Australia to back G7 Russian oil price cap
Australia has pledged its support for a plan by G7 nations to try to impose a price cap on Russian oil, in a bid to limit Vladimir Putin’s ability to fund his invasion of Ukraine, and to ease pressure on the cost of living. Although Australia has already banned all imports of Russian oil, gas, and refined petroleum products, Treasurer Jim Chalmers said backing the G7 action would hopefully encourage other nations to do the same and lead to a moderation of global oil prices. Treasurer Jim Chalmers and Indonesian Finance Minister Sri Mulyani shake hands after signing an economic pledge. “We recognise that rising energy prices are among the biggest concern for Australians already struggling to keep up with the skyrocketing cost of living,” he said in a statement. “And we know that higher oil prices will likely drive higher inflation and risk slowing global economic growth. “We’re looking to limit some of the impacts of the war in Europe on the cost of living, by supporting this price cap.” The cap, agreed to by the G7 on September 2, will come into effect on December 5 and aims to force down the price of Russian oil by imposing an artificial price cap, probably about $US40-$US60 a barrel. The G7 and supporting nations would seek to impose a cap on the price paid by importing nations by legally prohibiting the provision of services, such as insurance, which enable maritime transportation of Russian crude oil and petroleum products purchased above the price cap. Mr Putin has largely been able to circumvent Western embargoes on Russian oil because India and China have refused to condemn the Ukraine invasion and further trade with Moscow. One hope from the G7 plan is China and India would negotiate down the prices they are paying if the cap works. Despite lower export volumes, Russia’s proceeds from oil sales in June were up $US700 million ($1 billion) over the previous month, because of soaring prices. Mr Putin has threatened not to sell oil to anyone participating in the price cap scheme but US Treasury Secretary Janet Yellen believes Russia would have an incentive to sell oil at or near the cap because it would otherwise have to shut down production that would be difficult to restart. Foreign Minister Penny Wong said, “supporting the price cap demonstrates Australia’s resolve to limit the global economic impact of Russia’s invasion of Ukraine while maximising the pressure on Russia to end the conflict”. “Australia will engage constructively with the G7 as they work towards effective implementation of the cap. “We encourage other countries to join Australia and our partners in implementing the oil price cap.” The Ukraine invasion was on the agenda in Canberra on Monday when Dr Chalmers met his Indonesian counterpart, Sri Mulyani, to sign a Memorandum of Understanding that strengthens the economic co-operation between the two countries. Indonesia is hosting the G20 leaders’ summit in Bali on November 15-16 and Mr Putin’s participation will be controversial. The G20 finance ministers’ meeting next month will be dominated by the global economic instability being exacerbated by the Ukraine invasion. “You will have Australia’s full support as we navigate some tricky terrain,” Dr Chalmers told Ms Mulyani. “Let’s not mince words: our challenges are intensifying, not dissipating. “Inflation stalks the world, with central banks responding decisively and bluntly; global growth is slowing; most risks are tilted to the downside. “The United States and United Kingdom’s economies are in reverse, and China’s is decelerating. “Meanwhile, in Europe, the war in Ukraine has sparked an energy crisis that shows no signs of abating.”
India gains Rs 350 billion by importing discounted Russian crude following Ukraine conflict
The import of Russian crude at discounted rates has benefitted India hugely. Crude import at discounts coupled with levying windfall tax on domestic crude helped India gain Rs 350 billion. The Centre introduced the windfall tax in view of a surge in prices following the Russia-Ukraine conflict which began in February. The crude import from Russia made it India’s second-largest oil supplier, sending Saudi Arabia to the third spot in July. However, the latter secured its earlier position in just a month and now Russia is our third-largest oil supplier, Reuters reported citing trade data. India went on bargain hunting for Russian crude as the Ukraine conflict prompted Moscow’s traditional buyers to shun those barrels, and traders started offering big discounts. Despite immense pressure from developed nations to not buy from Russia, India chose to import crude. The move was even defended by foreign minister S Jaishankar who called it the “best deal” for the country. Earlier, he said India and others, like Europe, should be free to ensure the impact on their economies is not traumatic. India has emerged the second-largest buyer of Russian crude after China. India’s import from Russia India imported $11. 2 billion mineral oil from Russia during April-July. There is a significant eight-fold jump in the number as it was $1. 3 billion in the corresponding period last year, according to the data from the commerce department. Since March, when India stepped up imports from Russia, imports have topped $12 billion, against just a shade over $1. 5 billion last year. To be clear, oil is purchased by refiners and not the government, however, cheaper oil has a positive impact on macroeconomic parameters of the economy. Oil bought at a lower cost helps in keeping the costs down, the current account deficit in check as it lowers the import bill and reduces dollar demand, reported ToI. It is worth mentioning here that after this is the second time that looking for discounted rates in the global oil market has saved India money. Earlier, we managed to Rs 250 billion in 2020 when oil prices crashed as the pandemic shut down the world. The Indian government had than filled up strategic reserves and refiners stored oil in ships.
Oil Ministry Seeks Review Of Windfall Tax; Wants Certain Fields Exempt
The oil ministry has sought a review of the two-and-a-half-month old windfall profit tax on domestically produced crude oil saying it goes against the principle of fiscal stability provided in contracts for finding and producing oil. The ministry in the August 12 letter, reviewed by PTI, sought exemption for fields or blocks, which were bid out to companies under Production Sharing Contract (PSC) and Revenue Sharing Contract (RSC), from the new levy. It stated that companies have been since the 1990s awarded blocks or areas for exploration and production of oil and natural gas under different contractual regimes, wherein a royalty and cess is levied and the government gets a pre-determined percentage of profits. The ministry, according to the letter, was of the opinion that the contracts have an in-built mechanism to factor in high prices as incremental gains get transferred in form of higher profit share for the government. Emails sent to the oil ministry as well as the finance ministry for comments remained unanswered. India first imposed windfall profit tax on July 1, joining a growing number of nations that tax super normal profits of energy companies. While duties were slapped on the export of petrol, diesel and jet fuel (ATF), a Special Additional Excise Duty (SAED) was levied on locally produced crude oil. The SAED on domestic crude oil initially was Rs 23,250 per tonne (USD 40 per barrel) and in fortnightly revisions brought down to Rs 10,500 per tonne. The government levies a 10-20 per cent royalty on the price of oil and gas as also an oil cess of 20 per cent on production from areas given to state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) on a nomination basis. Other than them, fields were awarded under the PSC regime where the government gets around 50-60 per cent of the profit made after deducting costs. RSC regime specifically has a clause to capture windfall gains for the government. According to oil ministry calculations, the letter said, the new levy in the case of PSC and RSC results in a situation where the operator ends up paying much more than the windfall gain itself. Besides, the contracts specifically provide for fiscal stability for the contracting parties, it said, adding any change of law or rule or regulation that adversely changes expected economic benefits to parties can lead to seeking revision and adjustments to the terms of the contracts. Requests have already been received for such revisions or amendments to the contracts, the ministry. The oil ministry was of the view that there was an urgent need for aggressive investment in the domestic oil and gas hunt. Considering that PSC and RSC contracts already have in-built mechanisms to share revenues with the government in a high-price regime, the government should consider exempting all the blocks falling under such contractual regime from the new levy, the ministry letter said. It went on to state that it has already got representations from major crude oil producers, including state-owned ONGC and OIL and private sector Vedanta Ltd, for a review of the new levy as it was adversely impacting their investment plans. The concerns raised by these firms include economic unviability and contract clause violation, it added.
A Natural Gas Shortage Is Looming For The U.S.
Last week, the media rushed to report that natural gas prices in the United States had fallen sharply after trade unions and railway companies reached a tentative deal that averted a potentially devastating strike. Indeed, natural gas prices fell by nearly a dollar per million British thermal units, helped by a respectable build in inventories. And yet, inventories remain below the seasonal average, exports are running at record rates, and producers are beginning to struggle to meet demand, both at home and abroad. Reuters’ John Kemp wrote in a recent column that domestic and international gas consumption had risen to record highs, and shale producers—the ones that account for the bulk of U.S. natural gas output—were having a hard time catching up with this demand. Meanwhile, although higher on a weekly basis, inventories remained at the second-lowest for this time of the year for the last 12 years, Reuters’ market analyst noted. He also added there were no signs of any improvement in the level of inventories despite the rise in prices. None of this suggests lower prices for natural gas are coming to either the United States or international markets as the northern hemisphere heads into winter. On the contrary, the latest figures suggest more financial pain for gas consumers. And they confirm, to an extent, forecasts made earlier this year. In the spring, the principals of investment firm Goehring & Rozencwajg said U.S. gas prices will converge with international prices towards the end of 2022. They noted something few other analysts tend to mention: the concentration of much of U.S. gas production in a handful of fields, with just two—Marcellus and Haynesville—accounting for as much as 40 percent of the total. The Permian contributes another 12 percent of the U.S. total gas output, and the rig count in the Permian has been down for two weeks in a row, according to the latest data. Less drilling means less associated gas to add to the national total. Meanwhile, on the demand side, electricity generation in the United States is seen reaching a record high this year, Kemp noted in his column, driven by the post-pandemic economic rebound. A hotter summer also contributed. A cold winter would certainly push gas consumption even higher. Another contributor is the lack of alternative sources of electricity generation: coal plants are being retired, and droughts in many parts of the country have compromised its hydropower capacity, the Reuters analyst also noted. While this is happening at home, demand for gas continues strong across the globe, too, as everyone seeks to stock up on fuel for the winter. U.S. energy companies are exporting liquefied natural gas at record rates. And disgruntlement at home is beginning to rear its head. “We appreciate that the [Joe] Biden administration has been working with European allies to expand fuel exports to Europe. A similar effort should be made for New England,” a group of governors from New England wrote in a letter to Energy Secretary Jennifer Granholm this summer, per a Financial Times report. The governors then went on to call on the administration to make sure there was enough LNG for American consumers, essentially asking politicians to reduce LNG exports. This does not bode well for balance in the U.S. gas market. In May, John Kilduff from Again Capital told CNBC he expected gas prices to top $10 per mmBtu and maybe reach $12 to $14. “This is a commodity that trades parabolically a lot. It’s no stranger to parabolic moves up and down. It’s incredibly volatile, and it also has the ability to reset. We could get to $10 or $12 and if you have a cool August, then you could be down below $8 again,” he said at the time. The Energy Information Administration this month revised its gas price forecast for the full year upwards, seeing the commodity average $9 per mmBtu in the final quarter before falling to $6 per mmBtu in 2023. The decline would come as a result of rising local gas production, the EIA noted. In the meantime, however, until this increase in production materializes to a degree that begins to affect prices, there seems to be only one way they will be going: up. With heating season around the corner in both Europe and the United States and with a lot of people in both places using gas for heating, the price outlook for gas does not look good from a consumer’s perspective. It does look good from a gas exporter’s perspective, however. It is unlikely that U.S. gas prices will climb anywhere near European levels, but they are up by a whopping 300 percent from a few years ago when gas was cheap because it was abundant. That sort of price increase affects everything along the supply chain that involves electricity produced using gas, sending ripples across the economy. And the more gas utilities use for lack of reliable alternatives, the longer the energy-driven inflation will continue.
OPEC+ Is Now 3.6 Million Bpd Below Its Oil Production Target
The OPEC+ group continues to vastly underperform its collective oil production target, with the gap between the quota and actual output widening to a massive 3.58 million barrels per day (bpd) in August, according to delegates and OPEC data Argus has seen. The 10 OPEC members bound by the pact saw their collective crude oil production hit 1.399 million bpd below the quota, while the non-OPEC producers in the deal were more than 2 million bpd behind quota, at 2.185 million bpd, per OPEC data Argus has seen. In July, OPEC+ was already 2.9 million bpd below its target. In August, the two biggest laggards in production quotas were Russia of the non-OPEC group and Nigeria of OPEC, the data showed. Russia’s oil production was 1.25 million bpd below its target, while Nigeria was 700,000 bpd behind its quota. Russia’s output is constrained by the Western sanctions following the Russian invasion of Ukraine, while Nigeria has had troubles for years with a lack of investment and oil theft. Crude oil exports out of Nigeria plunged to below 1 million bpd in August, their lowest level on record, oil export analytics firm Petro-Logistics said earlier this month. Persistent underinvestment in the Nigerian oil industry and the perennial problem of oil theft from pipelines have plagued the sector in recent years. Oil majors are not investing in Nigerian supply, and many foreign firms have either sold assets or signaled they would pursue divestments in Nigeria’s oil industry. OPEC+ was widely expected to continue to underperform by a lot compared to its production targets for July and August after the group decided to accelerate the rollback of the cuts and have them completely unwound by the end of August. The underperformance in September will be even higher because the group lifted its collective target by 100,000 bpd for the month of September. This increase will be reversed in October, OPEC+ decided at a meeting earlier this month.
Blue Energy Motors Launches India’s First LNG-fuelled Truck, Range up to 1400km
Pune-based Blue Energy Motors has launched India’s first Liquified Natural Gas (LNG) powered truck. The launch was organised at the company’s manufacturing plant in Chakan, Pune. The plant was also launched in the first week of September. The LNG-fuelled green truck launched by the company is named 5528 4×2. The model was launched by CEO of Blue Energy Motors, Anirudh Bhuwalka, who was accompanied by Iveco Group’s CEO Gerrit Marx, President of Iveco Group’s Powertrain Business Unit, Sylvania Blaise, and Italy’s ambassador to India, Vincenzo de Luca. LNG is a form of natural gas that is generally used in heavy-duty vehicles that have to meet long range requirements. LNG is formed by super-cooling natural gas and cryogenically storing it in liquid form. Since the gas is in liquid form, more fuel can be stored on board the vehicle, and thus, giving the vehicle a longer range. The Blue Energy Motors-manufactured 5528 4×2 truck is fitted with the industry’s first 1000-litre capacity fuel tank that offers a range of 1400 kilometres when full.
Chabahar-Central Asia transit route to boost India-Iran cooperation: Raisi
Terming the relations between India and Iran as “friendly and cordial”, Iranian President Ebrahim Raisi said the Chabahar-Central Asia transit route can help both nations strengthen the grounds for cooperation. “Using the existing capacities in the oil and gas industry, transportation and especially the Chabahar-Central Asia transit route, as well as cooperation in regional and international issues that the two countries are concerned about and have common positions can provide a suitable ground for improving the level of relations and expanding grounds for cooperation between the two countries,” read a press release by the Iranian Ministry. Raisi had a meeting with Prime Minister Narendra Modi where he described the development of the interactions with the country as one of the priorities of Iran’s foreign policy. “Indian independent figures, like Mr Gandhi, who have stood against arrogance are always respected by the Iranian nation,” he said, referring to historical, cultural and civilisational common grounds between the two countries. Referring to Iran’s progress in various scientific and industrial fields, Raisi emphasised, “Cruel sanctions could not interrupt the progress of the Iranian nation”. In the sideline meeting, PM Modi pointed out the key role and importance of Chabahar Port in the transportation of goods in the region. “The development of this port will contribute to the economic development of the countries in the region,” he said. The Prime Minister of India also mentioned the common positions of the two countries regarding the developments in Afghanistan and called for the continuation of Tehran-Delhi international and regional cooperation in this field.
U.S. Energy Producers Warn European Buyers: No Bailout Is Coming
The threat of power rationing across Europe persists even after EU officials held an emergency meeting last week to starve off the impending winter energy crisis. EU countries have increasingly relied on US energy imports, though shale bosses warned the ability to boost oil and gas supplies would be challenging. “It’s not like the US can pump a bunch more. Our production is what it is,” Wil VanLoh, head of private equity group Quantum Energy Partners, one of the shale’s most prominent investors, told Financial Times. “There’s no bailout coming,” VanLoh added. “Not on the oil side, not on the gas side. Europe can thank the Democrats and the Biden administration for their war against crushing the US energy industry that led to massive divestments across the sector, which crippled oil production growth and refining capacity, and pressured/shamed the world into withdrawing any capital allocations to fossil fuels. Ben Dell, chief executive of private equity group Kimmeridge Energy, said the shale industry’s investors on Wall Street would not give their blessing to a big production increase, preferring a low-production, high-profit model. “Investors generally don’t want shale companies to pursue a growth model,” he said. “The capital availability is extremely limited.” Rig counts in the US have started to fall and production has flatlined well below pre-pandemic levels… On top of the Democrat-led crippling of the US energy industry, EU leaders have been on an ESG-crazed mission to decarbonize their power grids with renewable (now finding out — not so reliable) energy and are frantically bringing back crude oil, coal, and natural gas power generators ahead of the cold season. Some EU countries are even extending the life of nuclear power plants. The problems don’t end there — in 80 days, or on Dec. 5, the EU will embark on another suicide mission of banning seaborne imports of Russian crude. Then on Feb. 5, 2023, a ban on Russian petroleum product imports kicks in. These sanctions were enacted over the summer. However, piped imports of Russian crude and petroleum products will be exempt in some EU member countries, like Hungary, Slovakia, and the Czech Republic. Back to the US shale patch where Scott Sheffield, CEO of Pioneer Natural Resources, explained significant production increases aren’t coming online: “We’re not adding [drilling] rigs and I don’t see anyone else adding rigs,” said Sheffield, who runs one of the biggest oil producers in the US. He added that crude prices could rise above $120 a barrel this winter as supplies tighten. Shale’s inability to rapidly increase crude production is no surprise, regarding Halliburton Co.’s CEO Jeff Miller and Exxon Mobile’s Darren Woods’s warnings over the summer that markets will remain tight for years due to a lack of production growth. A perfect storm of factors plagues Europe: the inability of US shale to ramp up production (because of Democrat’s war on oil), Russia reducing energy exports, grid decarbonization, and EU’s Russian oil embargos. … and why could crude prices have bottomed earlier this week? Well, maybe Bloomberg’s report that Biden administration officials plan to refill the SPR when crude falls around $80 a barrel. Also, SPR draws end in October, which means less crude on the market and possibly higher prices. Even as demand in China slumps, cities are reopening from Covid lockdowns, a sign demand could soon rise in Asia.
The World’s Largest Floating LNG Platform Restarts Production
The Prelude floating LNG production facility off the coast of Australia has resumed production and exports, operator Shell said today. Operations at the project were halted earlier this year due to a dispute between the company and workers that led to industrial action. Following weeks of negotiations, the two parties managed to strike a deal last month and end the suspension of operations at the facility. “The enterprise agreement has now been supported by a majority of employees in a formal vote and is expected to come into effect in early October 2022,” Shell said, as quoted by Reuters. The Prelude project has an export capacity of 3.6 million tons of liquefied natural gas annually, as well as 1.3 million tons of condensate and 400,000 tons of liquefied petroleum gas. It began production in December 2018 and the first LNG was shipped from the facility a year later. The operation disruption that the dispute caused earlier this year contributed to an already difficult supply situation in global gas amid the European Union’s rush to stock up on gas ahead of winter. Under normal circumstances, bringing LNG all the way to Europe from Australia would not make economic sense but this year even this option was on the table as Russia gradually reduced the flow of gas via Nord Stream 1 until it halted it completely in late August. The biggest market for LNG produced at the mega-projects offshore Australia is Asia but LNG cargos have been diverted from their Asian destinations or resold by their Asian buyers to Europe as the latter was prepared to pay a premium for the fuel. The mega-projects in Australia helped the country reach the number-one spot in LNG exports a couple of years ago. It was the top exporter last year as well, with a total of 80.9 million tons of LNG exported globally. It is likely to retain the top-exporter crown this year as well.
German Gas Buyers Resume Nominations For Nord Stream 1 Supply
German energy importers have resumed nominations of gas volumes to be delivered via the Nord Stream 1 pipeline even though no gas is flowing along the pipe right now. According to a Reuters report, this is the first time nominations have been made since Gazprom suspended the flow of gas via the pipeline at the end of August. The data came from the websites of German pipeline operators in charge of the infrastructure that connects Nord Stream 1 to end consumers. The data showed buyers had nominated volumes of 3.65 million kWh per hour for Monday morning, for delivery to eastern Germany via the OPAL pipeline. Another 14.29 million kWh per hour was nominated for the NEL pipeline. Gazprom shut down Nord Stream 1 after it said it had found an oil leak at a compressor station. It also said it was waiting for Siemens Energy to repair compressor station equipment and deliver turbines that the Russian company says are stranded in Germany because of EU sanctions. Siemens Energy, for its part, says an oil leak is an easily fixable problem that should not prevent the operation of the pipeline and that the turbines are ready to be shipped to Russia. There is currently only one turbine remaining at the Portovaya compressor station at Nord Stream 1, which Gazprom says is the reason for reduced flows and more frequent halts for maintenance work. Meanwhile, Russia’s President Vladimir Putin suggested that Europe needs to lift sanctions on Nord Stream 2 to get more gas from Russia. “The bottom line is, if you have an urge, if it’s so hard for you, just lift the sanctions on Nord Stream 2, which is 55 billion cubic meters of gas per year, just push the button and everything will get going,” Putin said at the Shanghai Cooperation Organisation summit in Uzbekistan.