UAE beats India to become Kenya’s second-largest source market
The UAE has surpassed India to become Kenya’s second-largest source market, Business Daily newspaper reported, citing Kenya National Bureau of Statistics. Imports from the UAE surged 132% to 177.88 billion Shillings ($1.47 billion) in H1 2022 from 77.39 billion Shillings a year earlier. Fuel and lubricants worth 305.19 billion Shillings were imported in the first six months, a 91.86% jump from 159.07 billion Shillings in the prior year. The bulk of petroleum products in Kenya are sourced from the UAE, the newspaper said. Imports from India climbed 36.61% year-on-year to 150.25 billion Shillings during the same period. Total expenditure on petroleum products were higher than pharmaceuticals, vehicles, steel and iron, which are primarily imported from India. China, however, continued to hold the top position, with imports rising at 9.12% year-over-year to 227.95 billion Shillings.
Government may offer $2.5 billion to fuel retailers Indian Oil, HPCL and BPCL
India plans to pay about 200 billion rupees ($2.5 billion) to the state-run fuel retailers, such as Indian Oil Corp., to partly compensate them for losses and keep a check on cooking gas prices, according to people familiar with the matter. The oil ministry has sought a compensation of 280 billion rupees, but the finance ministry is agreeing to only about a 200 billion cash payout, the people said, asking not to be identified as the discussions are private. The talks are at an advanced stage but a final decision is yet to be taken, the people said. The three biggest state-run retailers, which together supply more than 90% of India’s petroleum fuels, have suffered the worst quarterly losses in years by absorbing record international crude prices. While the handout could ease their pain, it would add pressure to the government’s coffers that are already strained by tax cuts on fuels and a higher fertilizer subsidy to tackle mounting inflationary pressures. Shares of state-run retailers gained, with Hindustan Petroleum Corp. rising 1.7%, Bharat Petroleum Corp. adding 1.2% and Indian Oil closing 0.1% higher, after falling as much as 0.8% earlier in the session. The government had earmarked oil subsidy at 58 billion rupees for the fiscal year ending March, while fertilizer subsidy was pegged at 1.05 trillion rupees. These refining-cum-fuel retailing companies, which use more than 85% of imported oil, benchmarked the fuels they produce to international prices. Those shot up after a global recovery in demand coincided with reduced fuel-making capacity in the US and fewer exports from Russia. State oil companies are obligated to buy crude at international prices and sell locally in a price-sensitive market, while private players such as Reliance Industries Ltd. have the flexibility to tap on stronger fuel export markets.
Amid western sanctions, Gazprom Singapore pays ‘meagre’ penalty for defaulted LNG deliveries to India
A former unit of Russia’s Gazprom is paying a ‘meagre’ penalty for the liquefied natural gas (LNG) cargoes it had failed to deliver to India since early June to absolve itself of all contractual liabilities, a top government official said. Gazprom Marketing and Trading Singapore (GMTS), under a long-term 20-year contract, was to supply 2.5 million tonne of LNG to state-owned GAIL (India) Ltd this year. But it has not supplied any cargo or shipload of LNG since early June. “The contract provides for a penalty of 20 per cent of the agreed price in case of a default by the supplier. GMTS is paying that penalty to absolve itself of all contractual liabilities,” the official, who wished not to be identified, said. The price of LNG under the long-term contract comes to USD 12-14 per million British thermal unit and GMTS is paying 20 per cent of this for the default, he said. “LNG in spot market is being sold at triple the long-term price and so anyone would be happy to pay the meagre penalty and yet make a huge profit,” the official said. PTI had first reported on the GMTS default on July 19. With alternative supplies costing at least three times the price of GMTS shipments, GAIL has reduced supply to users by about 10 per cent and is exploring options to advance some of the US supplies. GAIL had in 2012 signed a 20-year deal with Russia’s Gazprom to buy 2.85 million tonne of LNG. Supplies started in 2018 and the full volume was to reach in 2023. GMTS had signed the deal on behalf of Gazprom. GMTS was moved to Gazprom Germania and in early April, Gazprom gave up the ownership of the German unit without giving a reason and placed parts of it under Russian sanctions. As per the deal, GMTS was to supply LNG to GAIL from its portfolio of production. But the Russian sanctions mean it cannot source LNG from Russia. Under the long-term deal, GMTS was to supply 2.5 million tonne or a minimum of 36 cargoes of LNG to GAIL during the calendar year 2022. GAIL received one cargo of LNG in June and nothing after that. “They are stating that because they have to secure supply for Europe, they are not certain about supplying (LNG to us) under this contract,” the official said. To mitigate the situation, GAIL is looking to advance volumes due from its separate US contract in 2023. Also, unallocated volumes in the 5.8 million tonne a year contract with US entities are being shipped to India by hiring new ships, he said. Under the deal, GMTS was to progressively increase supplies to GAIL. It shipped 2 million tonne of LNG in 2021 and was to supply 2.5 million tonne in 2022. The full volume of 2.85 million tonne is to be reached in 2023. The US and European nations have imposed heavy sanctions on Russia since Moscow sent troops into Ukraine on February 24. Some western oil firms have announced exit from Russian projects and Indian firms are being considered a natural candidate to step in. India has raised oil imports from Russia after the Ukraine war despite criticism from the West and continues to engage with Moscow for business.
The G7’s price cap on Russian oil begins to take shape
The Group of Seven countries is working to cap the price of Russian oil in an attempt to limit Moscow’s ability to fund its invasion of Ukraine, a plan analysts say could work in the long term but might boost oil prices in coming months. Officials in G7 countries, including U.S. Treasury Secretary Janet Yellen, say the unprecedented measure, set to begin Dec. 5, will cut the price Russia receives for oil without reducing its petroleum exports to world consumers. Russian President Vladimir Putin could push back, causing stress in oil markets even as the plan comes together. Who’s in the price cap coalition? The G7 wealthy nations – the United States, Japan, Germany, Britain, France, Italy and Canada – and the EU are hammering out details of the plan. The G7 wants to enlist other countries, including India and China, which have been snapping up heavily-discounted oil from Russia since its Feb. 24 invasion of Ukraine. Moscow has managed to maintain its revenues through those increased crude sales to India and China. But even if India and China don’t join, a cap could help force down prices for Asia and other consumers. U.S. Treasury Assistant Secretary for Economic Policy Ben Harris said on Sept. 9 that if China negotiates a separate 30%-40% discount on Russian oil because of the price cap “we consider that a win.” The consensus on the price cap level will be reached with the aid of a “rotating lead coordinator,” the U.S. Treasury Department said on Friday, suggesting that countries in the coalition will have a temporary leadership role as the plan proceeds. What’s the level of the price cap? It will likely be weeks before the price of Russian crude oil and two oil products will be decided, Harris said. Washington-based ClearView Energy Partners has said officials have been talking about a $40-$60 per barrel range for crude. The upper end of that range is consistent with historical prices for Russian crude, while the lower end is closer to Russia’s marginal production cost, analysts say. Coalition members with long economic and military relations with Russia could push for a higher cap, while a limit too low could take market share away from Saudi Arabia and other oil producers. “The level will be determined by both quantitative and qualitative reasons,” said Bob McNally, president of Rapidan Energy Group. Russian crude is priced at a discount to the international Brent benchmark and the G7 wants to keep that spread wide, to keep down Russian oil revenue. However, achieving a widespread could mean higher prices for Western consumers as Russia is the world’s second-largest crude exporter, after Saudi Arabia. What does the G7 expect from maritime services? The plan agreed by the G7 calls for participating countries to deny Western-dominated services including insurance, finance, brokering and navigation to oil cargoes priced above the cap. To secure those services, petroleum buyers would make “attestations” to providers saying they bought Russian petroleum at or below the cap. Maritime services providers will not be held liable for false pricing information provided by buyers and sellers of Russian petroleum, the U.S. Treasury said. G7 officials believe the plan will work because the London-based International Group of Protection & Indemnity Clubs provides marine liability cover for about 95% of the global oil shipping fleet. Traders point to parallel fleets that can handle Russian oil using Russian and other non-Western insurance that could be used to sidestep enforcement efforts. It remains uncertain how many ports around the world will accept Russian-insured ships. Craig Kennedy, an associate at Harvard University’s Davis Center for Eurasian and Russian Studies, said the G7 has long term leverage because Moscow is constrained by a small tanker fleet versus the vast scale of exports it needs to get out. If Russia doesn’t want to sell at the cap, it may have to shut in production, which could impose long-term costs on its oilfields. How could Russia fight back? Putin has said Russia will withhold exports to countries that enforce the cap, and fears about the threat could cause petroleum markets to rise before December. Higher prices could also be risky for U.S. President Joe Biden ahead of midterm elections in November when his fellow Democrats hope to keep control of Congress. Some analysts worry Moscow could respond by taking actions beyond Russia’s borders before the cap takes effect. “My biggest concern is I think Putin is going to make it very, very painful on the way to Dec. 5,” Helima Croft, head of global commodity strategy at RBC Capital Markets, told a Brookings Institution event on Sept. 9. “They also have assets in other producing countries, whether it be Libya, whether it be Iraq, and they have an ability to cause some problems in other producer states.” How will the price cap be enforced? The U.S. Treasury warned service companies to be vigilant about red flags indicating potential evasion or fraud by Russian oil buyers. Those could include evidence of deceptive shipping practices, refusal to provide requested price information, or excessively high services costs. Deputy U.S. Treasury Secretary Wally Adeyemo said on Friday that those who falsify documentation or otherwise hide the true origin or price of Russian oil would face consequences under the domestic law of jurisdictions implementing the price cap.
Russia is now offering even more discounts to India on oil
The G7 countries are seeking India’s support to enforce a price cap on Russian oil. But Moscow seems to be a step ahead. Russia is now willing to provide petroleum to India at even lower rates than before, The Business Standard reported today. “In principle, the ask in return is that India should not support the G7 proposal. A decision on this issue will be taken later following talks with all the partners,” the newspaper quoted a foreign ministry official as saying. Canada, France, Germany, Italy, Japan, the UK, and the US constitute the G7. They are looking to choke Russia’s crude oil revenue streams used to fund the Ukraine war. In June, Russia became India’s second-largest crude oil supplier after Iraq. India depends on imports to meet 85% of its petroleum needs. Russia’s share in India’s oil imports bucket rose from a mere 1% in February—before the Ukraine war—to 18% by June 2022. India snapped up Russian oil as many countries stopped trading with that country and its oil prices fell. Russia’s discount bonanza for India In May, supplies from Russia were priced at $16 cheaper than the average Indian imported crude oil barrel of $110. In all, Russia has so far reduced $30 on every barrel of oil it sells to India. This eventually compelled Iraq to cut its rate to $9 lower than a Russian oil barrel. Yet, in August, Russian crude oil cost $6 less than India’s average barrel of imported crude oil, Business Standard reported.
India demonstrated great resilience in face of global energy crisis: Hardeep Puri
Union Minister for Petroleum and Natural Gas, Hardeep Singh Puri has said that India has demonstrated great resilience in the face of global energy crisis & has taken several measures to minimize & mitigate the volatility of global crude oil & gas prices. On 9 September, the Union Minister attended a Contract Exchange event to witness signing of contracts for 31 Discovered Small Fields (DSF) blocks under DSF bid round-III and 4 Coal Bed Methane (CBM) blocks under CBM bid round-V awarded to 14 Exploration & Production domestic companies. He also unveiled the logo for India Energy Week (IEW) 2023, the Ministry’s flagship event taking place from 6th-8th February 2023 in Bengaluru, India. Following the Contract Exchange event, the Minister said that, “India has demonstrated great resilience in the face of global energy crisis.” He further added, “…the Government of India has taken several measures to minimise and mitigate the volatility of global crude oil and gas prices. This enabled us to protect interests of Indian consumers.” He pointed out that, “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, gasoline price has reduced by 2.12%.” Puri also spoke about the issue of inflation in LPG mentioning that in last 24 months the Saudi benchmark price has increased by 303%, although during the same period, LPG price in India (Delhi) increased by less than a tenth of that figure i.e 28%. The Union Minister also talked about India’s move towards a ‘gas based economy’. He spoke about the targets of connecting Indian consumers through the City Gas Distribution, enhancing regasification capacities, expanding pipeline networks and setting up CNG stations. Government has been looking for greener alternatives and has taken many steps towards energy transition. Puri remarked, “Achievement of 10% blending of ethanol in petrol in May 2022, ahead of the November 2022 deadline, setting up of 2G refineries to make ethanol, and a host of other initiatives, is a symbol of Government’s resolve towards just energy transitions.” “The Green Hydrogen Mission, under which the Ministry is facilitating setting-up pilot scale and commercial scale green hydrogen manufacturing plants by refineries is a part of this commitment,” he added. On the domestic fuel front, the minister praised the Ujjwala Yojna by saying that the significance of the scheme its role in ending energy poverty, ensuring social upliftment and as a catalyst of social change cannot be emphasised enough.
Gasoline Prices Could Spike This Winter
Gasoline prices in the United States could spike this winter as an embargo on Russian oil imports comes into effect in the European Union, Treasury Secretary Janet Yellen has warned. Speaking to CNN, Yellen said that “Well, it’s a risk. And it’s a risk that we’re working on the price cap to try to address.” Yellen was the first official to propose a price cap on Russian oil exports as a means of reducing Russia’s revenues from energy exports that, according to Washington and other western capitals, fund what Moscow calls its special military operation in Ukraine. Earlier this month, the G7 agreed to impose a price cap on Russian oil exports by banning cargo services such as transport, insurance, and financing for cargos sold above a certain price that has yet to be set by the group. The European Union agreed on an embargo earlier this year on Russian oil and fuels, to come into effect in December. This means that Europe would need to source its oil from elsewhere, meaning greater demand for a smaller pool of available oil. Russia has said it will not export either oil or gas to countries that participate in any price cap agreements. “This winter, the European Union will cease, for the most part, buying Russian oil. And, in addition, they will ban the provision of services that enable Russia to ship oil by tanker. And it is possible that that could cause a spike in oil prices,” the U.S. Treasury Secretary told CNN. “Our price cap proposal is designed to both lower Russian revenues that they use to support their economy and fight this illegal war, while also maintaining Russian oil supplies that will help to hold down global oil prices. So I believe this is something that can be essential, and it’s something that we’re trying to put in place to avoid a future spike in oil prices.”
Buyers Are Stocking Up On Floating LNG Ahead Of The Winter
Utilities and natural gas traders have been keeping the highest volumes of liquefied natural gas (LNG) at sea in two years as onshore gas terminals are full, and traders look to profit from an expected additional spike in gas prices in Europe and Asia when winter comes. While it’s common for crude traders to hoard vessels waiting to profit by selling the oil later, stocking up on LNG is not a common practice because the fuel evaporates over time. However, desperate times call for desperate measures: the energy crisis and gas crunch in Europe are so acute that traders are even willing to take the chance of storing LNG on ships and seeing some of the fuel evaporate. As of early September, the volume of LNG stored on carriers at sea was around 1.4 million tons – the highest such floating storage in two years – according to data from energy intelligence provider Kpler cited by Bloomberg. To put this into perspective, the current amount of floating LNG stocks is almost equivalent to the LNG volumes Spain imported in August. Spain has the highest number of import regasification terminals in Europe -six. After posting records earlier this year, natural gas prices in Europe and Asia have room for further upside as winter approaches, and Russia continues to choke pipeline supply to Europe. This would make handsome profits for traders who are now hoarding LNG in floating storage. Still, floating storage may not have much capacity to rise, considering that the LNG carrier market is very tight with the rush to LNG after Russia weaponized pipeline gas supply. There is another reason why LNG volumes at sea are rising—import terminals in Europe are maxed out as governments rush to replace as much Russian pipeline gas as possible in order to fill storage sites and possibly avoid rationing. The EU hit its 80% full gas storage target in early September, earlier than planned. As of September 8, the EU gas storage was nearly 83% full, according to data from Gas Infrastructure Europe. However, storage alone would not be enough to see Europe through the end of the coming winter. “The overshoot signals potential relief for prices in the short term, but storage alone is not enough to meet winter demand. The threat of shortages remains – an unexpected cold snap could quickly drain inventories if imports do not keep pace,” Aurora Energy Research said last week. Europe cannot rely on storage only, it needs continuous flows of gas. Since Russia isn’t supplying much and even threatens to stop supplying all energy products if the West introduces price caps, the additional volumes should come via pipelines from Norway and Africa, and LNG from the U.S. and anywhere else that’s not Russia. Even China is reportedly reselling LNG to Europe as prices surge. “The gas market will be tight through this winter come what may, with the weaponisation of Nord Stream just one of the innumerable variables in play,” Simon Flowers, Chairman and Chief Analyst at Wood Mackenzie, said last week. Meager Russian flows or a cold winter – or both – “will test the energy system’s flexibility and resilience to the absolute limits and push prices higher still,” Flowers added. “Every lever is having to be pulled to draw gas into the system at whatever the cost. Power systems will have to bring on rarely used coal and oil plants held as strategic reserves, regardless of carbon intensity. Even then, governments may have to ration gas and power selectively to dampen demand,” WoodMac’s chief analyst said, days before Russia’s gas giant Gazprom announced Nord Stream is out indefinitely.
Oil Prices Under Pressure As Demand Concerns Mount
Oil prices fell early on Monday morning as bearish sentiment continued to weigh on markets amid expectations of further interest rate hikes and concerns about Chinese oil demand. Brent started the week more than a dollar down at $91.80 a barrel at the time of writing. West Texas Intermediate was trading at $85.64 a barrel, also down by more than a dollar per barrel. The main downward pressure on oil prices in the past few days has been a report that China could see its annual oil demand shrink for the first time since 2002 because of Covid restrictions under Beijing’s zero-Covid policy. Oil imports over the first eight months of the year were down for the first time since 2004, Reuters reported earlier this month, noting that there were now expectations for a drop in fuel demand during the upcoming holiday season. Energy Aspects predicted that China’s fuel demand could go down by 380,000 bpd for the whole of this year due to the restrictions. “The lingering presence of headwinds from China’s renewed virus restrictions and further moderation in global economic activities could still draw some reservations over a more sustained upside,” said IG market analyst Jun Rong Yeap, as quoted by Reuters. Worrying forecasts about Chinese demand have coincided with a more interventionist policy from central banks, with both the European Central Bank and the Federal Reserve planning further rate hikes in their attempts to tame runaway inflation. “Demand concerns centred on the impact of rising interest rates to combat inflation and China’s COVID-zero policy,” Reuters quoted a Commonwealth of Australia Bank analyst as saying. Prices could rise in a few months, however, as an EU embargo on Russian oil and fuel imports comes into effect. Meanwhile, the G7 is considering sanctions on oil importers that do not comply with the oil price cap the group agreed upon earlier this week. Russia has warned it will not sell oil to price cap participants.
Rs 5 billion insurance pool helps India withstand G7 cap on Russian oil
Pool has already insured over 25 voyages, since it was formed in June under national reinsurer GIC Re, says top official India has been able to push back against the G7 decision of a cap on Russian oil lately because of the success of the Rs 5 billion insurance pool to underwrite imports to India, a government official told Business Standard last week. It has taken away the concerns in New Delhi about the fallout of the imminent risk that the global insurance industry will throw at Russia from this winter. No consignment of oil and gas contracted at prices above the cap from Russian ports will get a cover from the global insurance industry.