Windfall tax to be cut, decision soon
The Centre may soon cut windfall taxes on locally-produced crude and exports of diesel further, taking into account the recent decline in global crude prices and refining spreads. The third review of the new taxes, imposed since July 1, is expected soon, sources told FE. The tax was slapped to rein in inflation and ensure adequate availability of the transport fuels in the local market. The taxes is supposed to move either way, depending on crude prices and the refining spread. Brent crude, which was around $100-103/barrel on August 2, declined to $91.51 in intraday trade on Wednesday, the lowest since February. However, the third review will capture the decline in crude prices during August 1 and 15. In the second review of the taxes on August 2, the government limited the windfall tax on diesel shipments to just Rs 5/litre and the tax on ATF was removed. However, it had raised the new additional excise duty (cess) on petroleum crude marginally from Rs 17,000 to Rs 17,750 per tonne, as the trade parity prices followed by domestic oil producers like ONGC and OIL rose marginally since mid-July, in line with the global crude prices. In the first review on July 20, the Centre scrapped a Rs 6/litre export duty on petrol and reduced the taxes on the export of diesel and jet fuel by Rs 2/litre each to Rs 11 and Rs 4, respectively. It also slashed the cess on domestically-produced crude oil to 17,000/tonne from $23,250, a move that would benefit state-run ONGC, Oil India and Vedanta’s Cairn & Gas. It had also exempted SEZ exports from the windfall taxes.
Saudi Aramco Is Taking A Page Out Of The U.S. Shale Playbook
Saudi Aramco, (ARMCO) reported Q-2, 2022 earnings this week and set tongues wagging with the sheer amount of cash being generated in its daily operations. Net income of $48.4 bn, Free Cash Flow of $34.6 bn for the quarter, and $65 bn for the first half, substantially eclipsed year-ago numbers of $22.6 bn and $40.9 bn for the same period. All of this was driven by price realizations for crude topping the $113.00/bbl mark for the quarter, exceeding year-ago prices ($67.90) by ~66%. What was noteworthy, and documented in a recent Wall Street Journal article, was the company’s capital allocation budget toward increasing production remained largely unchanged at the lower end of its previously announced range of $40-50 bn for 2022. The Journal article went on to note- “To be fair, $40 billion is a lot, much more than in 2021, but Aramco is very flush. It earned more than $65 billion in free cash flow in the first half of this year. That spending also includes diversifying into natural gas, wind, solar and blue hydrogen. And while capital discipline is laudable, surely if management really believes that oil demand is growing for the next decade, it should at the very least accelerate plans to expand its maximum sustainable oil capacity to 13.0 million barrels a day, currently set for 2027.” Where the Saudi mindset appears to depart from their oil-producing cousins on the other side of the planet, is what is to be done with the excess cash now being realized. While U.S. shale producers are raining wealth on their shareholders, in the form of stock buybacks and special dividends, KSA-94% owner of ARAMCO, has focused on paying down debt, and diversifying its energy portfolio. In some ways mimicking the actions of the mega oil producers like ExxonMobil, (NYSE:XOM) Chevron (NYSE:CVX) and BP (NYSE:BP), by delving into alternative energy forms. The supermajors, tired of being clubbed by the climate alarmists, and having totally bought into the Paris Accord Net Zero by 2030 dictums, have been diverting capital away from legacy sources and toward cleaner energy forms that raise their ESG scores. Author of, The End of Fossil Fuel Insanity, Terry Etam, summarized their plight in an article carried in the BOE Report discussing the coming gap between supply and demand- “There is little producers can do to help out. Their ‘inventory’ – oil and gas reserves – is in incredibly high demand, and is being bid up in price. What would help alleviate this situation is to find and develop more reserves, but the world’s cultural elite, the group that dominates western political schools of thought, has ‘scientifically’ linked any weather event – anything at all – with climate change, which is linked to ‘fossil fuel combustion’, which is therefore bad, and the mere suggestion of increasing production is unacceptable.” In this regard, the supermajors have been “Greenwashing” their portfolios in some cases and beginning to transition them in others. Here they depart from the Saudis who intend to straddle the gap between petroleum and green energy into the foreseeable future. In spite of a publically asserted view by Aramco CEO, Amin Nasser that oil demand will grow for the rest of this decade, KSA appears to be in no hurry to accelerate the timetable for achieving the 13 mm BOPD upper threshold set for 2027. Instead, KSA has embarked on an ambitious decade-long quest to diversify its economy away from its sole reliance on oil and gas, choosing a multi-pronged approach that includes hydrogen, wind, and solar. One area where they are focusing their efforts is in the production of hydrogen-H2. A Financial Times-FT article notes that the Saudis plan to dominate the production of H2, a few years hence. With its abundant supplies of gas nearby the City of Neom, a Blue-H2 plant is being built with $110 bn of capital. This plant is planned to take 2.2 bn cubic feet of gas daily from the supergiant Jafurrah gas field, for processing Blue H2. It is forecast to come on line in 2026. Another massive hydrogen project will produce Green H-2, with power supplied by a 99-turbine wind farm. SP Global discusses this in an article focusing on Acwa Power’s 240K mt/ton per year, green hydrogen project that will make 1.2 mm MT of ammonia. It also is expected to start production in 2026. Finally, solar is thought to have unlimited potential in the Kingdom. It makes sense as the sun shines brightly there more than 300 days per year. Accordingly, KSA is fielding a number of new solar farm projects getting underway. The sovereign wealth fund of the Kingdom just this year let two awards for a total of 1 GW IPP One went to Acwa Power for a 700 MW farm at Al-Rass and a second smaller, 300 MW farm at Saad. The Kingdom has a goal of installing 54 GW of solar generation by 2030. Solar is also finding industrial uses as the Glass Point complex takes shape. This 1.5 GW project, the biggest solar farm in the world will power an aluminum smelting plant designed to use the solar mirrors on water-filled pipes to produce solar steam. This will save approximately 600K tons of carbon annually. Your takeaway It is fairly clear from the decisions that KSA is making about the capital allocation for renewable forms of energy that their feet are firmly planted in both camps. The higher price regime that has settled on the oil market since 2021 has provided the cash to fund the projects we have discussed, that will fuel the Saudi Vision 2030 initiative. At the same time, like their shale counterparts in the U.S., they are committed to an orderly development of their legacy oil reserves in a way that will preserve value as far into the future as possible. That’s just good stewardship. What this means is that in spite of entreaties by world leaders including the American president to produce more oil to lower
Iran Set To Boost Oil Exports In August
Iran could increase its oil exports in August as its crude is now estimated to be much cheaper than Russia’s in China, the key oil customer for both exporters, oil flows tracking firms told Reuters on Wednesday. Iran, as well as Russia, offer their crude at discounts to China, but the discount of Iranian crude to Russia’s Urals grade has doubled in recent weeks, which could prompt China to buy more oil from Iran, traders and analysts told Reuters. Iran’s crude for August is now being offered at around $8 a barrel below the price of Russia’s Urals, compared to a smaller discount of up to $4 per barrel at the end of last month. Exports out of Iran have increased in June and July, tanker-tracking firms have estimated, and expect more flows out of Iran due to the wider discount to Russia’s crude. China has been the main outlet for Iranian crude oil exports since the U.S. re-imposed sanctions on the Islamic Republic’s oil industry in 2018 when then-President Donald Trump pulled the United States out of the so-called Iranian nuclear deal, officially known as the Joint Comprehensive Plan of Action (JCPOA). In recent days, there has been a lot of talk about the latest developments in the negotiations about a possible restoration of the nuclear deal. Last week, the European Union presented the two sides with the final version of the proposed deal, aiming to settle the differences. Iran said this week it had submitted a written response to the latest version of the nuclear deal that is being brokered by the EU between Tehran and Washington. However, no details of the response have been provided, which may suggest it was not a positive one as some issues remained unresolved. “The differences are on three issues, in which the United States has expressed its verbal flexibility in two cases, but it should be included in the text,” the AP quoted IRNA as saying. “The third issue is related to guaranteeing the continuation of (the deal), which depends on the realism of the United States.” A legitimate return of Iranian exports on the market could add to recession fears, ease concerns about Russian supply once the EU embargo kicks in at the end of the year, and drive oil prices lower.
AG&P plans extra LNG terminals in India
AG&P, a worldwide downstream gasoline and logistics firm, is alternatives to arrange extra LNG terminals in India to fulfill the rising demand for pure gasoline within the nation. “We’re in negotiations with two or three gamers, however it’s nonetheless not crystallized when it comes to placement. The plan is to search for alternatives on each the east and west coasts,” mentioned Karthik Sathyamoorthy, president of LNG terminals and logistics at AG&P. Potential investments in greenfield initiatives are estimated to be within the vary of $400-$600 million or Rs 32-48 billion. The corporate is already establishing a terminal with a capability of 1 million tonnes each year on the Karaikal port in Puducherry. AG&P had received metropolis gasoline distribution enterprise licenses in 12 geographical areas through the ninth and tenth public sale rounds of the Petroleum and Pure Fuel Regulatory Board. The licenses have been for Tamil Nadu, Kerala, Andhra Pradesh, Karnataka and Rajasthan. Nearly all of its 12 geographical places are in southern India and it plans to fulfill the pure gasoline necessities of those places by the Karaikal terminal on the east coast. The Firm additionally expects LNG provide alternatives from initiatives supplied by the Petroleum and Pure Fuel Regulatory Board throughout numerous auctions as soon as commissioned. India’s west coast has a extra developed gasoline market with established LNG terminals at Dahej and Hazira in Gujarat, Raigad in Maharashtra and Kochi in Kerala; a number of others are additionally within the pipeline. It is usually effectively related to the nationwide gasoline community and presents robust growth alternatives. “We’re each superior greenfield and growth initiatives in India,” Sathyamoorthy mentioned. The upcoming initiatives can have greater capability and scalable as in comparison with the Karaikal Port terminal. “These initiatives are prone to be 2-3 tonnes each year and scalable in comparison with the preliminary 1 MTPA capability of Karaikal Port,” he mentioned. Work on the Karaikal LNG terminal is in full swing and is prone to be commissioned by FY24. “It would meet the demand for compressed pure gasoline for the automotive phase, piped pure gasoline for residential and LNG for industries in our present geographies,” Sathyamoorthy mentioned. AG&P has about 200 CNG stations, about 1,000 km of gasoline pipelines and over 50,000 residential prospects throughout geographies, Sathyamoorthy mentioned. It’s at the moment catering to the demand of present suppliers like GAIL Ltd. and gasoline allotted to the CGD gamers by the federal government. “Going ahead, we can have a mixture of spot and baseload long-term contracts for LNG,” he mentioned. The loading bays on the Karaikal Port will allow supply of LNG to distant prospects by AG&P’s personal fleet of vans, in accordance with the Karaikal Port web site. The LNG terminal will embody a floating storage unit leased by a long-term constitution settlement with the logistics and repair division of Abu Dhabi Nationwide Oil Co., which is able to present an environment friendly answer to make the provision of LNG inexpensive, in accordance with the web site.
The petroleum Russia is selling to India at a discount has Ukrainian blood in it: Dmytro Kuleba
The petroleum Russia is selling to India at a discount has Ukrainian blood in it, is the message from Kiev. The foreign minister of Ukraine Dmytro Kuleba today said that he knew India was buying Russian crude oil. “We are not surprised,” he began, adding that “throughout human history, in every war there were those who suffer from the war and there are those who make money from the war and India buying (is) crude from Russia on high discount (that is) paid with Ukranian blood, Ukrainians killed, tortured, raped.” Kuleba’s remarks came after the external affairs minister S. Jaishankar, asked about buying crude oil from Russia, said: “We have been very open and honest about our interest. I have a country with a per capita income of $2,000. These are not people who can afford higher energy prices. It’s my moral duty to ensure the best deal.” Currently, many major European countries including Germany are buying Russian natural gas. Speaking about India, he said his country has always been open and friendly. He said one of his first tasks as the war began was to take foreign students to safety and there were many Indians studying in the Ukraine, a country many considered was “their second home.” Kuleba also spoke about the strong economic relations between India and the Ukraine, particularly the export of sunflower oil. But he added that “We are very open to building a relationship with India. Under the circumstances, we won’t be hiding (that) we expected stronger practical support from India to Ukraine.” Since the beginning of the war five months ago, India has spoken about the immediate cessation of hostilities and diplomatic dialogue between the two countries. India has also condemned the massacre in Bucha and called for an investigation. India has also sent humanitarian aid to the Ukraine. Asked whether China could intervene to try and bring an end to the war, he said the conversation between Beijing and Kiev would be good for both China and the Ukraine. He added that China, as a permanent member of the United Nations Security Council, had a responsibility to ensure peace and security in the world. And the war in the Ukraine had international repercussions. Replying to a question about the presence of Imran Khan (then prime minister of Pakistan) in Moscow when the war in the Ukraine began, he said it was a choice every leader made but to shake hands with Putin at a time like this was “shameful.” About Russia reaching out to Myanmar, he said it was natural for Moscow to make friends with an authoritarian state. Speaking about Russians exporting weaponry, he said Moscow was facing a shortage of advanced weaponry and all it had in large quantities was Soviet era material. While the war was being fought in the east and south east of his country, all of Ukraine was being targeted by Russian missiles. He said even in western Ukraine, far from the frontline, the missile attacks could cause casualties. About the efforts to ensure that Ukraine managed to export grain and corn, particularly to countries that needed it, he said that since the first shipment in July 450,000 tonnes of grain and corn have gone out and if the “corridor” remained, it would ship to needy countries large quantities of foodstuffs.
ONGC inks agreement with ExxonMobil for deepwater exploration in India
Indian oil explorer and producer Oil and Natural Gas Corp said on Wednesday it signed a Heads of Agreement (HoA) with global petroleum giant ExxonMobil Corp for deepwater exploration in India’s East and West coasts. The Heads of Agreement document was signed in the Ministry of Petroleum & Natural Gas by Rajesh Kumar Srivastava, Director (Exploration), ONGC and Monte K Dobson, CEO & Lead Country Manager, ExxonMobil India in the presence of Pankaj Jain, Secretary, Ministry of Petroleum & Natural Gas. “The collaboration areas focus on the Krishna Godavari and Cauvery Basins in the eastern offshore and the Kutch-Mumbai region in the western offshore. There has been a scientific exchange of exploration data in the last few years, which has led to this partnership,” said ONGC in a stock exchange filing. Collaboration between ONGC and ExxonMobil will be a strategic fit where ONGC’s knowledge and past experience in these areas will be coupled with ExxonMobil’s global insights, said the state-owned firm Speaking at the event, Petroleum Secretary Pankaj Jain said: “Partnerships between a National Oil Company (NOC) like ONGC and an International Oil Company (IOC) like ExxonMobil will bring tangible benefits in the entire energy value chain and open new vistas to Exploration & Production paradigm. This collaboration will boost our confidence in going further ahead in deepwater exploration in the east coast of India where the potential is quite significant.” Director (Exploration), ONGC, Rajesh Kumar Srivastava said: “With this strategic collaboration to pursue exploration, I look forward to long lasting partnership. Through the discovery route, ONGC hopes to move to development wherein the inherent strength of ExxonMobil would be beneficial for efficient fast-track monetization. This will enable ONGC to ensure steps towards Energy Security for India.” ExxonMobil India’s CEO & Lead Country Manager Monte K Dobson said, “It’s an exciting opportunity to collaborate with ONGC. Great things happen when the rightpeople collaborate. He further added that 25 per cent of the ExxonMobil brain power is currently engaged in evaluating Indian deepwater. ExxonMobil is geared up to take this collaboration to the next level.” India, the world’s third biggest oil importer and consumer, ships in over 85% of its oil needs from overseas. The country wants to quickly monetise its oil and gas resources to reduce its reliance on costly imports. India’s crude oil production fell 1.6% to about 600,000 barrels per day (2.44 million tonnes) in June, dipping over 4% versus the previous month.
Are Oil Prices Set For A Comeback?
Oil prices have given up in recent weeks all the gains they had made since the Russian invasion of Ukraine as market fears of recession intensified. There are signs of slowing economic growth, which could dent oil demand. But oil market participants and analysts are struggling to estimate how much demand could suffer in a recession that will be nothing like the 2008/2009 credit collapse and crisis. Bearish factors are dominating current market sentiment, but some analysts say that paper traders may have already priced in too much fear of recession. At the same time, the U.S. labor market is outperforming expectations, defying other gloomy signals that America’s economy is slowing. Moreover, annual inflation in the U.S. in July eased from the previous month due to lower gasoline prices. Still, bearish sentiment currently prevails on the oil market, as participants are paying more attention to recession fears, the steady Russian oil exports contrary to early expectations of massive losses in the region of 3 million bpd, and weaker Chinese factory activity and snap COVID-related lockdowns weighing on fuel demand. Imminent bullish signals include the hurricane season in the United States this month and next, where severe storms and hurricanes could force shut-ins at Gulf of Mexico production platforms or preemptive shut-ins at refineries along the Gulf Coast. Another bullish factor by the end of the year could emerge from the end of the U.S. SPR releases, currently expected to end in October. At the same time, U.S. oil producers are not boosting output too much—even at $100 oil—due to continued capital discipline, supply chain constraints, and cost inflation. The full effect of the EU ban on imports of Russian seaborne oil, expected to kick in at the end of the year, is also challenging to estimate, as is the impact of a possible price cap on Russian oil, which would allow insurance and other services for Russia’s crude if buyers commit to buy it at or below a certain price. Recession Fears The oil market, however, is currently in the grip of concerns about a global recession and demand destruction. Recession fears in Europe have intensified amid the sky-rocketing energy prices and low supply of Russian pipeline gas which is forcing companies in some energy-intensive industries to curtail production. In the UK, the Bank of England warned last week that the country is expected to enter a recession from the fourth quarter of this year, which will last until the end of 2023. The net long speculative positions—the difference between bullish and bearish bets—in Brent and WTI had dropped to a very low level as of early August due to fears of a recession and softening global economic growth, SEB bank said in a research note earlier this week. The physical crude market is also losing steam due to fears of an economic slowdown or recessions, traders told Reuters this week. “The market is very bearish at this moment. No one is in a hurry to buy,” a trader based in Singapore told Reuters. Yet, the labor market in the U.S. remains strong, and the latest employment data far exceeded analyst estimates. Total nonfarm payroll employment rose by 528,000 in July, and the unemployment rate edged down to 3.5%, the U.S. Bureau of Labor Statistics said last week. The numbers smashed Dow Jones estimates of 258,000 job additions and a 3.6% unemployment rate. “The report throws cold water on a significant cooling in labor demand, but it’s a good sign for the broader U.S. economy and worker,” Michael Gapen, an economist at Bank of America, said in a note cited by CNBC. Some analysts say the 9% drop in WTI Crude futures last week was exaggerated, and the economic concerns could be overblown. Caroline Bain, chief commodities economist at Capital Economics in London, told Houston Chronicle: “The big picture,” she said, “is that the market could be pricing in too much recession fear.” The near-term oil price movement will be led by the economic picture, inflation, and interest rate hikes, but some bullish factors could tip the sentiment back to rallying prices. These include very low global spare capacity, OPEC+’s inability to pump much more than it is producing now, and the wild card Russia and its standoff with the West. It will become clearer in the coming months how Russian supply to the markets could be affected and whether Putin will simply stop selling oil to those countries who join a potential price cap on Russian oil. The proposed price cap includes allowing insurance and other services for Russia’s oil shipment, but Moscow has already said it would not export its oil if the price cap is set below its cost of production. While some analysts say that oil is headed even lower with recessions looming, others say this recession could be different and not lead to an actual drop in oil demand year over year. Goldman Sachs, for example, revised down its Brent price forecast for this quarter to $110 a barrel, down from a previous projection of $140 per barrel, but it still believes the case for higher oil prices remains strong. “We believe that the case for higher oil prices remains strong, even assuming all these negative shocks play out, with the market remaining in a larger deficit than we expected in recent months,” Goldman Sachs’s strategists wrote in the note this week carried by Bloomberg.
Are Iraq’s Ambitious Oil Production Goals Feasible?
Iraq is planning to increase its crude oil production to phased targets of 5 to 8 million barrels per day (bpd) over time, according to the first vice president of the Iraq National Oil Company (INOC), Hamid Younis, last week. The director general of the Iraq Oil Exploration Company (IOEC), Ali Jassim, added that the next phase will see “remarkable activity” in the exploration sector, including operations in the Western Desert and the Nineveh governorate. Given the current delicate supply-demand balance in the global oil pricing matrix, sizeable new supply would go some way to relieving the economic damage being done to many countries by enduring high oil and gas prices, but just how realistic are these statements on higher oil volumes from Iraq? In broad terms, the statements are entirely realistic, with Iraq holding a very conservatively estimated 145 billion barrels of proven crude oil reserves (nearly 18 percent of the Middle East’s total, around 9 percent of the globe’s, and the fifth largest in the world). However, according to the International Energy Agency (IEA) in its 2012 report on the country, the extent of Iraq’s ultimately recoverable oil resources is subject to a large degree of uncertainty and may well turn out to be a lot more. Much of the earlier data that fed into the 145 billion barrels reserves figure was derived from the United States Geological Survey (USGS) 2000 assessment and, using this data, the IEA’s 2012 analysis put the level of ultimately recoverable crude and natural gas liquids resources in Iraq at around 232 billion barrels. As at the end of 2011, only 35 billion barrels of that 232 billion figure had been produced. Having said this, as the IEA itself pointed out, there are other estimates from reliable sources that Iraq’s undiscovered oil resources are considerably higher even than the IEA’s figures. When Iraq’s Ministry of Oil came up with its own crude oil reserves figure of 143 billion barrels in 2010 – before it was upgraded to 145 billion barrels two years later – the Ministry stated that Iraq’s undiscovered resources amounted to around 215 billion barrels. Moreover, said the IEA, a detailed study by Petrolog, published in 1997, reached a similar figure but even this did not include within this 215-billion-barrel figure, crude oil resources in the parts of northern Iraq under the administration of the government of the semi-autonomous region of Kurdistan (the KRG). Back in 2012, and even using the more conservative USGS figure, Iraq had produced only 15 percent of its ultimately recoverable resources, compared with 23 percent for the Middle East as a whole, according to the IEA, and the Agency expected exploration efforts to add substantially to proven reserves in the future. Moreover, drilling in Iraq has long had an exceptionally high success rate: of 530 potential hydrocarbon-bearing geological prospects identified by geophysical means in Iraq as of the time of the 2012 IEA report, only 113 had been drilled, with oil having been found in 73 of them. The IEA also noted that prior to the then-recent surge in exploration activity in the KRG area, more than half of the exploratory wells in Iraq had been drilled prior to 1962, a time when technical limits and a low oil price gave a much tighter definition of a commercially successful well than would be the case today. It is apposite to note at this point, however, that it is one thing to have huge levels of reserves and recoverable resources, but it is quite another to drill them and export them, and over the period from when the IEA report was produced in 2012 to now, crude oil production in Iraq has risen from just over 3 million bpd to just over 4 million bpd only. It could be said that this is an impressive 25 percent rise, but in absolute terms, it ranks as an extremely poor return on the crude oil resources that Iraq has, particularly when factoring in how easy its oil is to recover, as evidenced by the country’s crude oil having the lowest lifting cost in the world of US$1-2 per barrel, alongside the crude oil of Saudi Arabia and Iran. In contrast to actual oil production figures, in 2013 Iraq launched its ‘Integrated National Energy Strategy’ (INES), which formulated the three forward oil production profiles for Iraq, as analyzed in depth in my latest book on the global oil markets. The INES’ best-case scenario was for crude oil production capacity to increase to 13 million bpd (at that point by 2017), peaking at around that level until 2023, and finally gradually declining to around 10 million bpd over a long period thereafter. The mid-range production scenario was for Iraq to reach 9 million bpd (at that point by 2020), and the worst-case INES scenario was for production to reach 6 million bpd (at that point by 2020). These different crude oil output trajectories were also in line with those laid out in the IEA’s 2012 report. Specifically, in the IEA’s ‘Central Scenario’ of 2012, Iraq’s oil production increased to more than 6 million bpd (by 2020), and then 8.3 million bpd by 2035. In the IEA’s ‘High Case’, crude oil production would surpass 9 million bpd in 2020 and then rise to 10.5 million bpd in 2035. The foundation for Iraq to achieve these massive increases in crude oil production is, therefore, absolutely solid. So, why has it not done so yet? There are two basic reasons for this, both of which – and other tangential reasons – are analyzed in full in my latest book: the first being the endemic corruption that has plagued the Iraq oil sector, particularly since the fall of Saddam Hussein in 2003, and the second – in part, a function of the first reason but not completely – is the failure to build the Common Seawater Supply Project (CSSP). The culture of corruption in Iraq has been covered in many of my previous articles
IEEFA: High LNG prices affect demand growth in Asia
This is despite the fact that the global LNG industry has pinned its long-term hopes for growth on emerging markets in China, South Asia, and Southeast Asia. “Less than one year into higher prices, LNG markets are already seeing a major realignment of demand away from Asia. Should price spikes and volatility continue over the next several years, downward pressures on Asian LNG demand may accelerate, permanently impairing long-term regional demand growth,” Sam Reynolds, author of the report, said. “Financiers and investors in new LNG projects must take note.” LNG sales in Asia through July 2022 have fallen more than 6% compared to last year. In China and India, two of the largest potential LNG growth markets, LNG imports have fallen 20% and 10% year-over-year, respectively. Demand in Asia could fall further as competition for limited supplies intensifies during the winter heating season. Multiple countries have withdrawn or been forced out of LNG spot markets altogether. Elevated LNG prices bite into demand forecasts High, volatile LNG prices are unlikely to settle for several years due to myriad factors. For example, the threat of continued Russian cuts to European piped gas, outages at LNG liquefaction facilities, and increasingly unpredictable weather events due to climate change could all constrict an already tight global market, according to IEEFA. “Exorbitant prices and unreliability of supply are undermining industry-driven narratives that LNG is a viable ‘bridge fuel’ from coal,” Reynolds added. “Continuous demand growth at persistently high prices will likely prove fiscally unsustainable for emerging markets.” As a result, numerous forecasting agencies have begun cutting estimates for Asia’s medium-term LNG demand growth. The International Energy Agency’s (IEA) latest outlook for gas demand growth in Asia through 2025 is 65 billion cubic meters (cbm) less than its forecast last year. Bloomberg New Energy Finance has cut its expectation for LNG demand in South and Southeast Asia in 2025 by 37 cbm. Other mainstream forecasting agencies, such as Rystad Energy and the Independent Commodity Intelligence Services, have also expressed the risk of permanent reductions in emerging Asia’s LNG demand. Unaffordability of LNG and fuel supply insecurity may cause new import terminals to go unused, potentially costing billions of dollars in stranded assets. As long as unaffordable LNG prices and procurement challenges continue, $96.7 billion dollars of proposed LNG-related infrastructure projects in Pakistan, Bangladesh, Vietnam, and the Philippines will face a heightened risk of underutilization or cancellation. Efforts to reduce LNG dependence are accelerating Many analysts expect Asian demand growth to simply recover to pre-crisis levels once prices settle and new supplies come online. But countries are rapidly developing alternative energy sources that could permanently dent regional LNG demand growth. In China, LNG demand is coming under significant price pressure from new coal and renewables. The country is on pace to deploy 120 gigawatts (GW) of new renewables capacity this year, 40% higher than the previous five-year average. Buyers will reportedly avoid spot market purchases for the rest of the year, while pipeline gas imports were up 60% through April. Moreover, plans to expand pipeline capacity from Russia and Turkmenistan by 100 cbm per year could reduce the need for LNG imports. South Asian countries have tried to maintain LNG import levels when possible, but financially unsustainable prices have led to severe fuel shortages and load shedding. Pakistan and Bangladesh have begun to explore domestic alternatives, including renewables and indigenous gas resources. An uptick in India’s domestic gas production and ambitious renewables targets means that, according to the IEA, annual LNG demand may not surpass 2020 levels through 2025. In prospective LNG markets like Vietnam and the Philippines, LNG import projects are facing delays, while policymakers are increasingly emphasizing the need to reduce dependence on imported fuels. Thailand has faced a perfect storm: high LNG prices, combined with declining domestic gas production and pipeline imports, are causing some of the highest gas and power prices ever. In Northeast Asia, the current LNG market environment has accelerated pre-existing decarbonization plans, breathing new life into renewables deployment and controversial discussions surrounding nuclear power. A renewed focus on energy self-sufficiency in Japan and the election of a pro-nuclear administration in South Korea are expected to have permanent repercussions on LNG demand. “These shifts away from LNG are in their early stages. Should high prices and volatility persist for the next several years, the narrative around LNG as a viable, affordable transition fuel is likely to erode further,” Reynolds concluded. “Ultimately, high prices now may undermine profits and exacerbate stranded asset risks for LNG projects targeting completion later this decade.”
India buys discounted Venezuelan petcoke to replace coal
Indian companies are importing significant volumes of petroleum coke from Venezuela for the first time, trade sources and shipping data show, as the OPEC nation boosts exports not specifically targeted by U.S. sanctions. India’s growing appetite for Venezuela’s petcoke – a byproduct from oil upgrading and an alternative to coal – is being driven by a scramble for inexpensive fuel to power industries as global coal prices have surged. This could boost cash flow for the South American producer, where state and private companies have increased exports of petrochemicals and oil byproducts, and the more competitively-priced Venezuelan supplies could displace cargoes from traditional suppliers. Indian cement companies imported at least four cargoes carrying 160,000 tonnes of petroleum coke from April to June, according to three trade sources, Refinitiv ship tracking data, and Venezuelan shipping schedules. Another 50,000-tonne cargo is expected to reach the port of Mangalore on India’s southwestern coast in the coming days while a 30,000-tonne shipment is scheduled to depart later in August, the data showed. India, which counts the United States and Saudi Arabia as major petcoke suppliers, received its first-ever cargo from Venezuela at the beginning of 2022, according to two of the sources and the documents. A surge in global coal prices to record highs since the Russia-Ukraine war has pushed Indian cement makers including JSW Cement, Ramco Cements Ltd, and Orient Cement Ltd to import pet coke from Venezuela, trade sources said. “The quality of petcoke is very good and it has very low sulfur,” Ramco Cements Chief Financial Officer S. Vaithiyanathan said, adding the downside is that the cargoes take nearly 50 days to arrive in India. Ramco Cements booked two 50,000-tonne cargoes of Venezuelan petcoke, which were delivered in June and July at a discount of $15-20 per tonne to the market price, Vaithiyanathan said. Ramco paid $214.40 and $221 per tonne for the June and July cargoes, respectively, while Orient imported about 28,300 tonnes in April for $220 per tonne, Indian customs documents reviewed by Reuters showed. JSW Cement imported over 30,000 tonnes in June, according to two trade sources, ship tracking data and customs documents. JSW Cement and Orient did not immediately reply to requests for comment. SUPPLIERS The petcoke cargoes were shipped in April-June by Shimsupa GmBH, a Germany-headquartered scrap trading firm, which has an exclusive arrangement with Switzerland-based Maroil Trading to supply Venezuelan petcoke to India, China, Pakistan, and Turkey. “We are exclusive partners of Marfil Trading AG and have all necessary approvals of OFAC and the German government,” Annamalai Subbiah, who owns 100% of Shimsupa, told Reuters. Annamalai confirmed supplying Venezuelan petcoke cargoes for Ramco, Orient, and JSW Cement. The cargoes were shipped from Venezuela’s main oil terminal of Jose, according to the sources and documents. Maroil has in recent years revamped petcoke operations to increase export capacity. Maroil, owned by Venezuela-born shipping magnate Wilmer Ruperti, did not immediately reply to a request for comment. The U.S. Treasury Department, which has so far not targeted Venezuelan exports of petrochemicals and byproducts, declined to comment. Venezuela’s oil sector has been under U.S. sanctions since 2019. Washington imposed sanctions on the country’s most important global business as the former Trump administration ratcheted up its bid to force socialist president Nicolas Maduro out of power.