Oil drops to nearly two-month lows as supply worries subside
On Monday, as supply worries subsided and worries about China’s gasoline demand and rising interest rates weighed on prices, oil prices remained close to two-month lows. After finishing at their lowest price since September 27, January Brent crude futures had fallen 28 cents, or 0.3%, to $87.34 a barrel by 01:03 GMT. Before the contract’s expiration later on Monday, December West Texas Intermediate (WTI) crude futures were trading at $80 a barrel, down 8 cents from the previous day. To reach $79.90 per barrel, the more active January contract decreased by 21 cents. As losses continued throughout the next week, both benchmarks, Brent down 9% and WTI down 10%, closed on Friday at their lowest levels since September 27.
China Bought $60 Billion Russian Energy Since Start Of Ukraine War
China’s energy imports from Russia, including coal, oil, and natural gas, have reached $60 billion since the Russian invasion of Ukraine, Bloomberg hasreported, up from $35 billion in the same period of 2021. China has become Russia’s biggest energy client alongside India, with both countries refusing to join the Western sanction push against Moscow and instead opting to continue doing business and forging closer political ties with Russia. Crude oil imports from Russia into China rose even in October when overall oil imports were down by almost 5 percent. That’s because Chinese refiners, like those in India, are preparing for the European Union embargo on Russian crude, which enters into effect on December 5. Once the embargo kicks in, the EU will no longer provide shopping, insurance, and financing services to third parties that want to buy Russian crude unless they buy it at or below a price that has yet to be set by the G7 under its plans for a price cap on Russian oil. The cap aims to curb Russia’s oil revenues while keeping Russian oil flowing into international markets. In addition to more oil, China also imported more Russian liquefied natural gas in October, the Bloomberg report noted. At 756,000 tons, the volume was markedly higher than LNG imports same time last year, and the increase came despite a 34-percent decline in overall LNG imports. Coal imports in October were 26 percent higher than last year, with coking coal imports specifically up threefold from a year ago. Coking coal is used in steelmaking. The total value of these energy imports hit $7.7 billion in October, which was $100 million higher than the value of September energy imports from Russia and $2.3 billion higher than the value of Chinese energy imports from Russia for October 2021.
Can Iraq Challenge Saudi Arabia’s Regional Oil Dominance?
Like the first cuckoo of spring, the annual autumn refrain from senior Iraqi oil officials of new production targets has that pleasant ring of the familiar about it to seasoned oil industry watchers. Sometimes it is 6 million barrels per day (bpd), sometimes 7, and sometimes 8, but it always prompts an analysis of the facts and figures that invariably lead to the same conclusion: it could be done but not without some basic changes to Iraq’s oil industry. Last week was heard a similar call as Europe faces an uncertain energy future heading into winter, this time from Alaa Alyasri, director general of Iraq’s State Oil Marketing Organization (SOMO). Iraq is targeting 7 million bpd of crude oil in 2027 – wonderful. And yet, as in many a musical show-stopping melody, seasoned oil watchers may well wonder if maybe it will be different this time around. What may make it different is that the Iraqis are focussing on increasing production from two key oil fields – Rumaila and West Qurna 2 – where the countries operating them have every reason to make the planned increases work and no qualms about what is required to make them happen. It is apposite to note at this point that by far, the main reason why Iraq is not producing even 13 million bpd right now is that its oil industry appears to be regarded by many at the top levels of its various bureaucracies as part of their personal pension funds. Starting most notably with ExxonMobil’s hasty retreat from Iraq’s omni-corrupt Common Seawater Supply Project (CSSP) where the desire for huge oil profits was trumped by fear over massive reputational damage, Western international oil companies (IOCs) have rushed for the exit from Iraq’s oil sector. The independent risk agency, Transparency International (TI), has highlighted for many years in its ‘Corruption Perceptions Index’ publications, Iraq usually features in the worst 10 out of 180 countries for its scale and scope of corruption. “Massive embezzlement, procurement scams, money laundering, oil smuggling and widespread bureaucratic bribery have led the country to the bottom of international corruption rankings, fuelled political violence and hampered effective state-building and service delivery,” TI states. “Political interference in anti-corruption bodies and politicization of corruption issues, weak civil society, insecurity, lack of resources and incomplete legal provisions severely limit the government’s capacity to curb soaring corruption efficiently,” it adds. The sheer enormity of the scale of the reputational risk to Western IOCs can be judged from the massive potential rewards that they are willing to leave behind in Iraq. As analyzed in depth in my last book on the global oil markets, in 2013, Iraq launched its ‘Integrated National Energy Strategy’ (INES), which formulated the three forward oil production profiles for the country. The INES’ best-case scenario was for crude oil production capacity to increase to 13 million bpd (at that point by 2017), holding around that level for five years and thereafter gradually declining to around 10 million bpd for several more years. The mid-range production scenario was for Iraq to reach 9 million bpd (at that point by 2020), and the worst-case INES scenario was for production to reach 6 million bpd (at that point by 2020). These figures were based on solid facts and figures from several renowned and trusted external sources, as also analysed in my last book. According to a limited-circulation report produced at around the same time by the International Energy Agency (IEA), a 1997 detailed study by respected oil and gas firm, Petrolog, had already provided figures that were in line with the Iraq Oil Ministry’s later statements that the country’s undiscovered resources amounted to around 215 billion barrels. However, the concerns of such soft-skinned accountancy types in the West are of little interest to China or Russia and they are now taking the lead on developing Rumaila and West Qurna 2, respectively. The middle of last month saw the China Petroleum Engineering & Construction Corp (CPECC) sign a US$386 million engineering, procurement, and construction contract to build a two-train oil processing facility at Quraynat to develop production in the southern part of the Rumaila field, Iraq’s largest oilfield. The intention is that each train will handle around 120,000 barrels per day (bpd) of oil from the field’s Mishrif formation. There is much potential left in the area as the Rumaila field, despite it having already produced around 80 percent of all of Iraq’s cumulative oil production to date, together with the Kirkuk field, has an estimated 17 billion barrels in proven reserves. Jointly run by a venture in which China’s PetroChina – the listed arm of the state-owned China National Petroleum Corporation – has a 46.37 percent share, Rumaila was always intended to produce at least 2.1 million bpd, compared to the current 1.4 million bpd, an increase of 0.7 million bpd. According to a source close to the Iraq Oil Ministry spoken to exclusively last week by OilPrice.com, China intends within the next six months to dramatically increase the water-injection capabilities at Rumaila. These will build on the already successful renovation of the Qarmat Ali Water Treatment Plant by another senior partner in the field, BP (with a 47.63 percent share). The Qarmat facility is now capable of treating up to 1.3-1.4 million bpd of river water, allowing for greater extraction of oil from the field’s Mishrif reservoir (triple the amount, in fact, that was extracted in 2010). According to industry figures, Rumaila requires around 1.4 barrels of water for each barrel of oil produced from the north of the field, whilst the Mishrif formation in the south will require much higher water injection rates to support production. For Russia, significantly increasing oil production from West Qurna 2 was already achieved back in May 2019, but it only told the Iraqis that once the Iraqis discovered it themselves, as exclusively revealed by OilPrice.com. The key events that shaped all the subsequent shenanigans on both sides occurred in and around August 2017. At
GSPL, GAIL Stand To Gain From New Gas Pipeline Tariff Rules, Say Analysts
The Petroleum and Natural Gas Regulatory Board or PNGRB’s notification about natural gas pipeline tariff regulations, with effect from Nov. 18, will introduce numerous positive amendments for the natural gas transmission sector, according to analysts. These regulations pertain to both gas pipeline tariffs and pipeline authorisations, which were originally proposed in August 2022. PNGRB Update On Natural Gas Pipeline Tariff Regulations – Key Takeaways By Citi. Introduction of more relaxed capacity utilisation/normative volume requirements – 30% to 100% (of 75%) over 10 years versus 60% to 100% (of 75%) over five years earlier. The aforementioned ramp-up would also be applicable for subsequent capacity expansion phases. Capacity increase of pipelines due to the addition of new gas supply sources will attract tariffs only after five years. The rules restricting a change in tariffs for capacity expansions of less t than 10% and requiring sharing of half the incremental tariff revenues for capacity expansions of more than 10% have both been done away with If actual volumes are less than normative volumes, the company will be allowed set-off credits that can be adjusted against future year volumes. The lower corporate tax rate will be applicable prospectively (i.e., from FY23) for tariff determination. These changes will have positive implications for pipeline tariffs and should incentivise capex, analysts said. In terms of capacity determination, the requirement to share 50% of incremental tariff revenue with customers after more than 10% capacity expansion seems to be done away with — this augurs well for Gujarat State Petronet Ltd’s and GAIL (India) Ltd.’s existing network-based expansion, they said. The source-based capacity holiday for five years post pipeline connectivity with the source would potentially benefit GSPL as a couple of new LNG terminals are coming up in Gujarat. Channel checks of broking house Emkay indicate that the pipeline entities are largely satisfied with the amendments, as it paves the way for future expansion. The note further says that overall, regulatory overtones seem positive for the industry.
European Refiners Now Have Too Much Oil
European refiners now seem to have more crude oil than they need—with the early panic about Russia’s dwindling oil exports—and the world’s subsequent oil shortage—proving to be overblown. Crude oil traders have pointed to Europe’s ability to source crude oil from Latin America, the Middle East, and the United States as the main cause for European refiners breathing a sigh of relief. Asia, too, has scooped up less crude oil than analysts were predicting, thanks to China’s neverending battle to obtain the elusive zero-covid goal. Europe’s imports of Latin American crude have averaged 313,000 bpd so far this year, up from 132,000 Refinitiv Eikon data shows. In July, the average was well above that, at 600,000 bpd. From the United States, Europe has taken 1.1 million bpd on average this year, compared with just 800,000 bpd last year. Europe’s Iraqi oil imports are 20% higher from July-November compared to the same period last year. The supply overages are weighing on prices. Brent prices have slumped nearly $9 per barrel since this time last week. One European crude oil trader told Reuters that European refiners “seem to have overbought in November and December, probably because of fears around Urals.” In addition to these fears causing panic purchases, weeks-long strikes at French refineries and a rash of refinery maintenance also curbed the call for crude oil in Europe as runs slowed. Traders and refiners increased their purchases over this summer, anticipating shortages stemming from Europe’s ban on imports of Russian crude oil. That ban is set to go into effect on December 5. Until then, Europe will likely have no issues with obtaining enough crude oil. Post-December 5, however, could be a different story.
India and China to drive LNG capacity
India and China will drive the LNG regasification capacity additions in Asia between 2022 and 2026, as the two countries step up imports of natural gas to reduce carbon emissions. Together, the two countries will account for 55% of the region’s total capacity additions by 2026 through new build and expansion projects, says GlobalData, a leading data and analytics company. GlobalData’s report, ‘LNG Industry (Liquefaction and Regasification) Capacity and CapEx Forecast by Region and Countries, All Active Plants, Planned and Announced Projects, 2022-2026’, reveals that Asia is expected to witness the highest regasification capacity additions of 19.6 trillion ft3 from new build and expansion projects during the outlook period. Of this, 16.8 trillion ft3capacity is expected to come from newbuild projects and the remaining from the expansion of the existing projects. Himani Pant Pandey, Oil and Gas Analyst at GlobalData, comments: “Among the fossil fuels, natural gas emerged as the bright spot as it is seen as a relatively clean option and can act as a bridge fuel to lead the energy transition. Therefore, countries such as China and India are increasingly importing LNG to meet their carbon-neutral goals and reduce emissions.” Tangshan II is the largest upcoming regasification terminal in China. Expected to commence operations in 2022 with an initial regasification capacity of 341 billion ft3, the terminal is likely increase its capacity to 584 billion ft3 by 2026. Caofeidian Xintian LNG is the operator of the terminal. In India, Jaigarh Port terminal is the largest upcoming LNG regasification project with a capacity addition of 390 billion ft3 by 2026. To be operated by H-Energy, the terminal is expected to start operations in 2025.
India’s initiatives on green hydrogen could help global decarbonization
India has announced its long-term low-emission development strategy, that focuses on climate justice, sustainable lifestyles, and equity, at the ongoing UN climate summit in Egypt, joining a select group of fewer than 60 nations to do so. Hailed by the Egypt presidency, the strategy once again reiterated the country’s intention to develop a green hydrogen ecosystem to lower emissions in hard-to-abate sectors like steel, fertiliser, and refining, among other long-held climate goals. The nation’s green hydrogen mission, announced in 2021, will see a rapid expansion in production, making India a green hydrogen hub, the long-term strategy said. The South Asian nation plans a massive expansion of green hydrogen production to curb dependence on crude oil imports and wean its rapidly expanding economy from planet-warming fossil fuels. The central government has set a target of an annual production capacity of 25 million tonnes by 2047. The number could be revised upwards as the technology evolves and the demand outlook improves. Green hydrogen is expected to play a prominent role in decarbonising heavy industries, including oil refineries, steel mills and fertiliser plants. India’s current output of green hydrogen is low and comes from just a handful of pilot projects. Green hydrogen is produced by breaking down water in an electrolyser using only renewable energy, resulting in no carbon emissions. The hydrogen can then be combined with nitrogen to make green ammonia, avoiding hydrocarbons in the process. Green ammonia is used to store energy and make fertilisers. Green hydrogen could become an alternative to coal in steel mills and fossil fuels in long-haul transport like shipping and trucking. Currently, the bulk of hydrogen produced in the world uses natural gas, which is known as black hydrogen. There is also grey hydrogen made from low-carbon technologies, but its share in the global market is negligible. India has set a target of five million tonnes of green hydrogen by 2030. Over the next decade, the country plans to add 175 GW of green hydrogen-based energy.
TAPI gas pipeline can be completed within 3 to 4 years after achieving financial close
Minister of State for Petroleum Musadik Malik has said that Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project is on track and it can be completed within three to four years after achieving financial close. The minister also announced expansion of TAPI gas pipeline till Gwadar. Minister of State for Petroleum Division further said that Pakistan will soon announce its refining policy and is expected to attract an investment of $12 billion to set up a world-class refinery in the country. While addressing the Thought Leaders Forum (TLF) on Pakistan’s energy vision, a harbinger for economic development, organized by the Institute of Strategic Studies Islamabad (ISSI), MoS for Petroleum Division Dr Musadik Masood Malik said that the plan for Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline has been made. The minister said there is no problem in bringing gas from Turkmenistan and they are working on the project. This project will provide up to 1.3 bcf gas per day, the minister said. He said that for onward supply of TAPI gas, construction of pipeline from Chaman to Multan is planned. The minister said that TAPI will also be extended till Gwadar. Pakistan will also lay gas pipeline from Chaman to Gwadar, the minister informed. However, regarding Iran-Pakistan Gas Pipeline project, the minister said that it is currently facing international sanctions. The minister said that if the TAPI project achieve financial close, it can be completed within three to four years. Musadik Malik said that the subsidies have hindered the growth of energy sector infrastructure. The major problems of the energy sector include availability, affordability, and fiscal sustainability. The minister said that problems in the energy sector are not over, they are increasing. He said that the biggest issue in the energy sector is the availability. There is a big gap between supply and demand in the energy sector, the minister said. He said that the country’s energy sector is suffering from financial problems as fifty percent of its oil requirement is being imported. In Pakistan, indigenous gas is depleting at the rate of 8 to 10 percent annually, Musadik said. “We have more gas than previous winter, but the problems still exist,” he added. The minister acknowledged that energy is expensive in Pakistan which is unaffordable for majority of Pakistanis. The government is also working on increasing indigenous gas supply, he said and added that fresh round of bidding for oil and gas explorations blocks in the country will be held soon. They are committed to reduce the gas losses. Sui Northern Gas Pipeline has been told that they should control these losses. The government is installing meters to prevent gas losses, Musadik said. “We will keep track of how much gas went to the main line and how much to the consumers,” he explained. Both the Sui companies are losing 12pc up to 12 percent of the country’s gas, the minister claimed.
Gazprom-GAIL deal will be sorted out soon: Hardeep Puri
Petroleum minister Hardeep Singh Puri on Monday said the government is hopeful that Russia’s Gazprom deal with the state-run Gas Authority of India Limited (GAIL) (India) to supply Liquefied Natural Gas (LNG) will be sorted out soon. The minister while addressing the press at the world LPG day also said, “India can’t be pressurised, we will purchase oil from wherever available at a reasonable price. Both the parties are discussing this issue (Gazprom and GAIL deal). I hope it will be resolved soon,” said Puri. Gazprom’s former subsidiary Gazprom Marketing and Trading Singapore (GMTS) signed an agreement with GAIL to supply 2.5 million tonnes (MT) of LNG per annum for 20 years starting 2018-19. However, following the Ukraine and Russia war, Gazprom stopped supply.
Retired BPCL chairman Arun Kumar Singh to be next head of ONGC
BPCL’s former chairman Arun Kumar Singh is likely to be the new chairman of India’s top oil and gas producer ONGC according to PTI sources He retired from BPCL after attaining the superannuation age last month and was already selected to head the Petroleum and Natural Gas Regulatory Board (PNGRB) before the August 27 interviews. The will be first time that a person aged over 60 will be heading a top PSU board-level position. Big name in Oil refining market, Singh was chosen by a search-cum-selection committee, constituted by the oil ministry. They zeroed in on Singh after interviewing six candidates on August 27, 2022. If his selection is approved, Singh will be heading cash-rich PSU (Public Sector Unit) for three years. Oil and Natural Gas Corporation (ONGC) is without a regular chairman and managing director since April 2021 and the senior most director on the board has been entrusted with the additional charge. Since then, the firm has seen a record three interim heads.