GAIL (India) may enter into short-term LNG contracts: Fertiliser subsidy seen above Rs 2.5 trn in FY23, as high in FY24 too
With a sharp spike in prices of liquefied natural gas (LNG) which has pushed up the cost of production of urea, the fertilizer subsidy is likely to cross Rs 2.5 trillion in the current fiscal, 138% higher than the budget estimate of Rs 1.05 trillion, according to official sources. The government reckons that the natural gas prices, which constitute about 85% of cost of production for urea, is likely to be at elevated levels in 2023-24 as well. The government is working out measures for ensuring that LNG is supplied to fertiliser companies at a lower price. One of the proposals being discussed is asking state-run GAIL (India) to procure the fuel on behalf of Indian companies under short-tern contracts. There has been concern about the way the fertiliser companies deal with the issue of gas price as the entire burden of subsidy is borne by the government. It would be the fourth year in a row that the annual Budget spending on fertiliser would be above Rs 1 trillion mark this fiscal, against a lower range of Rs 700 – 800 billion in the past few years. Rating agencies – ICRA & Crisil – too have pegged the government’s fertiliser subsidy to cross Rs 2.5 trillion in the current fiscal
Ethanol pumps will be installed across India soon: Nitin Gadkari
Union minister of road, transport and highways Nitin Gadkari on Friday said the day may not be far when bikes, auto-rickshaws and cars would completely run on ethanol across the country. Inaugurating a week-long agro-exhibition In Nagpur on Friday, Gadkari said soon there would be ethanol pumps at various locations. “We will soon see ethanol pumps set up at various locations,” said the minister. “Toyota has put its 100% ethanol-driven car on display at the expo and soon other brands like BMW, Mercedes, Hyundai and Maruti Suzuki are expected to launch their bio-fuel models of cars soon,” he said. Batting for green fuel, Gadkari said it would be a cheaper, cleaner and forex-saving alternative to diesel. “My aim is that we need to encourage Indians to make bio-fuel in India. We aim to promote Swadeshi (indigenous), which is important for the country,” he said adding, “We are encouraging the ethanol industry from sugarcane juice, molasses, rice, corn, and food grain.”
Germany Warns Of Rationing This Winter If Gas Storage Dips Below 40%
Germany may have to take drastic measures such as gas rationing if levels of gas in storage drop below 40% by February 1st next year, according to the German Federal Network Agency, which will enact such measures if necessary. Germany’s gas storage sites were 99% full at the start of the heating season and the onset of colder weather in November. As of November 23, Germany’s gas storage was 98.95% full, according to data from Gas Infrastructure Europe. The gas drawdowns are now set to accelerate as winter progresses. If gas storage levels drop to below 40% by February 1, this would be considered a critical level, Klaus Müller, the president of the German Federal Network Agency, Bundesnetzagentur, said on Friday. The critical gas storage level could trigger a further response for energy conservation in Germany, including a possible gas rationing. Germany is currently in a stage-two level of alert and could go into a level-three emergency if gas stocks fall to critically low levels. The situation with Germany’s gas supply will be tense if gas storage is between 40% and 55% full by the beginning of February, the head of the regulator Müller said during a webcast as quoted by Reuters. Germany’s energy regulator insists that “significant” gas and energy savings are necessary to avoid a winter of rationing and gas emergency. Households, industry, and businesses need to cut consumption by at least 20%, the regulator’s head Müller said in October. Germany may be unable to avoid a gas emergency this winter if all consumers don’t significantly cut consumption in Europe’s biggest economy, the regulator and its president have said multiple times since the summer. If the coming winter is colder than usual, Germany could see severe nationwide gas shortages, which it will not be able to predict more than two weeks in advance, Müller said in September.
China, India squeeze big oil discounts out of Russia, hitting Putin’s war chest
North American import bans and self-sanctioning by refiners and traders in Europe have barely dented the flow of crude from Russian ports, with volumes successfully diverted east. But switching flows to Asia, where India has emerged as Russia’s second-biggest customer, has concentrated Moscow’s dependence on an ever-shrinking pool of buyers. China and India now purchase two-thirds of all the crude exported by sea from Russia; at least half of the crude exported by pipeline from Russia also goes to China. That gives huge negotiating power to buyers in both countries, and it’s a power they have exercised. Russian crude is trading at a hefty discount to international benchmarks, and that is hitting the Kremlin’s war chest The most recent estimate, from the end of last week, is that Russia’s flagship Urals grade was trading at about $52 a barrel at the export terminal. That’s a discount of $33.28, or 39%, to Brent crude. In comparison, the average markdown in 2021 was $2.85. That discount costs Russia’s oil exporters about $4 billion a month in lost revenue, while also reducing the Kremlin’s tax receipts from overseas sales.
Kirit Parikh panel likely to recommend price cap for ONGC gas, no change in formula for Reliance
A government-appointed gas price review panel, led by Kirit Parikh, is likely to recommend price caps for natural gas produced from legacy fields of state-owned firms to help moderate CNG and piped cooking gas rates, while keeping the pricing formula for difficult fields unchanged. The panel, which was tasked with suggesting a “fair price to the end-consumer” while ensuring “market-oriented, transparent and reliable pricing regime for India’s long-term vision for ensuring a gas-based economy”, may opt to suggest two different pricing regimes, officials said. For the legacy or old fields of Oil and Natural Gas Corporation(ONGC) and Oil India Ltd (OIL) — where the cost has long been recovered and which are currently governed by a formula that uses rates in gas-surplus nations such as the US, Canada and Russia — the committee is likely to recommend a floor or minimum base price and cap or ceiling rates This would ensure that prices do not fall below cost of production, as they did last year, or do not spike to record levels as currently.
Gas Price Cap Could Cause Irreversible Harm To Energy Markets
Earlier this week, the European Commission issued a statement declaring what it called a “safety price ceiling” for gas prices set at 275 euros, or $283 dollars, per megawatt-hour. Hailed as the long-awaited gas price cap that EU members have been discussing for weeks now, the ceiling’s aim, according to the Commission, will be used as a “temporary and well-targeted instrument to automatically intervene on the gas markets in case of extreme gas price hikes.” While national governments may be happy with this new instrument, market players are the opposite of happy. In fact, traders have warned that using the instrument could cause irreversible harm to energy markets in Europe. “Even a short intervention would have severe, unintended and irreversible consequences in harming market confidence that the value of gas is known and transparent,” said the European Federation of Energy Traders this week, following the news broken by the European Commission, as quoted by the Financial Times. What traders—and exchanges—argue is that the threat of a gas price cap on front-month gas contracts would strain the market and effectively make it less transparent. Even worse, according to them, is the EC’s idea to basically tie benchmark European gas futures prices to the price of liquefied natural gas on the spot market. The tie to LNG prices is one of two conditions that must be met for the “safety price ceiling” to be triggered automatically. As stated by the EC, these are, first, when “the front-month TTF derivate settlement price exceeds €275 for two weeks” and, second, when “TTF prices are €58 higher than the LNG reference price for 10 consecutive trading days within the two weeks.” As soon as both of these things happen, regulators will swing into action, and after a day of notifications to all relevant authorities, the ceiling will enter into effect, and front-month orders for gas naming prices that are above 275 euros will not be accepted. According to the Commission, the fact that the price cap is limited to front-month contracts ensures the stability of the financial system and futures markets by leaving traders free to trade gas over the counter and on the spot market. According to traders and exchange operators, this is not the case. Per the FT report on the topic, the industry is worried about unexpected and excessively high margin calls on the over-the-counter market, as well as the ability of exchanges to tackle defaults. The LNG tie is of particular concern because, according to traders, LNG markets are a lot more illiquid and volatile than the TTF market, which is based on actual transactions. The trading world is so concerned about the gas price cap that the European Federation of Energy Traders warned the Commission this week that the cap might force exchanges to suspend trading in case they could “not meet obligations on running fair and orderly markets.” Meanwhile, the European Central Bank has also warned against moving trades from exchanges to over-the-counter market, which, featuring direct transactions between parties, is a lot more opaque and a lot less regulated than the exchange. The traders are not alone in their concerns, which also include a worry that the proposed cap mechanism has not been tested for faults. The Commission just said it would become effective next January. “It is unrealistic to assume this [ensuring the cap won’t put markets in jeopardy] can be achieved within a short timeframe and certainly not before the end of this winter,” the head of the European association of energy exchanges, Christian Baer, said. Some European diplomats appear to share these concerns, according to the FT. One unnamed member of the diplomatic body said this week that “Safeguards checks are only applied ex-post [so] how can compliance with the safeguards be ensured when the measure is in place? It is similar to installing airbags after you ran your car into an accident.” Per the Commission’s proposal, there are two ways to ensure the cap does no harm to markets: one, by deactivating it or by preventing its activation “in case relevant authorities, including the ECB, warn of such risks materialising.” The language of the statement about the price cap is quite general, as the language of all such statements tends to be. There is little specificity or, indeed, examples of the risks mentioned above that would trigger the deactivation of the cap—facts that no doubt intensify traders’ worries. There is also another worry that may potentially be a bigger one, and it has nothing to do with trading and financial markets. Several EU members are concerned that the price cap will encourage greater gas demand at a time when demand needs to be reduced. The Commission has a response to that: triggering the mandatory energy savings mechanism agreed upon earlier this year and launched in its voluntary version a couple of months ago. Whether this would be enough and, more importantly, whether it would not have some severe unintended consequences remains an open question for now.
PLI for petrochemicals might be announced in budget
The government is working on a production-linked incentive (PLI) scheme worth ₹100 billion for chemicals and petrochemicals industries, two people aware of the matter said, as the country aims to triple its capacity to manufacture these key ingredients by 2040. The Union budget is likely to announce the scheme, under which selected companies may get an incentive of 10-20% on their incremental sales.
India sees natural gas oversupply as high prices deter buyers
Once struggling for natural gas, India is experiencing an oversupply of gas in recent months as prices have shot through the roof. On account of high prices, customers in India have reduced gas buys, resulting in a surplus in the market. The government had hiked the price of natural gas by 40 percent for the second half of the current financial year i.e. from October 2022 to March 2023. The price of gas produced from old fields, which makes up for about two-thirds of all domestically-produced gas, was hiked to $8.57 per Metric Million British Thermal Unit (mmBtu) from $6.1 per mmBtu. Similarly, natural gas produced from discoveries in deep and ultra-deep water and high-pressure, high-temperature areas was hiked to $12.46 per mmBtu from $9.92. India is dependent on imports for roughly half of its natural gas needs while the other half is met through domestic production.
U.S says G7 should soon unveil price cap level on Russian oil, adjust regularly
The Group of Seven nations should soon announce the price cap on Russian oil exports and the coalition will probably adjust the level a few times a year rather than monthly, a senior U.S. Treasury official said on Tuesday. The G7, including the United States, along with the EU and Australia are slated to implement the price cap on sea-borne exports of Russian oil on Dec. 5, as part of sanctions intended to punish Moscow for its invasion of Ukraine.
Goldman Sachs Slashes Oil Price Forecast By $10
Goldman Sachs has cut its oil price forecast by $10 to $100 per barrel, citing lockdowns in China that would dampen demand for the commodity. The investment bank’s analysts also noted the increased exports of Russian oil before the European Union embargo goes into effect next month as another reason for the forecast revision, according to ForexLive. Just how much the oil price forecast context has changed this year shows in Goldman’s forecasts from January, when the bank warned that Brent could top $100 per barrel at some point in 2022. That happened perhaps earlier than many have expected. Still, after that over-$100 peak, crude oil prices have fallen and stayed below the three-digit threshold, even though many argue that it’s a matter of time before they rebound above $100 again. Goldman is one of the bullish forecasters, with its analysts saying earlier this month that Brent crude could return to above $100 sooner than previously thought. In fact, they said that Brent could breach $125 per barrel next year Again, the main reasons for the forecast were Chinese Covid policies and Russian oil supply, only in that forecast, the analysts cited the prospect of China relaxing its zero-Covid approach and the prospect of a steep drop in Russian oil exports following the EU embargo. Some analysts, such as Danish Saxo Bank’s Ole Hansen, also note the OPEC+ production cut, which will reduce the globally available supply of crude oil in the coming months, while demand for non-Russian oil is expected to increase amid the embargo. According to the International Energy Forum, a Saudi-based energy think-tank, Russian oil supply could drop by between one and three million barrels daily because of the embargo, which will undoubtedly have an impact on prices. Chinese Covid policies could mitigate this impact, capping a potential rally.