Petronet to invest ₹400 billion in 5 years
Petronet LNG Ltd, India’s biggest gas importer, will invest ₹400 billion in the next five years for expanding import infrastructure as well as foraying into new business to boost profitability to ₹100 billion. Petronet, which operates two liquefied natural gas (LNG) import facilities at Dahej in Gujarat and Kochi in Kerala, is looking to foray into the petrochemicals business, according to the firm’s latest annual report. The company has formulated a ‘1-5-10-40’ strategy for exponential growth and diversification. “The company aims at achieving an annual turnover of ₹1000 billion over next five years and annual profit after tax of ₹100 billion with investments of ₹400 billion,” it said. It had a net profit or profit after tax of ₹33.52 billion on a turnover of ₹431.69 billion in fiscal 2021-22 (April 2021 to March 2022). LNG is natural gas that has been cooled down to liquid form for ease of transporting in ships. At the import terminal, LNG is regassified into its gaseous state before piping it to users like power plants for production of electricity and fertiliser units for making urea and other crop nutrients. Petronet said it is raising import capacity of the Dahej terminal from 17.5 million tonnes per annum to 22.5 million tonnes at an estimated cost of ₹6 billion. Also, it is adding two more LNG storage tanks to the present six tanks at Dahej at a cost of ₹12.50 billion. This is in line with the government vision of raising the share of natural gas in the primary energy basket of the country from 6.7% to 15% by 2030. With both its terminals on the west coast, Petronet is now eyeing a third import facility on the east coast. A floating LNG import terminal on high-seas “will cater to the increasing gas demand of the eastern and central part of the country,” it said, adding a detailed feasibility report (DFR) for the 4 million tonnes FSRU based terminal with further scope for expansion to land based terminal of 5 million tonnes capacity has been completed. Petronet’s Kochi terminal has a capacity to import and regassify 5 million tonnes per annum of LNG. The company said it also plans to set up a petrochemical complex based on imported propane at Dahej LNG terminal. It is also “exploring the option of setting up a propylene derivative complex in the near future.” It, however, did not give cost estimates or the timelines for the project. Petronet said it is also eyeing overseas projects and has been shortlisted as one of the potential bidders for an LNG terminal at Matarbari, Cox’s Bazar in Bangladesh. It is also “exploring the business opportunities in LNG value chain in Sri Lanka and in process of collaborating with potential counterparts including the government of Sri Lanka,” the annual report said. The firm “envisages to be a global LNG player and has thereby incorporated a wholly-owned subsidiary company ‘Petronet LNG Singapore Pte Ltd’ on March 7, 2022.” “Petronet LNG Singapore Pte Ltd has been incorporated to carry out business/activities, including but not limited to purchase of LNG on long, spot and short-term basis and sale of LNG, trading of LNG to Indian and foreign companies, optimisation and diversion of LNG under its portfolio, carry out hedging, investments in overseas ventures etc,” it added. Petronet currently imports LNG on long-term contracts from Qatar and Australia. The re-gassified LNG is supplied to offtakers GAIL (India) Ltd, Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Ltd (BPCL) for further sale to actual users. GAIL, IOC, BPCL and Oil and Natural Gas Corporation (ONGC) hold 12.5% stake each in Petronet. “In order to meet this challenging target (of 1-5-10-40), your company also identified a need for optimization of the decision-making process for its executives at various levels. Accordingly, the company undertook an extensive exercise to re-visit the existing delegation of authority, wherein the executive powers were rationalized to align with its growing business needs. “Similarly, Petronet also recognizes that strategic goals require harmony and alignment with the company’s HR policies and practices, therefore, it became imperative to revisit the entire spectrum of HR policies and align it with industry best practices,” the annual report said.
Oil Prices Climb On Expectations Of An OPEC+ Production Cut
Trader expectations that OPEC and its partners will approve production cuts at next week’s meeting added upward pressure to oil prices early on Friday morning, letting benchmarks recoup some of the losses incurred earlier in the week. Both Brent crude and WTI had gained close to 2 percent at the time of writing, with Brent crude trading at $94.10 per barrel and WTI at $88.19 per barrel. The idea of production cuts by OPEC+ producers was floated last month by Saudi Arabia’s energy minister, Abdulaziz bin Salman who said the paper market for oil had become disconnected from the physical market, implying prices had fallen too low for the actual supply situation. “They will certainly try to talk up the market as much as possible to better reflect what they see as a tight market, which is exposed to further supply side issues,” ANZ commodity analyst Daniel Hynes told Reuters today. He added an agreement on cuts was in no way a certainty. OPEC is already producing less than it was supposed to, per its own production agreement with the OPEC+ partners for reasons ranging from political instability to technical limitations. OPEC+ said in a report by the group’s Joint Technical Committee this week the oil market would remain in surplus this year, at an annual level of 900,000 bpd. Demand is seen 400,000 bpd behind supply but the balance may move from surplus to deficit next year, the report said. “We expect any reduction in supply from OPEC+ to have a material impact on oil prices given the very low inventory levels globally, limited capacity of supply alternatives and ongoing energy crunch in Europe,” Baden Moore from the Australian National Bank told Reuters. OEPC+ is meeting next Monday to talk about production policies. Yesterday, Russia said it would stop selling oil to countries that implement a price cap on its crude, adding upward pressure on prices provided G7 approves the cap.
Reliance Industries to Build India’s First and World’s Largest Carbon Fibre Plant
Reliance Industries chairman Mukesh Ambani in 45th AGM announced the company’s plan to build India’s 1st and World’s Largest Carbon Fibre Plant at Hazira, Gujarat. The plant will be developed as part of the company’s Oil to Chemical segment (O2C) in which RIL has committed an investment of Rs 750 billion in the next five years. The development of India’s First Carbon Plant from the Industry Giant comes as part of their vision for new materials. Also part of the agenda for Reliance is setting up of a ‘world-scale’ carbon fibre plant that will support its upcoming hydrogen and solar power ecosystems. Carbon Fibre is a new-age material which has found multiple uses in industry and automotive sector. It is a lightweight but strong material with high conductivity and has been growing in demand as a substitute for steel in the automobile, construction and military sectors. According to the details shared at Reliance Industries AGM, the carbon fibre plant would have a capacity of 20,000 MTPA based on Acrylonitrile feedstock. Being developed as part of the new materials division, the plant is expected to complete its first phase of production by 2025. To further enhance the business opportunities in this sector, RIL also plans to merge its composites business with Carbon Fibre to produce Carbon Fibre composites. The Carbon Fibre and Carbon Fibre Composites produced at its plant will be used to meet the rapidly growing lightweight requirements of the Mobility and Renewable Energy sector.
Govt hikes windfall profit tax on export of diesel, ATF; raises tax on domestic crude oil
The government has hiked the windfall profit tax on the export of diesel to Rs 13.5 per litre and on jet fuel exports to Rs 9 a litre, besides raising the levy on domestically-produced crude oil in line with the hardening of global prices. At the fourth fortnightly review, the government raised the windfall profit tax on the export of diesel to Rs 13.5 per litre from Rs 7 per litre. The tax on Aviation Turbine Fuel (ATF) exports too has been hiked to Rs 9 from Rs 2 per litre with effect from September 1, according to a finance ministry notification issued late Wednesday night. Alongside, the tax on domestically-produced crude oil too has been hiked to Rs 13,300 per tonne from Rs 13,000. The tax on exports has been raised as margins rose, while the levy on domestically-produced oil was increased marginally on slight changes in international oil prices and on expectations of a price rise on hopes of a production cut by the Organisation of the Petroleum Exporting Countries (OPEC) and its allies. India first imposed windfall profit taxes on July 1, joining a growing number of nations that tax super normal profits of energy companies. But international oil prices have cooled since then, eroding the profit margins of both oil producers and refiners. On July 1, export duties of Rs 6 per litre ($12 per barrel) were levied on petrol and ATF and a Rs 13 a litre tax on the export of diesel ($26 a barrel). A Rs 23,250 per tonne windfall profit tax on domestic crude production ($40 per barrel) was also levied. Thereafter, in the first fortnightly review on July 20, the Rs 6 a litre export duty on petrol was scrapped and the tax on the export of diesel and jet fuel (ATF) was cut by Rs 2 per litre each to Rs 11 and Rs 4 respectively. The tax on domestically-produced crude was also cut to Rs 17,000 per tonne. On August 2, the export tax on diesel was cut to Rs 5 a litre and that on ATF scrapped, following a drop in refinery cracks or margins. But the levy on domestically-produced crude oil was raised to Rs 17,750 per tonne, in line with a marginal increase in international crude prices. On August 19, the export tax on diesel was hiked to Rs 7 a litre, while a Rs 2 per litre tax on ATF was brought back. The levy on domestic crude oil output was cut to Rs 13,300 per tonne, in line with the softening of crude prices. At the fourth fortnightly review on August 31, the taxes on diesel and ATF exports as also on domestically-produced crude oil have been raised. Global Brent crude oil prices were hovering around $105 a barrel, against $95 per barrel a fortnight ago.
India’s August diesel demand slumps due to monsoon rains
Gasoil sales by Indian state retailers in August fell from a month earlier as monsoon rains restricted mobility while high inflation curtailed overall demand for goods, preliminary sales data shows. Fuel demand in India, the world’s third biggest oil importer and consumer, typically falls during the four-month monsoon season beginning in June as parts of the country are hit by heavy floods. Gasoil demand in August fell 4.9% from July to 6.12 million tonnes while gasoline demand rose 5.8% to 2.82 million tonnes, the data showed. Monsoon rains reduce demand from the agriculture sector as irrigation-related requirements decrease. Gasoil accounts for about two-fifths of India’s overall refined fuel consumption and is directly linked to industrial activity in Asia’s third-largest economy. State retailers Indian Oil Corp (IOC.NS), Hindustan Petroleum Corp (HPCL.NS) and Bharat Petroleum Corp Ltd (BPCL.NS) own about 90% of the country’s retail fuel outlets.
POSCO to make green hydrogen, signs MoU with Greenko’s ZeroC
Global steelmaker POSCO on Thursday signed a memorandum of understanding (MoU) with ZeroC, a subsidiary of renewable energy company Greenko to make green hydrogen, and to jointly pursue opportunities in renewables, and other derivatives of green hydrogen. In a joint statement, both the companies said that this MoU will contribute towards the mission of making India a green hydrogen hub. Anil Kumar Chalamalasetty, CEO and Managing Director at Greenko said: “We are excited to be partnering with POSCO, this pioneering partnership will propel the transformation of India from a carbon-based fossil energy importer to an exporter of Renewable Energy derived products like Green Hydrogen, Green Ammonia and Green Molecules.” Under a memorandum of understanding signed at a trade fair on the northwestern outskirts of Seoul, POSCO Holdings and Greenko will carry out a feasibility study on green hydrogen production after discovering a proper site by the end of 2022. Greenko, which is majority owned by Singapore’s sovereign wealth fund GIC, runs about 7.5 gigawatts capacity of renewable energy facilities in India. POSCO Holdings said that the production of green hydrogen and ammonia in India will be based on pumped-storage hydroelectricity, which generates electricity by pumping and storing water into a high-lying reservoir at night and dropping water in the daytime when power consumption is high. “Through cooperation with Greenko, we will successfully establish a green hydrogen production model in India and prepare to supply green hydrogen and ammonia that are required in South Korea and Europe,” POSCO Holdings‘ hydrogen business head Cho Joo-ik said in a statement. The development comes at a time when energy companies in India including the government owned companies are diversifying their portfolio and investing in renewable energy as the government has set a target for the country to turn carbon neutral by 2070.
Oil Prices Fall More Than 3% As G7 Discusses Price Cap For Russian Crude
Oil is down over 3.2% on Thursday, while a pending G7 deal to cap Russian oil prices being discussed Friday could reverse that trend with Moscow now stating that it will retaliate by refusing to sell oil. Russia has finally come out and openly declared that price caps on its oil would be costly to energy markets. In a Thursday statement carried on Kommersant.ru, Russia said it would not supply oil to countries that decide to impose a price cap on its oil. Deputy Prime Minister Alexander Novak has termed the idea of the G7 countries to limit the price of Russian oil a “complete absurdity” that will destabilize the entire industry. According to the minister, Russia will not supply any oil and oil products to those countries that support the establishment of such a limit. “We simply for such companies or countries that will impose restrictions, will not supply them with oil and oil products, since we will not work in non-market conditions,” the Deputy Prime Minister has said. Novak has further said that Russian companies were adequately prepared for an oil embargo by the European Union and will manage to maintain oil production at the same level. According to Novak, Russia’s [production by year-end could reach 520-525 million tons comparable to last year’s production of 524 million tons. The cap scheme, which was first brought to the table in June by the U.S. Treasury Secretary Janet Yellen, could be set at half of the Russian purchasing price although the shape of the final deal and price level have yet to be announced. The initial idea was to maintain a cap above Russia’s cost of production to keep Russian oil on the market but reduce revenues for its war coffers. On Wednesday, Yellen said she was “optimistic” that the G7 would come to a price-capping agreement. She also met with UK Chancellor of the Exchequer Nadhim Zahawi, who has offered British support for the plan, but noted that to be more effective, the plan would require more countries to come on board. While Russian crude is selling at a $20/barrel discount now, it has not worked to stymie Moscow’s oil revenues thanks to Russia finding new markets in India and China. New reports have emerged that during the second quarter, India slashed its crude imports from the United States by one million metric tonnes while sharply ramping up imports of discounted Russian oil. India’s energy mix now looks dramatically different from a year ago. Last year, Russian oil in India’s crude basket amounted to a paltry 2.2%, while the U.S. was 9.2%; right now, Russia accounts for nearly 12.9% of India’s crude imports, while the U.S. share has tumbled to just 5.4%
Offshore Oil And Gas Set For Robust Growth
Offshore oil and gas drilling and projects are set for robust growth in the coming years thanks to the world’s clear need for continued large volumes of fossil fuels as evidenced by the ongoing energy crisis in Europe and tight markets. High-impact drilling is returning after the COVID-induced slump, while international majors are close to approving more offshore projects, including so far offshore that production sites would be in international waters, analysts say. Despite the push for energy transition and oil majors’ stated ambitions to invest more in clean energy solutions and – for some of them such as BP – to curb oil and gas production this decade, Big Oil is looking offshore for massive resources. Those discovered resources would require significant capital expenditure to get them up and running, but once pumping, the deep offshore projects could yield oil for decades at lower breakeven costs because of the sheer scale of the huge developments. Sure, more drilling offshore meets strong resistance from environmental organizations, which generally want Big Oil to stop pumping immediately, and which warn that potential ocean spills would endanger marine environment. The trend of global oil demand in the coming decades of the energy transition will be a key factor in the profitability of future offshore oilfields. But right now, with an unprecedented energy crisis unfolding, E&P companies are not abandoning offshore oil. On the contrary, they are looking to develop projects which would pump oil for years, possibly decades, at lower costs compared to other types of oil developments. Global Offshore Has Lower Breakeven Costs Than Onshore According to Rystad Energy analysis, cited by Reuters, the resource-weighted Brent-equivalent breakeven oil price for producing global offshore projects averages $18.10 per barrel of oil equivalent (boe), versus $28.20 per boe breakeven price for global onshore projects already in production. In projects under development, global offshore again beats global onshore in terms of lower breakeven costs. Per the methodology, breakeven is the flat real oil price at which the continued operation of the assets is commercially viable. Canada’s Deep Offshore Could Host A World First Project One project that could soon make a final investment decision (FID) is so far offshore Canada’s coast that it falls in international waters and would require Canada paying royalties to the United Nations based on production from the project. This is the Bay du Nord project offshore Newfoundland and Labrador, led by Norway’s Equinor. In April, the $12-billion project received a positive environmental assessment from the Government of Canada. The project has yet to make an FID, with first oil expected to be produced in the late 2020s. The positive view from Canada takes Bay du Nord “a step closer to being the first offshore oil and gas project in the world to trigger Article 82 of the United Nations Convention on the Law of the Sea (UNCLOS),” reports Energy Regulation Quarterly. Apart from Equinor, BP has also seen the potential of Bay du Nord. While announcing it was quitting Canada’s oil sands, the UK supermajor also bought Cenovus Energy’s 35% stake in the Bay du Nord project as it shifts its focus to future potential offshore growth in Canada. Commenting on BP’s deal, Starlee Sykes, bp senior vice president, Gulf of Mexico & Canada, saidin June: “This is an important step in our plans to create a more focused, resilient and competitive business in Canada. Bay du Nord will add sizable acreage and a discovered resource to our existing portfolio offshore Newfoundland and Labrador.” Offshore Contracts Set To Surge Through 2026 Overall, offshore oil and gas engineering, procurement and construction (EPC) spending globally is expected to total $276 billion between 2022 and 2026, which would be a 71% increase compared to the preceding five-year period, according to Westwood Global Energy Group. Asia, the Middle East, and Latin America will dominate expenditure, the energy analytics group said. Moreover, high-impact drilling is also back, with a much higher success rate so far this year, compared to 2011. High-impact exploration has returned to the scene after a dismal 2021, which saw a low success rate—one of the lowest on record—in discovering new oil and gas resources. So far this year, E&P firms have discovered over 1.7 billion barrels of oil equivalent (boe) at high-impact wells, nearly quadrupling the 450 million boe discovered for the whole of 2021, Rystad Energy said earlier this month. So far into 2022, the success rate at such wells has stood at 47%, much higher than the meager 28% success rate last year, Rystad Energy noted. The much higher success rate at high-impact wells drilled this year is a good signal for global supply at a time when oil and gas prices are high, and trade has been upended following the Russian invasion of Ukraine and the subsequent sanctions and embargoes on Russian oil.
Canada Set To Miss Out On A Massive LNG Opportunity
Shortly after Russia invaded Ukraine in late February, dozens of Eurozone countries pledged to heavily cut Russian natural gas imports or halt them completely as soon as they could afford to. These countries took several aggressive measures to replenish their natural gas stockpiles ahead of the winter season, including reaching a political agreement to cut gas use by 15% through next winter. It’s, therefore, little wonder that Germany–the country’s worst hit by the Russian energy crisis– is currently on a mad dash to secure alternate sources of gas before the onset of winter. But here’s the biggest irony of them all: Germany and Europe are more likely to secure future gas supplies from Mozambique, one of the world’s poorest nations with scant infrastructure, riddled with terrorism and located 8,140km away from Germany, than Canada, one of the biggest producers of the stuff, with more than a dozen potential LNG sites and a ‘mere’ 6,400km away. Indeed, this might turn out to be one of the biggest missed opportunities in Canadian history considering that at current prices, just one Canadian port exporting superchilled gas could be adding nine figures to the Canadian GDP each day. Love-Hate Relationship Canada is the planet’s fifth largest producer of natural gas and ranks 15th in the world for proven natural gas reserves. The country’s biggest problem simply is lack of infrastructure–and political goodwill. It’s somewhat shocking to learn that Canada does not own a single LNG export terminal, with virtually all the country’s natural gas exports delivered to the United States via pipeline. It’s not for lack of trying though. In recent years, Natural Resources Canada says it has received proposals for 18 LNG export projects, including five on the East Coast. Currently, just one terminal is under construction, with a second not quite poised to break ground. In sharp contrast, Mozambique is gearing up for a $100B LNG windfall, with the country poised to ship its first cargo of liquefied natural gas (LNG) overseas at a time when prices have soared to record highs with Europe desperately trying to cut energy ties with Russia. According to ship-tracking data compiled by Bloomberg, the BP-operated LNG tanker British Mentor was slated to arrive this week at a new floating terminal that Italian energy giant Eni S.p.A. is completing off Mozambique’s northern coastline. Eni has said that commissioning activities at the Coral-Sul FLNG vessel were progressing well, with first exports to be communicated in due course. The Italian company is already planning a second floating export platform in the southern African country that could be completed in less than four years. All that progress despite the fact that Mozambique has been plagued by terrorism, civil strife and rampant systemic corruption for decades, to a point where it has been unable to exploit its vast fossil fuel reserves leading to its status as the world’s third poorest nation. You can blame this state of affairs on Canada’s love-hate relationship with fossil fuels. Despite the Canada–United States Free Trade Agreement in 1988, a sense of ambivalence towards fossil fuels prevails to this day. In the current geopolitical climate, oil and gas are both hated and adored. Hated because of their outsized role as the number one climate change pariah. Adored as an alternative source of natural gas, especially since Russia’s invasion of Ukraine and the attendant threat that Moscow might cut off gas supplies to Europe. Back in March, Canadian Natural Resources Minister Jonathan Wilkinson announced that Canada has the capacity to increase oil & gas exports by up to 300,000 barrels per day (bpd) by the end of this year to help improve global energy security. He also added that Canada is looking at ways it may be able to displace Russian gas with liquified natural gas (LNG) after requests for help from Europe. Currently, a Shell-led consortium is building a large LNG facility on the west coast at Kitimat which is due for completion around 2025, but the country exports zero LNG. But it need not be this way. Canada’s energy regulatory framework is notorious for scaring away oil and gas projects, and in February turned down a $10-billion LNG export facility planned for Saguenay, Quebec largely on the grounds that it would increase greenhouse-gas emissions. All five of the now-languishing East Coast projects were in the planning stages as early as 2015 but have been held back by a hostile and byzantine regulatory climate. At this stage, it’s not 100% clear whether Canada is ready to relax its attitude towards fossil fuels. Recently, Prime Minister Justin Trudeau went on record saying that exporting LNG from Canada’s east coast to Germany could ease Europe’s gas crunch: “It’s doable, we have infrastructure around that,” he said at a joint press conference with German Chancellor Olaf Scholz though he failed to offer a timeline when asked for one. However, as Politico notes, doable doesn’t necessarily mean realistic, especially given that Europe wants to slash Russian gas purchases by two-thirds by the end of the year. In the same vein, Trudeau conceded that weak business cases have kept proposed export facilities from moving forward: “Right now our best capacity is to continue to contribute to the global market to displace gas and energy that then Germany and Europe can locate from other sources,” Trudeau has conceded. Recent comments by Canadian gas producers are also quite telling. In an interview this week, Enbridge Inc. (NYSE: ENB) CEO Al Monaco hinted at Canada’s infamous industry red tape when he said the country needs to “get out of our own way when it comes to energy and building infrastructure.” Perhaps not even sky-high natural gas and LNG prices are enough to persuade Trudeau’s administration to change its stance on oil and gas. But as they say, you never really know, considering that the U.S. only began exporting LNG in 2016, and has managed to become the world’s leading LNG exporter in such a short space of time.
Oil Prices Under Pressure As China Expands Covid Lockdowns
China has locked down the city of Chengdu, beginning today, as the latest demonstration of its zero-Covid strategy. With a population of 21 million, Chengdu is the biggest city to be locked down in China after Shanghai, Bloomberg reports. All lockdowns in China this year have caused oil prices to fall thanks to the well-documented effect of lockdowns on oil demand. The effect has tended to be temporary, however. When coupled with other bearish indications, however, the news of the lockdown is likely to have a marked negative effect on oil prices. Indeed, oil fell today in Asian trade because of the news of the latest lockdown in China. In addition, Reuters released a poll suggesting supply was on the rise, with OPEC expected to have pumped an average of 29.6 million bpd last month – the highest since April 2020. U.S. crude oil output is also on the rise, Reuters reported, likely reaching 11.82 million bpd in June. This would also be the highest since April 2020. Economic growth worries are also contributing to the bearish sentiment that has taken over the oil market in recent days. With central banks appearing to be determined to continue with the monetary tightening, such worries are more than justified. As a result, Brent crude had dropped to $95.11 per barrel at the time of writing, with West Texas Intermediate at $89 per barrel. Prices could fall further later today as G7’s finance ministers are gathering to discuss their idea of imposing a price cap on Russian oil sold on international markets. The idea being discussed is the refusal to insure Russian oil shipments unless the oil is being sold below a certain price threshold. G7 dominates the insurance market with a 90 percent share. Russia has indicated it would not accept a price cap.