Petroleum Ministry to divert gas from industries after CNG, piped gas prices jump 70% in a year
The Petroleum Ministry has ordered the diversion of natural gas from industries to the city gas distribution sector to cool CNG and piped cooking gas prices that have shot up by 70% on the use of imported fuel. Less than three months after it ordered the use of costlier imported LNG to meet incremental demand for automobile fuel CNG and household kitchen gas PNG, the ministry on August 10 reverted to an old policy of primarily supplying domestically produced gas for city gas operations. The allocation for city gas operators like Indraprastha Gas Ltd in Delhi and Mahanagar Gas Ltd of Mumbai has been increased from 17.5 million standard cubic meters per day to 20.78 mmscmd, officials said. The increased allocation will meet 94% of the demand for CNG to automobiles and piped cooking gas to household kitchens in the country. Previously, about 83-84% of the demand was met and the remaining was met through the import of LNG by GAIL, they said. Use of domestic gas instead of imported fuel will bring down the cost of raw material and ease CNG and PNG rates, officials said. The move follows a massive jump in CNG and PNG prices in the country in the last one year as operators used costlier imported LNG. CNG prices in Delhi went up by a massive 74% (from ₹43.40 per kg in July 2021 to ₹75.61 per kg now) while PNG prices rose by 70% (from ₹29.66 per standard cubic meter to ₹50.59 per scm). Natural gas is the raw material that is used for CNG and PNG. This gas comes from fields such as Mumbai High and Bassein in the Arabian Sea. As the domestic production of gas is insufficient to meet all the requirements, the fuel is imported in the form of Liquefied Natural Gas (LNG) in ships. To promote the use of cleaner fuel, the government in 2014 included the City Gas Distribution (CGD) sector on the top priority list for receiving gas from older or regulated fields of state-owned ONGC and Oil India. The CGD was put on a ‘no cut’ priority sector and allocation was made twice a year — in April and October — based on consumption data of the previous six months. The ministry made such full allocation in March 2021 and thereafter, in May 2022, issued an amendment to the 2014 supply guideline to state that incremental demand over and above the last year’s level would be met through imported LNG. State-owned gas utility GAIL was asked to average out the price of domestically produced gas and imported LNG every month and supply gas at a pooled price. This pooled price for August came to $10.5 per million British thermal unit. In comparison, the gas from regulated fields of ONGC is priced at $6.1 per mmBtu (it was $2.9 last year when CNG operators started meeting additional demand through imported LNG). LNG rates shot up this year, leading to a hike in CNG and PNG prices, officials said. Spot or current LNG prices have more than doubled in the last few months to about $40 per mmBtu. With industry saying that CNG was losing an edge over petrol and diesel because of the price hikes, the ministry relented and agreed to increase the allocation of gas from regulated fields, they said. The allocation for CGD was increased by cutting some supplies to LPG-making plants of GAIL and petrochemical units of ONGC, officials said. City gas operators complained against the May 2022 guideline as it meant using high-priced imported LNG, which led to frequent CNG and piped natural gas price hikes, they said. After the latest amendment, the gas price will come down to $7.5 from $10.5, officials said. “Supply for domestic gas to the CGD entities shall be made only up to the quantity available and allocated to GAIL for CNG (transport) and PNG (domestic) segment instead of 102.5% of consumption level in the previous quarter,” the August 10 order of the ministry said.
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.
Russia’s market growth in India spells more worries for Nigeria
The growing pace of Russia’s oil in the Indian market is posing a further threat to Nigeria’s oil revenue, indicating uptake of Nigerian crude would diminish in the coming months. Since Russia invaded Ukraine in late February, India’s imports of Russian oil have surged. Bloomberg calculations and Indian government data show that Russian barrels were cheaper than Nigerian barrels from April through June. That spread widened to nearly $19 a barrel in May, before easing to a $13 difference in June. By comparison, in March, Russian crude sold at a $13 premium. “Indian refiners are going to try and get their hands on the cheapest crude possible that works with their refinery and product configurations,” Bloomberg quoted oil market analyst Vandana Hari as saying. In June, Russia beat out Saudi Arabia as India’s second-biggest crude supplier, ranked behind Iraq. Oil from Iraq was about $9 a barrel more expensive than Russian crude in May, but sold cheaper in all other months, per Bloomberg calculations. “Russian crude fits that bill for now. The Saudis and Iraqis are not entirely losing out because they are directing more supply to Europe,” Hari added. This development is significant for Africa’s biggest economy because India represents the largest importer of Nigeria’s crude oil, earning the sub-Saharan country about N13.9 trillion since 2015, according to data gathered by BusinessDay.
An Iran Nuclear Deal Could Send Oil Prices Tumbling Towards $80
Speculation that a new Iran nuclear deal could soon be agreed upon has added downward pressure to oil prices, although the disruption of Russian oil flows to Central Europe is adding to supply worries. – Ever-increasing energy costs are weighing on European consumers, with EU inflation nearing double-digit territory and the UK expecting a spike towards 13%, mostly driven by soaring gas prices. – Almost all European countries will be seeing increases in food prices in the double digits as spot TTF prices continue hovering around €200/MWh, defying recent declines in the UN world food cost index (down 9% month-on-month in July). – According to IMF forecasts, the costs of living for the poorest of UK households have gone up by more than 16% this year, whilst in Hungary (the least suffering of the EU pack) they rose by 3%. – The European Union approved an ad hoc aid package for European companies in the agriculture sector, although the €110 million that went into the package might be too little too late. Market Movers – US investment bank Goldman Sachs (NYSE:GS) reiterated its bullish view, saying that market tightness will remain throughout 2023 and maintaining its 2023 average price forecast of $125 per barrel. – UK-based oil major BP (NYSE:BP) has reportedly started drilling a carbon capture appraisal well in Texas, seeking to bury carbon dioxide from Linde’s hydrogen plant outside of Houston. – Nigeria’s President has approved the acquisition of ExxonMobil’s (NYSE:XOM) offshore shallow water assets by Nigerian oil firm Seplat Energy (LON:SEPL) for $1.28 billion. Tuesday, August 09, 2022 Oil prices bounced back on Tuesday due to news that Russian oil supplies to central Europe via Ukraine had been halted. Meanwhile, it seems that the Iranian nuclear talks will soon creep back into the energy market agenda. The negotiations broke off for a period of national consultations when diplomats returned to their countries to discuss the EU-brokered draft. Now, there is speculation that Iran may agree to this final draft. If that happens, expect oil prices to fall back toward $80 per barrel. Iranian Deal Moves Back into Limelight. The swiftly organized indirect negotiations between Tehran and Washington have reportedly made good progress, according to diplomats participating in the talks, after the EU presented a final text on the revival of the JCPOA. Russia Accuses Ukraine of Halting Pipeline Oil Flows to Europe. According to Russian transportation firm Transneft, Ukraine has halted Russian oil pipeline flows to Central Europe, reportedly because sanctions prevented it from accepting transit fees, jeopardizing crude supply to countries like Hungary, Slovakia, and the Czech Republic. EU Publishes Gas Curtailment Laws. The European Union officially published legislation for cutting the group’s gas consumption by 15%, entering into force on the 9th of August despite Polish and Hungarian vetoes. Colombian President Starts Reign with Oil Levy. Colombia’s new president Gustavo Petro has proposed a tax reform bill that would levy a 10% tax on exports of oil when it exceeds the threshold of $48/barrel, likewise for coal if the benchmark prices move above $87/ton. Japan Wants to Stay in Sakhalin Projects. With Russia temporarily banning Western oil companies from selling their shares in key energy projects, Tokyo has reiterated its willingness to keep the stakes of Japanese consortiums in both Sakhalin-1 and 2. Norway Doesn’t Want to Share its Hydro. With most of Northern Europe suffering from counter-seasonally low water levels, the government of Norway could limit exports of electricity to preserve power at home as it relies on hydro reservoirs for 90% of its domestic needs. Beijing to Clamp Down on Teapots Again. According to media reports, Chinese authorities are preparing to launch widespread tax investigations of independent refiners in Shandong, presumably checking for tax evasion and irregularities with quota trading. PEMEX Eyes Takeover of Mexican Offshore Gem. Mexican state oil company PEMEX is getting ever closer to finalizing the field development plan for the 700 million-barrel Zama field, discovered in 2017 by Houston-based Talos Energy (NYSE:TALO) but given away to PEMEX by the AMLO administration in 2021. Cenovus Keeps on Buying up BP Stakes. Less than two months after it bought BP’s (NYSE:BP) 50% interest in Canada’s Sunrise oil sands, Canadian oil firm Cenovus Energy (CVE) agreed to buy the remaining 50% stake of the UK-based major in the 160,000 b/d Toledo Refinery for $300 million. Kazakhstan Wants to Ban Coal Exports. Kazakhstan, the world’s tenth-largest exporter, will most probably ban coal exports via road for the next six months as the country seeks to keep domestic production at home and accommodate increasing domestic needs of electricity. Government Study Finds Wind Megaproject Unprofitable. A Norwegian government-funded study found that the 3.6 GW capacity of Dogger Bank, the world’s largest offshore wind park currently under construction, will be unprofitable, having a net present value of -$1.3 billion. US Fuel Retailers Stand Up Against SAF Tax Credit. US fuel retailers have voiced their discontent at the inclusion of a tax credit for sustainable aviation fuel (SAF) in Democrats’ $430 billion spending bill, offering $1.25-1.75/USG credit depending on the feedstock, arguing SAF is more carbon-intense and less efficient than renewable diesel. Indonesia Signs up for Tesla Nickel Supply. US carmaker Tesla is rumored to have signed a $5 billion deal with Indonesia that would secure materials for EV batteries from nickel processing companies in Indonesia, a year after CEO Elon Musk visited the island nation to negotiate the deal.
Shell closes USD-1.55bn acquisition of India’s Sprng Energy
Royal Dutch Shell Plc (AMS:RDSA) on Tuesday announced it has wrapped up the acquisition of Indian renewable energy platform Sprng Energy, which owns 2.9 GWp of solar and wind energy assets. Under the USD-1.55-billion (EUR 1.52bn) transaction originally unveiled at the end of April, the oil and gas major has taken possession of Solenergi Power Private Ltd, the direct shareholder of the Sprng Energy group of companies, through its wholly owned subsidiary Shell Overseas Investment BV. The vendor is UK buyout firm Actis. About half of the deal’s total value will be reported as cash capex and the rest will be assumed as debt obligations, Shell said. Pune, Maharashtra-based Sprng Energy’s platform consists of 2.1 GWp of wind and solar energy assets in operation and 0.8 GWp of contracted capacity. The company, created by Actis in 2017, also owns a renewable energy project pipeline totalling 7.5 GWp. The acquisition will triple Shell’s renewable capacity in operation and help it achieve its target of becoming a profitable net-zero emissions energy business by 2050. As of end-April, the oil and gas giant had 1 GW of operating renewable power capacity.
LNG traders absorb huge losses after supply outages
Major energy traders are taking hundreds of millions of dollars in losses as they scramble to plug a liquefied natural gas (LNG) supply gap after several outages hampered efforts to fill European storage ahead of the winter heating season. Unplanned disruptions at LNG plants in the United States, Nigeria and Australia have wrong-footed traders, including BP and Shell, forcing them to pay inflated costs for alternative supplies. In a market already struggling to meet global demand for natural gas after Russia sharply reduced pipeline supplies into Europe, the lost LNG cargoes which can be transported by ship, have pushed global prices sharply higher in recent months. BP (BP.L) took a more than $500 million hit to replace LNG cargoes lost after a sudden shutdown of the Freeport LNG plant in Texas in June, industry sources told Reuters. Freeport, the second-biggest U.S. LNG export plant, supplies BP with 4 million tonnes per year from a total portfolio of 18 million tonnes, BP Chief Financial Officer Murray Auchincloss told Reuters. “Freeport does create an impact in the quarter and we’ve provided for that for the year,” Auchincloss said. The company had deducted the expected costs from its second-quarter profit, but Auchincloss did not specify costs. A BP spokesperson declined to comment on the loss figure. France’s TotalEnergies (TTEF.PA) also said it would replace eight cargoes of LNG it was scheduled to receive from Freeport by buying in the spot market in the third quarter of the year. It was unclear how much the replacement cargoes would cost TotalEnergies. Freeport produces 15 million tonnes of LNG per year. Traders typically sign long-term offtake agreements with LNG producers and agree on separate deals to supply consumers with cargoes from their global portfolios. It’s rare to use plant outages to justify not supplying consumers through what is known as force majeure. Shell , the world’s largest LNG trader with a 20% market share, cut its LNG production volumes in the second quarter by 4%, mainly due to supply losses from the Sakhalin-2 plant in Russia, where it exited operations after Moscow’s invasion of Ukraine in February. The company continues to receive LNG cargoes under existing long-term deals with Sakhalin-2, a company spokesperson said. But the future of the contracts is shrouded in uncertainty after Russia gave foreign investors in the project one month to claim their stakes in a new entity that will replace the existing one. Shell Chief Executive Ben van Beurden said it was “highly unlikely” Shell would join the new entity. The supply loss impacted Shell’s second-quarter profit by around $200 million in the quarter, according to estimates by industry sources. Shell declined to comment on the figure. On top of that, Shell and its partners lost LNG production at the giant Prelude floating LNG off the western coast of Australia after shutting it down amid a pay dispute. Nigeria’s huge LNG export terminal on Bonny Island has also seen output declines in recent months as a result of a shortfall in natural gas supplies due to rampant theft and sabotage to oil and gas pipelines. The money lost is dwarfed by enormous profits both BP and Shell recorded this year on the back of soaring refining margins and high oil and gas prices. But lower availability of LNG has pushed benchmark prices to record highs as Europe sought to ramp up imports rapidly to replace lost Russian pipeline natural gas. At current prices, an average cargo of LNG would cost around $100 million in the spot market. European LNG imports from January to July surpassed a record 100 billion cubic metres (bcm), or 75 million tonnes (Mt), almost reaching the level observed through the entire 2021, according to Nnenna Amobi, senior LNG analyst at Refinitiv. Around 35% of total European imports were received from the United States in July, versus 43% in June, mainly due to the loss of Freeport cargoes. The global LNG market reached 380 million tonnes in 2021, according to Shell.
Goldman Sachs Cuts Oil Price Forecast To $110 This Quarter
Goldman Sachs revised down its Brent price forecast for this quarter to $110 a barrel, down from a previous projection of $140 per barrel, but the investment bank still believes the case for higher oil prices remains strong. In recent weeks, oil prices have been driven down by low trading liquidity and “a mounting wall of worries,” Goldman said in a note on Sunday. Those worries include fears of recession, the SPR release in the U.S., the rebound in Russian crude oil production, and China’s snap COVID-related lockdowns, the bank’s strategists noted. Goldman Sachs also revised down its fourth-quarter Brent price forecast to $125 a barrel from $130 per barrel previously expected. The 2023 projection, however, was left unchanged at $125 per barrel. “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 carried by Bloomberg. The bank has been bullish on oil all year, and it continues to be bullish on crude prices despite the cut in its near-term price forecasts. In the middle of July, Goldman Sachs said that despite the ongoing market sell-off, “the skew to prices from here is squarely skewed to the upside.” With low inventories and a potential Saudi/UAE ramp-up in production in the region of 500,000 barrels per day (bpd), which will further deplete “record low spare capacity,” the risks are firmly skewed to the upside, Goldman Sachs’ analysts wrote in the note in July. In yesterday’s note, Goldman said, “We still expect that Brent prices will need to rally well above market forwards.” Oil prices were trading at multi-month lows early on Monday, with Brent below $94 per barrel and WTI Crude just below $88 per barrel.
Gas pricing formula needs a revisit
The current pricing formula does not incentivise the producers. A review is needed to up gas’ share in the energy mix. If India wants to make natural gas one of its major sources of fuel then it may need to take a relook at its existing domestic gas pricing mechanism. Today, gas price in the spot market is around $47 per mmBtu (gas is measured in million British thermal unit), long-term contracts which India has entered into is around $19/ mmBtu, Non APM (non-administered price) domestic gas is at $10/mmBtu and APM (administered) domestic $6/mmBtu. Though India sources most of its LNG (liquefied natural gas) through long-term contracts, price in such contracts is also subject to market conditions. Supply disruptions Recently at the media and analyst call of Reliance Industries Ltd’s first quarter 2022-23 results, Sanjay Roy, Senior Vice President – E&P, Reliance Industries Limited, had said, “…Just to give you a perspective on global gas markets, as you all know, the gas prices continue to remain elevated. There are two major drivers, one is European demand now shifting from Russian gas to LNG supplies, and which also impacts the Asian consumers. Also, there’s been supply destruction. As, we’ve seen the Freeport LNG terminal in the US, as well as the Nord Stream one pipeline disruptions. So, that’s a substantial amount of volume that has been impacted…” “In terms of the Indian gas market the outlook remains robust and one of the big reasons is the availability of the domestic gas. Because the domestic gas particularly like in KG-D6, where there is a price ceiling and that is much in demand as compared to the market prices that are currently prevailing at these times. “Now, in terms of price ceiling, as you all are aware and I mentioned earlier, the price must move up and we will see higher realisations. It is expected that based on higher energy prices this will go further up,” he said adding, “Now, we do see that the domestic price ceiling remains disconnected, whether the prices are elevated or when prices fall. And you know we are continuing our advocacy for removal of ceiling prices. Overall, we expect higher gas price realisations in FY23 and in the quarters to come.” Pricing problems Roy is not the only one talking on these lines. Recently at an event former Petroleum Secretary and currently Chairman of Hindustan Oil Exploration Company (HOEC), Vivek Rae, opined that the gas pricing policy in India has to be fixed and the 2014 formula has to be done away with. Rae had said that the current formula is “myopic” and does not incentivise gas producers. In India, gas penetration in its energy mix is 6 per cent as against a global average of 23 per cent. The objective is to improve this number to 15 per cent over the next few years. India’s gas price is determined at an average price of LNG imports into India and benchmark global gas rates. According to industry, India is simply underpricing a scare resource. “At current prices, you are penalising the producer and somehow the consumer trumps the producer,” he had added. “…We are benchmarking our resource price based on the price in countries where the resource is not scarce,” he explained. Market dynamics Let us look at the gas market in India. Total consumption in India is 175 million standard cubic metre a day (MMSCMD), of this 93 MMCMD is met through domestic production and 82 MMSCMD through LNG imports. Gas consumption is directly linked to supply availability. The industry fears that the world’s third largest energy consumer could see its natural gas consumption decline from the current levels if LNG (imported gas) prices in the international market continue to rule in the range of $45 an mmBtu. At a post results media interaction Petronet LNG Chief Executive Officer AK Singh, elaborating on the impact of high prices on demand, said, “India is fortunate enough to have a good portfolio of long-term contracts.” But, due to high volatility and prices, the increase in demand is not happening, though demand destruction here is not to the extent that people in other parts of the world are experiencing, he added. “With gas prices moving up in this fashion, to sustain consumption in this situation is in itself a challenge. Growth comes when prices stabilise. Considering the geopolitical situations, we do not foresee that immediately growth will start,” he had pointed out. Formula review What India needs to do to have a mature gas market is to review is its existing formula. Currently, India revises its domestically produced gas price on a half yearly basis based on a cocktail formula worked out considering the volumes and prices prevailing at major international markets such as Henry Hub, National Balancing Point, Alberta and Russia. According to the government, the formula was finalised considering the requirements/interests of producing and consuming sectors. The prices are notified after every six months in accordance with said guidelines. The argument put forth is that the formula is based on markets which are either very matured or are themselves producers and not exactly India-sepecific. If the government wants to promote the gas market then such economic transformation would be not be possible without proactive and sustained policy support from the governments and regulatory authorities in these countries. In India, Gujarat has shown how one can expand to gas economy, and other States can follow. India has set the target to raise share of natural gas in energy mix to 15 per cent by 2030, and to attain this, the entire eco-system needs to be addressed.
Petronet LNG delays plan for 1mtp LNG deal amid high prices
India’s top gas importer Petronet LNG has pushed back plans for a 1 million tonnes per annum (mtpa) liquefied natural gas (LNG) import deal after a surge in global prices, its head of finance Vinod Kumar Mishra said. “If you go for any long term contract it comes at a very high slope, so we are waiting for some time because if prices come down then we can get good price…we are waiting for right environment,” Mishra said during a call with analysts. Petronet is currently negotiation with Qatar for extension of its 7.5 mtpa long term LNG deal to beyond 2028, he said. The company has to complete renegotiation with Qatar for extension to the deal by end-2023, he said, adding Petronet could seek additional volumes from Qatar or some other player. Petronet wants a 1 mtpa deal for small industrial users. Petronet’s managing director A.K. Singh in May said the company is looking for 0.75-1 million tonne of LNG in immediate term to meet the rising demand. India’s top gas distributor GAIL (India) Ltd on Thursday said it failed to award its recent tender seeking 0.75 mtpa LNG under a 10-year deal. Mishra also said Petronet’s Singapore-based unit has not yet started spot trading of LNG as prices are too high. He said next year global LNG prices could ease after an end to Russia Ukraine crisis, a primary reason for a surge in global LNG prices. Earlier in the day, Singh said higher global prices have curbed growth in India’s gas demand, though he did not see higher gas prices affecting his company’s prospects of renewing the Qatar gas deal as the Middle Eastern nation is expanding capacity. He said the market will realign as more Russian supplies will come to Asia if European countries switch to the US and Qatar.
The Global Diesel Crunch Is Going To Get Worse
Despite signs of weakening economic growth globally, regional diesel markets are tight and could tighten even further when winter comes and when Europe bans imports of Russian crude and fuels. Distillate fuel inventories are low in the United States and Europe. Stockpiles in the U.S. haven’t increased this summer as usual, and in one month since the end of June, they have seen the biggest drawdown for this time of the year in at least 32 years. The fuel market in Europe is even tighter as industries and utilities look to switch to oil products from natural gas, whose prices are at record highs after Russia slashed deliveries to the EU and showed it could not be considered a reliable energy supplier. Over the next few months, the shortages could become even worse when heating season begins, which will coincide with the planned EU ban on imports of Russian seaborne fuels at the start of 2023. The U.S. exports growing volumes of diesel to Europe, but it is unlikely to ramp up flows much higher because American inventories are also well below seasonal averages while refineries already operate at close to capacity levels. Distillate fuel inventories in the United States fell by 2.4 million barrels in the week to July 29 and are about 25% below the five-year average for this time of year, the latest weekly inventory report by the EIA showed this week. At 109.3 million barrels as of July 29, the stockpile of diesel, heating oil, and other distillate fuel oils currently sits at its lowest level for this time of the year since 1996, according to estimates from Reuters market analyst John Kemp. Typically, U.S. distillate fuel inventories rise during the summer season when refiners process crude into more gasoline to meet summer driving season demand. But this has not been the case this year. In fact, distillate stocks fell in July by up to 3 million barrels, which is the largest seasonal drawdown since at least 1990, Kemp notes. In Europe, the looming EU embargo on Russian crude and products is prompting traders to source growing amounts of diesel from non-Russian sources. The U.S. has been one such source, and its exports hit 1.4 million bpd in July, the highest in five years. A lot of the increase is coming from Europe. Europe itself hasn’t made a significant advance in cutting its diesel imports from Russia – it actually increased imports of Russian diesel in July, data from energy analytics firm Vortexa showed this week. European diesel imports from Russia rose to an unseasonably high level of 680,000 bpd in July, up by 13% month-on-month and 22% year over year, and outpacing non-Russian supplies by about 200,000 bpd, according to Vortexa data. “Overall it appears questionable whether Europeans will manage to fully carry through on the announced diesel import ban, given record diesel prices already over the last five months, Europe’s rising rather than falling dependency on Russian diesel, limitations within the global refining system, and the likely significant role of diesel as a replacement fuel for natural gas and power shortfalls. The above will challenge the resolve of Europe and its politicians in particular,” Vortexa Chief Economist David Wech wrote. Going forward, it will be crucial to see if U.S. refiners – attracted by high European margins – would produce more diesel for export to Europe, Wech told the Financial Times. According to U.S. refiners, there isn’t much room for a further increase in diesel shipments from America to Europe. Gary Simmons, Executive Vice President and Chief Commercial Officer at Valero Energy, said on the Q2 earnings call last week that “It’s going to be a real challenge for us to be able to supply a lot more diesel into Europe.” With U.S. inventories low and “the industry basically running all out,” “it’s very difficult for me seeing that there’s going to be a lot of flow from the U.S. into Europe,” Simmons added. Fuel supply across Europe is being further disrupted by critically low water levels on the River Rhine, a major petroleum product transportation corridor. The German unit of OMV told Bloomberg it “is observing a current run on heating oil and diesel.” Even as economies slow down, the fuel switch to oil from gas in Europe as we approach the winter heating season is likely to support distillate fuel demand and potentially tighten the diesel market further.