Sandeep Kumar Gupta Assumes Charge As Chairman & Managing Director, GAIL
Sandeep Kumar Gupta assumed charge as Chairman and Managing Director, GAIL (India) Limited. After joining the position of C&MD GAIL, he addressed the employees of the Company and recognized the balanced business portfolio of the company built over time and overall contribution to development of natural gas sector in the country, the contributions of his predecessors and support of stakeholders including Ministry of Petroleum & Natural Gas and employees, which have played a key role in the growth witnessed by GAIL over the years. He mentioned that the Company is aligned with Government’s vision of having a gas-based economy wherein the share of natural gas in the energy mix is to be taken to 15% by year 2030. He expressed his confidence in the outlook of the Company which is professing relentlessly its growth path in Natural Gas value chain. The Company which had started with a single pipeline project in year 1984, now owns and operates a truly diversified business portfolio including over 14,500 km of Natural Gas Pipeline Network, and an LNG Sourcing portfolio of around 14 MTPA. He further added that the Company has carved out a robust petrochemical expansion move to further strengthen its business. The Company is operating Gas Processing Units and LPG transmission networks, producing LPG and Liquid Hydrocarbon products. It also has considerable presence in Renewal Energy like Solar and Wind, and endeavours in new energy segments like Hydrogen production, CBG, Shipping, Small Scale LNG Liquefaction, Gas /LNG Storage, Bunkering etc. to create a future energy landscape. GAIL, he said is well positioned with future ready ventures. Shri Sandeep Kumar Gupta is a Commerce Graduate and a Fellow of the Institute of Chartered Accountants of India. Before joining GAIL, Shri Gupta held the position of Director (Finance) since August 2019 on the Board of Indian Oil Corporation Limited, the leading PSU integrated Energy Company in Fortune “Global 500”, and several group companies. He has wide experience of over 34 years of Oil and Gas Industry and handled F&A, Treasury, Pricing, International Trade, Optimisation, Information Systems, Corporate Affairs, Legal, Risk management, etc.
OPEC considers slashing crude oil production amid falling prices, worrying US & others
Amid speculations that the OPEC countries are considering slashing production by more than one million barrels a day to revive declining prices of crude oil in their proposed meeting on Wednesday this week, crude oil prices surged to nearing 82 dollar per barrel. This probable reduction would be the biggest cut since the Covid pandemic hit the world in 2020. Final decision is awaited In the meantime, OPEC delegates have said that a final decision regarding reduction in production, would be made when ministers of the concerned countries meet in Vienna to deliberate on all aspects. The possible cut in the crude oil production, has sent shock waves across the globe as majority of the countries including India, are already facing serious inflationary pressures. Rising interest rates It is expected that a large cut of this magnitude may invite flak from the US and other big crude consuming countries. It is also worth-mentioning that energy driven inflation has already forced the central banks of different countries to raise interest rates. In India also, the Reserve Bank of India has raised the repo rates on several occasions ever since the inflationary pressures started building up for over a quarter. Energy demands grew after Covid lockdowns The energy demands across the globe started picking up after Covid impacts got reduced and business and economic activities grew. Earlier, during Covid lockdowns, the crude oil prices tumbled. Now many energy analysts say- it’s just a matter of time when the oil returns to around 100 dollar per barrel. Concerns about global economy The meeting of the OPEC countries, will take place on October 5 against the backdrop of falling oil prices, prompting top OPEC+ producer to say the group could cut production. The fall in crude prices has mainly been spurred by the fears and concerns about the global economy. Pressure on Saudi Arabia In the meantime, the United States has continuously been putting pressure on Saudi Arabia to continue pumping more crude oil to meet the rising needs and to help oil prices soften further. This pressure is also meant to reduce the revenue sources for Russia to punish it for its aggressive posture towards Ukraine. Though, the interesting side of these developments is that Saudi Arabi has not condemned Russia’s action in Ukraine, majorly inspired by its difficult relations with the US. Gas & electricity prices reaching record levels In Europe, Gas and electricity prices also reached record levels in 2021 and again hit all-time highs in 2022 with electricity retail prices having increased by almost 50% year-on-year from July 2021. Similarly, global energy prices increased by more than 26% in the early months of 2022 with Asian Development Bank (ADB) Principal Energy Specialist Kelly Hewitt saying- electricity bills may further rise by 27% by 2025, if energy supply mix of different countries remains unchanged. Russia also cutting its gas export to Europe Russia has just announced that its natural gas exports to the European Union are expected to decline by 50 bcm, which is one-third of last year’s total volumes, which is also worrisome for Europe. America is wrestling with the worst energy crisis in nearly five decades as its fossil fuel plants are closing faster than green alternatives can replace them. Implications for developing countries This steep rise in energy prices has serious implications for especially developing and poor countries. The issue looks more worrying as some experts suggest that the world energy crisis is just starting and may get worse with a few saying potentially much worse. Clearly, this widespread energy crisis is hurting households, businesses and a number of economies alike across the globe. The International Energy Agency terms it the most extreme energy crisis the world has ever witnessed and may have serious implications for the global economy recovering for Covid pandemic. India shows resilience India has shown much resilience in the face of this crisis as the government has taken several measures to minimize and mitigate the volatility of global crude oil and gas prices. Fuel price rise in India has been contained in comparison to exponential rise in developed countries. Most of the developed nations have witnessed significant inflation rise in Gasoline price by almost 40% during July 21 to Aug’22, while in India, it reduced by 2.12%. The gas price of all the major trading hubs has seen massive increase during July 21 to Aug’22. Henry Hub of USA has seen an increase of 140%. JKM Marker has seen an increase of almost 257% and UK, NBP has increased by 281%. While in India CNG and PNG prices has been increased by only 71%.
Oil Prices Could Be Set For Another Sharp Rise
It’s been a rough couple of weeks in the energy market. As potential energy company investors, we are not sorry to see the back of last week in particular. That’s the understatement of the year. Pretty near every negative sentiment-Recession, Fed tightening, Dollar strength, China demand, Inventory builds, or what amounts to the entire oil price Closet of Anxieties, came to pass this week. Oil-WTI took a tumble below $80 for the first time since Jan 11th of this year, closing Friday below its 200-day moving average of $89.00.This move has WTI nearing an important psychological level in the lower $ 70s, past which producers will sharply curtail capex to raise prices. In this article, I will argue that the selling is overdone and neglects one basic truth about the oil market. It is under-supplied, and it is only the SPR releases that have been masking that fact. We are on the verge of an energy calamity that will begin to manifest itself in the coming months. As the economy of the world begins to accelerate in 2023, the era of energy insecurity will begin. The important takeaway is that there is nothing that can be done to prevent this “train from barreling into the station.” A recent NY Times article put it succinctly- “That’s because there’s just no extra supply out there today at all. There’s a very little extra supply that the Saudis and the Emiratis can put on the market. And that’s about it. We’ve used the strategic petroleum reserve, and that’s coming to an end in the next several months. There’s just no extra cushion in the oil market right now.” How did we get here? The short answer is that for the period since 2014, producers have been disincentivized to explore for or sanction the mega-project that was the mainstay of the 2000-2013 era. The graph above is telling us that for a lot of reasons-low oil prices for much of the period, governmental preferences shifting to alternative energy and discouraging production of “fossil fuels,” and capital restraint by producers globally that we have under-invested in upstream supply by hundreds of billions. Longer term, we are confident that oil prices will rebound, probably toward the end of the year, as the SPR releases that have put excess oil on the market come to a halt. The graph above, compiled from SP Global and Worldometer tells a compelling story. Every year approximately 80 mm new people join the nearly 7.9 bn folks already here, all needing (but not always having) energy to power their lives. In six years from 2014 to 2020 spending on new upstream sources fell by 55%, while the world’s population rose by ~8%. The math doesn’t work. The oil market is undersupplied as the EIA graph below shows. Since March when the government announced the SPR releases to bring down domestic gas prices, inventories have risen about 15 mm barrels. If you back out the 172 mm barrels withdrawn from the SPR over this time, inventories would have shrunk to ~248 mm bbls. That may sound like a lot, but in reality with our ~19 mm BOD habit, it’s a ~13-day supply. Less than 2-weeks! Not only are inventories being artificially inflated by SPR releases, the productivity of new wells as reported in the EIA-Drilling Productivity Report is on the decline. This is an admittedly simplistic measure as it just takes active rigs at a given point, and divides into new well production as reported by various sources-usually state regulatory agencies. The fact the yardstick is done in 4th grade arithmetic without sophisticated modeling, doesn’t mean it’s not instructive. It does reveal an undeniable trend in new well production. Across every key basin with the exception of the North Dakota and New Mexico basins, there is a pronounced decline in spite of steady growth in the rig count for most of this year. Reading it carefully a case can be made that the Drilled but Uncompleted well-DUC, count withdrawal that occurred from mid-2021 through January of this year was largely responsible for gains in production registered so far this year. There is certainly an observable trend that well performance in the shale basins began to fall off as DUCs declined. This is true regardless of the underlying reason, which I have postulated in the past could be due to exhaustion of premium drilling inventory. This has been documented several times recently in widely read publications that include the Wall Street Journal. Here and here. The data from the DPR is confirmed by information compiled from the EIA 914-monthly report. Only in North Dakota and in the Gulf of Mexico-GoM, do we see a gain from May to June. In the case of the GoM Murphy Oil’s, (NYSE:MUR) Kings Quay production contributed about 80K BOPD, and BP’s Herschel provided another 20K BOEPD, toward the 179K BOEPD shown for the month. Higher drilling costs are also beginning to impact profitability as was noted in an even more recent WSJ article. What this means is that maintaining or increasing production will come under a sharper lens as margins compress, and operator’s balance sheet priorities come into play. Almost without exception shale drillers have told us that their priorities are returning capital to shareholders through special dividends and share buybacks, paying down debt, and holding production to low single digit growth. If oil prices hover in the $70’s for any time, expect cuts in operating budgets which will show up in the rig count soon. The takeaway from this section is that U.S. production will rise to 12.6 mm BOEPD in 2023 as the EIA suggests in this month’s edition of the STEO, isn’t very high. Current trends are heading in the other direction, and the catalysts for a reversal of course are just not present. The current weakness in oil prices has producers sharpening their budgetary knives. Inflation is eating at already tight budgets, and nature itself may intervene with poorer quality rock than
IEA: Global Gas Markets To Remain Tight Through 2023
The International Energy Agency (IEA) has predicted that global gas markets will remain tight next year as Russian piped gas supplies dwindle despite gas demand falling in Europe in response to high prices and energy saving measures. According to the agency, global natural gas markets have been tightening since 2021 despite global gas consumption declining by 0.8% this year as a result of a record 10% contraction in Europe and flat demand in the Asia Pacific region. However, global gas consumption is forecast to inch up by 0.4% next year. Gas consumption has fallen the most In Europe after contracting 10% in the first eight months of the current year driven by a 15% drop in the industrial sector as businesses curtailed production due to soaring prices. Meanwhile, Russian pipeline gas supply to Europe has dwindled to just a trickle after the shutdown of the Nord Stream 1 pipeline from Russia to Germany in early September If Moscow carries out a threat to sanction Ukrainian energy firm Naftogaz, one of the last functioning Russian gas supply routes to Europe could be shut, exacerbating the energy crisis just as the crucial winter heating season begins. Europe has managed to fill the gap of Russian pipeline gas this year, mainly through increased liquefied natural gas (LNG) imports. The IEA has forecast that Europe’s LNG imports will increase by over 60 billion cubic meters (bcm) this year, more than double the amount for the rest of the globe. On the other hand, Asia’s LNG imports are expected to stay at lower levels than last year for the rest of 2022, in large part due to high gas prices in Europe helping the continent draw in more cargoes. In contrast, China’s LNG imports are expected to rise in 2023 under a series of new contracts concluded since the start of 2021 as well as a colder-than-average winter leading to additional demand from northeast Asia. The IEA has predicted EU gas storage would be less than 20% full in February if LNG supply remains robust in the event that Russian supply to Europe completely stops from Nov. 1, but could go as low as 5% full by February if LNG supply dwindles.
Romania has filled only 42% of its gas storage deposits ahead of critical winter season
Romania has filled just over 40% of its natural gas storage deposits, despite the broad concerns related to the disruption in the supply of Russian natural gas during the coming winter season, Ziarul Financiar daily announced, adding that Poland, for instance, has already filled its deposits. Romania, the second-largest natural gas producer in the European Union, has a relatively small underground storage capacity of about 3 billion cubic meters. With one of the most difficult winters on the horizon, the timely filing of underground depots is a safety net in the context of the war in Ukraine. “We will store more gas this year. We are cautious,” assures Volker Raffel, CEO of E.ON Romania, a business focused on the supply and distribution of energy and natural gas. “Price volatility will remain constant. Thus, the role of natural gas storage will be increasingly important,” said Eric Stab, president and CEO of ENGIE Romania, the largest local natural gas distribution company. At the moment, however, Romania’s underground deposits are only about 42% full, with the EU average being 58%. Poland, for example, already stored 97% of its maximum capacity. Romania aims to reach a filling rate of only 80% by November.
European Gas Demand Set For Record-Breaking Decline In 2022
Soaring natural gas prices, demand destruction in the industrial sector, and energy-saving measures are set to reduce gas consumption in Europe’s developed economies by 10% this year, the biggest drop in European demand in history, the International Energy Agency (IEA) said in its quarterly Gas Market Report on Monday. The forecast of a 10% decline in natural gas demand in OECD Europe reflects the expectation of higher gas prices and the EU’s ambition to reduce gas consumption by 15% between August 2022 and March 2023 compared to its five-year average. “Assuming average weather conditions, gas demand in the residential and commercial sectors is expected to remain below 2021 levels,” the IEA said in its report. Due to sky-high high prices and a very tight gas market, natural gas usage in the power generating sector in Europe is forecast to drop by nearly 3% this year. Industrial gas demand is expected to plunge by as much as 20%, the IEA said. Energy-intensive industries in Europe, including aluminum, copper, and zinc smelters and steel makers, have already warned EU officials that they face an existential threat from surging power and gas prices. After a record slump in gas demand this year, Europe faces another year of gas consumption contraction in 2023, when OECD Europe’s demand is forecast to decline by 4% amid high prices, according to estimates from the IEA. The agency also noted that “Further potential disruption to the supply of Russian gas provides additional downside risk to this outlook.” Keisuke Sadamori, the IEA’s Director of Energy Markets and Security, commented on the report: “The outlook for gas markets remains clouded, not least because of Russia’s reckless and unpredictable conduct, which has shattered its reputation as a reliable supplier. But all the signs point to markets remaining very tight well into 2023.” The IEA’s Executive Director Fatih Birol said last week that the gas market could be even tighter next year compared to already tight LNG markets in 2022.
Eni Sounds The Alarm Over Further Russian Gas Disruptions
Italy’s Eni this weekend said it had not received any of the natural gas contracted for delivery with Russia’s Gazprom for either Saturday or Sunday and warned this could extend to Monday as well. The two companies told the media they were working to resolve the issue, which Gazprom says has to do with regulatory updates in Austria. The Russian state giant said on Saturday that Austria’s grid operator had refused to confirm transit nominations, prompting Gazprom to suspend the flow of gas via the country, Reuters reported. “Gazprom told us that it was not able to confirm the delivery of the volumes demanded for today, citing the impossibility of gas transport through Austria,” Eni said in a statement, as quoted by the AFP. The Austrian side, for its part, said that Gazprom had not signed the necessary contracts to continue transiting gas via Austria. “At the beginning of each gas year, various technical changes in the market model come into force,” the Austrian energy ministry said in a statement on Sunday, as quoted by Reuters. “Contractual changes are necessary for this. These contracts have not yet been signed by Gazprom. Transport nominations for today could therefore not be accepted. A solution is currently being worked on at the technical level at full speed.” The problem for Eni is that Russian gas enters Austria just fine but doesn’t leave it in the Italian direction, according to a spokesman for the company. A spokesperson for Austria’s energy major OMV confirmed the deliveries are stable. “The volumes nominated for today’s gas day were significantly higher for OMV today than of late,” the spokesperson said, as quoted by Reuters. Italy and Austria receive natural gas from Russia via the Yamal-Europe pipeline that passes through Ukraine and then via the Trans Austria Gas Pipeline.
Gasoline Prices Could Return To $5 Per Gallon
A short respite from rising oil and gasoline prices is about to end as 2022 comes to a close. The reasons are numerous, but almost all of them relate directly to the supply chain. Mainstream estimates suggest a return to $100 per barrel for the Brent which would inflate gasoline prices back to around $5 per gallon on average in the US. These projections are likely conservative. It should be noted that it’s unusual for the mainstream financial media or mainstream analysts to suggest the idea of a renewed energy price spike. With mid-term elections closing in, higher gas prices would put a damper on any chances democrats might have in maintaining a political majority. Stagflationary pressures already top the list of public concerns in the US, far above social issues and geopolitical conflicts. Higher energy costs would be more than unwelcome going into winter. This is the reason why Joe Biden has been so exuberant about releasing oil supplies from the US strategic reserves for the past several months. Biden’s plan unleashed 1 million barrels per day into the supply chain and is set to end in October. The reserves are now depleted to the lowest levels since 1984, with gas prices STILL nearly double what they were when Biden entered the White House. It is essentially market manipulation at the expense of US strategic readiness and for the express purpose of political gain. Biden’s ability to continue pouring oil onto the markets to keep gas prices down is dwindling. Even if he continues the strategy past October, a red sweep in November would bring challenges and a freeze on reserves anyway. Another factor is the failing attempts at a nuclear deal with Iran and the lifting of sanctions by the west. The free flow of Iranian oil will not be happening anytime soon, leaving western access to a major oil pool off the table. Europe’s desperate search for oil, coal and gas will siphon supplies away from the global markets leaving all other countries with less. The obvious result will be much higher prices for everyone. There is also the issue of the stronger US dollar. As the petro-currency, most oil worldwide has been purchased in dollars, allowing Americans to enjoy lower prices. However, sanctions and economic tensions between the east and the west have led to a rising trend of bilateral trade agreements cutting out the dollar as the reserve currency. Furthermore, the strong dollar has also led to turmoil in FX markets and in foreign currencies like the Japanese Yen, which may lead to increased dumping of US Treasury holdings by international creditors. We could soon be facing a coordinated effort by central banks to crush the dollar even as the Federal Reserve seeks to strengthen the Greenback through interest rate hikes. Barring a sudden crisis event such as an expansion of the war in Ukraine or a Chinese invasion of Taiwan, oil prices are still set to rise as supply chain issues multiply. The Department of Energy plans to replenish strategic reserves by purchasing oil stocks into the future at prices set today. The argument is that this will increase domestic oil production. The problem is that this discounts inflation in production costs for shale oil drillers. Set prices would only work as long as drillers can continue to make a reasonable profit. If they can’t, they will simply shut down. By extension, the plan also assumes that drillers will be able to produce excess beyond market demand to sell to the government. If the government gets a first purchase arrangement, then drillers will not be able to supply as much oil to regular consumers and prices will continue to spike. If the government does not get a first purchase contract, European buyers will probably snap up any excess. Either way, general consumers will not enjoy any benefits of increased drilling if it occurs, and Biden’s fraudulent green energy agenda will only restrict oil producers even more. All in all, every observable factor suggests high oil and gas prices in the near term.
Oil Prices Rally Into October As OPEC+ Plans A Production Cut
After several weeks of declines, oil began October trade with a gain driven by plans by OPEC+ to reduce production by a substantial amount. At the end of last month, the media reported that Russia had proposed a production cut of 1 million bpd. Later reports said discussions are underway for an even bigger production cut. “Anything less than 500,000 barrels a day would be shrugged off by the market. Therefore, we see a significant chance of a cut as large as 1 million barrels a day,” ANZ analysts said, as quoted by Reuters, today. Indeed, the reports follow a decision by OPEC+ last month to reduce production by 100,000 bpd in October—a move that failed to have any effect on markets, not least because of the cartel’s continued underperformance with respect to its own production targets. A cut of 1 million barrels daily or more, however, is likely to have an impact on prices, even though OPEC+ has been undershooting its target by over 2 million bpd since at least June. Oil prices, which had risen sharply since last year as oil demand rebounded faster than expected after the pandemic lockdowns, lost about a quarter of their value over the third quarter. The main reason was an increasingly gloomy outlook for the world economy as inflation continued pressuring economies and central banks turned aggressive to rein it in, risking a recession. The world’s inflation problem could become even worse if OPEC+ cuts production substantially, the Wall Street Journal reported this weekend. The cuts would push prices higher, adding to the inflationary burden and effectively increasing the risk of a recession. At the same time, a production cut would mean more spare capacity and this would mean downward pressure on longer-term prices, according to consultancy FGE. “If OPEC+ does decide to cut output in the near term, the resultant increase in OPEC+ spare capacity will likely put more downward pressure on long-dated prices,” the company said in a note last week, as quoted by Reuters.
Germany builds new gas terminals to succeed Russian pipelines
Germany’s most strategically important building site is at the end of a windswept pier on the North Sea coast, where workers are assembling the country’s first terminal for the import of liquefied natural gas (LNG). Starting this winter, the rig, close to the port of Wilhelmshaven, will be able to supply the equivalent of 20 percent of the gas that was until recently imported from Russia. Since its invasion of Ukraine, Moscow has throttled gas supplies to Germany, while the Nord Stream pipelines which carried huge volumes under the Baltic Sea to Europe were damaged last week in what a Danish-Swedish report called “a deliberate act.” In the search for alternative sources, the German government has splashed billions on five projects like the one in Wilhelmshaven. Altogether the new fleet should be able to handle around 25 billion cubic metres of gas per year, roughly equivalent to half the capacity of the Nord Stream 1 pipeline. – New platform – At the site in Wilhelmshaven, the half-finished concrete platform emerging from the sea sprays workers in fluorescent yellow vests with a fine mist. Back on solid land, a constant stream of lorries delivers sections of grey pipe, which should relay the terminal to the gas network. LNG terminals allow for the import by sea of natural gas which has been chilled and turned into a liquid to make it easier to transport. A specialist vessel, known as an FSRU, which can stock the fuel and turn LNG back into a ready-to-use gas, is also hooked up to the platform to complete the installation. Unlike other countries in Europe, Germany until now did not have an LNG terminal, instead relying on relatively cheap pipeline supplies from Russia. But since the invasion of Ukraine, Germany has set about weaning itself off Moscow’s gas exports, which previously represented 55 percent of its supplies. To diversify its sources, secure enough supplies of the fuel and keep its factories working, Berlin has bet massively on LNG to fill the gap left by Russian imports. Chancellor Olaf Scholz last week signed an agreement with the United Arab Emirates for the supply of LNG, while touring Gulf states in search of new sources. Renting five FSRU ships to plug into the new terminals has also set Berlin back three billion euros ($2.9 billion). – Environment – Following the outbreak of the war in Ukraine, Germany passed a law to drastically speed up the approval process for LNG terminals. In Wilhelmshaven, the work is coming along rapidly. The terminal should be finished “this winter”, says Holger Kreetz, who heads the project for German energy company Uniper. The strategic importance of the terminal has seen building work advance surprisingly quickly. “Normally, a project like this takes us five to six years,” Kreetz tells AFP. The arrival of the new terminal has been welcomed by many residents in Wilhelmshaven, where deindustrialisation has pushed the unemployment rate up to 10 percent, almost twice the national average. “It’s good that it’s in Wilhelmshaven… it’ll bring jobs,” Ingrid Schon, 55, tells AFP. Opposition comes from groups who fear the accelerated timescales for approval and construction could come at a cost to the environment. Young activists from the group “Ende Gelaende” managed to block the site in Wilhelmshaven for a day in August. The German environmental organisation DUH said the works would “irreversibly destroy sensitive ecosystems as well as endanger the living space of threatened porpoises”. The source of the fuel has also been a sore point, with concerns raised that natural gas produced from fracking in the United States could be imported via the new terminal. Criticism of the project has been dismissed by Economy Minister Robert Habeck, a Green party politician, who has emphasised the importance of “energy security”. By 2030, the site is set to be converted for the importation of green hydrogen, produced with renewables, which Berlin has backed as part of its energy transition.