoman added. The EU member states are still at odds over the price they and the G7 would set for a ceiling for Russia’s oil if Western companies are to continue providing maritime transportation services for Russian oil cargoes. The price cap and the EU embargo on imports of Russian oil are set to enter into force in just a few days, on December 5. Reports emerged last week that the EU was discussing capping the price of Russian oil at somewhere between $65 and $70 per barrel. Such a cap, if approved, would not effectively lower the price of the flagship Russian crude currently being traded on the market. Talks continue, but there are differences among member states. One group of EU countries, including Russian neighbors Poland, Lithuania, and Estonia, believe the proposed price cap is too high and will still give Russia a handsome revenue from oil. Another group of mostly southern EU members with large shipping industries – Greece, Malta, and Cyprus – have said a $65-$70 cap is too low and demand compensation for the potential loss of Russian oil trade to their shipping.