ONGC Offers Stake In KG Block To Foreign Firms
State-owned Oil and Natural Gas Corporation (ONGC) is offering a stake to foreign companies in its ultra deepsea gas discovery and a high-pressure, high-temperature block in the KG basin as it looks for financial and technological help to bring the challenging fields to production. ONGC has floated an initial tender seeking interest of global majors with “requisite technical expertise and financial strength” to join as partners in development of the Deen Dayal West (DDW) block as well as ultra-deep discoveries in Cluster-III of its KG-D5 area. Expressions of Interest (EoIs) have been invited by June 16, according to the tender floated by the company. While ONGC had made a gas discovery UD-1 in the KG-D5 block in water depth of 2,850 metres (almost 3 kilometers), the firm had in August 2017 paid Rs 7,738 crore for buying 80 per cent stake in the DDW block from Gujarat government firm GSPC. On the one hand, ONGC does not have the requisite technology and expertise to develop the UD discovery, which lies about 150-km from the coast, while on the other hand it hasn’t had much success in DDW block which holds reserves at high pressure and high temperature (HPHT). ONGC is seeking technology partners and service providers for the development of the two and is willing to offer an equity stake to firms interested, the tender document said.
Shell in talks with Indian consortium to sell Russian LNG plant stake: Report
Shell is in talks with a consortium of Indian energy companies to sell its stake in a major liquefied natural gas plant in Russia which the British company abandoned following Moscow’s invasion of Ukraine, three sources told Reuters. The consortium’s potential interest in the Russian plant shows how India is willing to move in on energy assets and cheap oil supplies coming on the market as a result of Western companies pulling back from Russia. Shell in February said it would exit all its Russian operations, including its 27.5% stake in the Sakhalin-2 LNG plant on Russia’s eastern flank, amid an exodus of Western companies from the country. The world’s largest liquefied natural gas trader wrote down $3.9 billion on Russian assets after its decision to leave. The company has recently entered talks with a group of Indian companies, including ONGC Videsh and Gail to acquire the stake, the sources said. Shell declined to comment. ONGC, Gail and other state-run Indian companies did not respond to Reuters’ request for comment. Shell is also asking the Indian group for separate bids for long-term deals it has with Sakhalin 2 to supply it with LNG cargoes and crude oil, two of the sources said. The Indian government has asked state-run energy companies to evaluate the possibility of buying Russian assets from European oil majors including BP, Reuters reported last month. It was unclear if the talks between Shell and the Indian consortium will lead to a deal, whose value remains unclear after Shell took the writedown on its Russian assets. Any sale agreement would also require Moscow’s approval, the sources said. Shell is currently not in talks with other companies, including Chinese energy groups, on selling the Sakhalin-2 stake, one of the sources said. Sakhalin-2 is controlled and operated by Russian gas company Gazprom. Other stakeholders in the project include Japan’s Mitsui & Co and Mitsubishi Corp. Shell earlier this month agreed to sell its Russian retail and lubricants businesses to Lukoil.
India’s renewables increase and take some pressure off coal
Continued warm weather drives India’s power demand. Seasonal increase in renewables started. Coal-fired power generation for May declines from April, but stocks are still low. Gas-fired power generation shows little movement, indicating no spot LNG used as fuel. High power demand driven by warm weather India’s power demand for May 1-17 is estimated at 196 aGW and is higher than expected. The strong demand is driven by sustained warmer-than-normal weather. Temperatures for the first half of the month were 2 C higher year on year for India, while certain regions, such as Delhi, were 4 C higher. The May development is a continuation of the situation in April, when a temperature-driven increase in power demand set a new all-time high record and averaged 194 aGW. The hot weather in Delhi is expected to get a relief over the next few days as rain is forecast for May 20-24. Renewables have started seasonal increase, effectively easing coal demand Renewables generation has started its seasonal increase and are estimated at 25 aGW for the first part of the month, which is an increase of 9 aGW year on year. The majority of the increase is from wind, which at 12 aGW has almost doubled year on year. Hydro is also higher at 18 aGW, which is 3 aGW higher on the year. The combined increase from renewables and hydro has taken some pressure off coal-fired power generation, which averaged 137 aGW for May 1-17, a decline of about 5 aGW from April. Gas-fired power generation continues to stay stable and low at close to 3 aGW, which most likely means spot LNG is still absent from the fuel mix since October 2021 Outlook for summer S&P Global Commodity Insights assumes normal temperatures going forward and expects power demand for May to September at 182 aGW, which is an increase of 10 aGW year on year. In May 2021, there was a nationwide lockdown for several weeks, which limited power demand. S&P Global expects gas-fired power generation to continue to stay low around 3 aGW, assuming demand for gas averaging 17 million cu m/d, which is 9 million cu m/d lower on the year. Coal-fired power generation is expected to be 125 aGW, which is an increase of 8 aGW, or about 7% on the year. As discussed in the May 12 International Thermal Coal Scorecard, India’s Ministry of Power issued a directive May 3 asking state-operated utilities to increase coal imports to ensure India’s utilities have 50% of target coal tonnes (38 million mt, so 19 million mt) by end-June. This has Indian buyers reportedly issuing tenders and booking imports, for example, from the US Northern Appalachia exporters, and purchasing other material from port stocks. India is expected to import 11-13 million mt of thermal coal in April and May 2022 ahead of the monsoon season. S&P Global expects summer-22 imports to average around 14 million mt/month through September, though significant downside risk remains to this forecast. Seaborne imports continue to be constrained by elevated seaborne spot price levels throughout 2022 and this forecast remains above the previous year average of 12 million mt/month for the same period. Indonesia, South Africa, and Australia remain the top suppliers of Indonesian imports.
India aims to ease oil price pain through tax cuts, new term crude deals
From cutting taxes on retail oil products to scouting around for attractive term crude deals, India is stepping up efforts to ensure that surging world prices do not stand in the way of the fragile economic recovery as well as a revival in domestic oil product consumption. Government officials in India said they believe that current oil prices were not sustainable over the longer term, but they were also unanimous in their view that it was crucial to implement fiscal measures now to ensure that inflation stays under control, instead of waiting for oil prices to cool. “Oil prices are a big concern for the government and the economy now because of its cascading effect. Not only pump prices and transportation costs go up, but prices of various other goods and services are affected,” Dharmakirti Joshi, chief economist at CRISIL, a unit of S&P Global, said. According to Platts Analytics of S&P Global Commodity Insights, Dated Brent prices are expected to average $103/b in 2022, up from $71/b in 2021, before easing to $90/b in 2023. “We estimate that every $10 per barrel rise in the price of Brent crude would raise the headline consumer price index by about 40 basis points. The weakening of the Indian rupee will also add to the imported cost of crude and commodities,” Joshi added. Inflation, based on CPI, has risen consistently for the past seven months, reaching an eight-year high of 7.8% in April. Excise duty cuts On May 21, India’s federal government decided to cut the excise duty on petrol and diesel in an attempt to rein in high levels of inflation. It was the second duty cut in a little over six months. The duties on petrol and diesel were cut by Rupees 8/liter and Rupees 6/liter, respectively. “The decisions along with steps to curb the price rise on key infrastructure material such as cement, steel and plastics will bring wide-scale relief to millions of Indian families and provide pivotal support to the Indian economy amid a challenging global inflationary environment,” oil minister Hardeep Singh Puri said after the excise duty cuts were announced. CRISIL’s Joshi added that while the government’s top priority was battling inflation, the excise duty cut on fuels would also mean revenue loss. “But the space to address this issue is extremely limited. You either let fiscal deficit to go up or cut capital expenditure. The government may watch oil prices for some more time before taking additional measures.” India’s sustained uptrend in oil consumption came to a halt and slipped into the red in April from March levels as rising domestic retail fuel prices on the back of surging crude took a toll on gasoline, diesel and LPG demand. Domestic oil product demand fell 4% month on month to 18.64 million mt, or 4.9 million b/d, in April, recent data from the Petroleum Planning and Analysis Cell showed. “I am not convinced international crude prices would continue above $110 a barrel. Global crude prices should come down in the near to medium term. High oil prices will lead to recession. Our job is to insulate the country against the expected recession,” a top official at the petroleum ministry said. The official added that it was difficult to believe that the recent high crude prices were due to lack of investment in the exploration and production segment worldwide. “The current high crude prices reflect the mismatch between demand and supply of crude in global markets.” New crude term deals The Indian government and refinery officials said India was looking for new term crude deals that would make commercial sense. “There are discussions on a government-to-government (G-to-G) level. We are open to any kind of opportunity and if something is done on a G-to-G level, we would obviously be a part of that,” P.K. Joshi, chairman of state-run Hindustan Petroleum Corp. Ltd., said. “Any opportunity coming in the future of utilizing Russian crude, definitely we will be utilizing that depending on technical and economical requirements.” “It should make sense in terms of freight, insurance, and various factors,” he added. India is also eyeing term crude deals with Brazil, but analysts said high shipment costs, the long sailing period and limited bandwidth with the South American producer to commit plentiful volumes beyond its traditional Asian customers will keep the size of any new term deals relatively small. While it currently costs less than $4/mt and takes about four to six days to ship crude oil from the Middle East, it costs $15-$20/mt and takes more than 25 days to ship from Brazil to Asian destinations, market sources said. HPCL officials said they expect crude prices to hover in the range of $105-$115/b in June, and $103-$111/b in the July-September quarter.
Biden Calls Energy Crisis “Incredible Transition”
President Biden came under fire from fellow politicians this week after he called the record-high retail fuel prices in the U.S. part of “an incredible transition” away from oil and gas. “Here’s the situation. And when it comes to the gas prices, we’re going through an incredible transition that is taking place that, God willing, when it’s over, we’ll be stronger, and the world will be stronger and less reliant on fossil fuels when this is over,” Biden said during a joint news conference with Japanese Prime Minister Fumio Kishida. The President’s remarks come as the average gasoline price in the U.S. reached $4.596 per gallon at the start of this week, with diesel prices at $5.554 per gallon despite the planned massive release of crude oil from the strategic petroleum reserve and new plans for the release of diesel from federal reserves as well. “And what I’ve been able to do to keep it from getting even worse — and it’s bad. The price of gas at the pump is something that I told you — you heard me say before — it would be a matter of great discussion at my kitchen table when I was a kid growing up. It’s affecting a lot of families,” Biden also said. “But we have released over two hundred and, I think, fifty-seven thousand — million barrels of oil, I should say. Us and the rest of the world we convinced to get involved. It’s helped, but it’s not been enough,” the U.S. President added. Although gasoline prices are putting pressure on households, some experts are more concerned about diesel prices, which help keep inflation higher by adding to the transportation costs of most goods shipped and sold across the U.S. In the East Coast, according to the WSJ, diesel fuel supplies are at the lowest since 1990 at least.
Centre all set to hire private sector executive to head ONGC, offers attractive pay package
The Centre is actively considering hiring a suitable candidate for the top job at the country’s largest crude oil and natural gas company—Oil and Natural Gas Corporation (ONGC)—amid soaring global energy prices in an earnest attempt to push for higher oil and gas production to cut India’s import dependence. In February, the government constituted search-cum-selection committee to choose a chairman-cum-managing director (CMD) at ONGC and is planning to seek out private sector executives as well, people with direct knowledge of the matter told ET. Government officials are of the view that a private sector executive could help revamp the company, increase its risk-taking capability and enhance efficiency. Since the retirement of Shashi Shanker in March 2021, ONGC, which produces more than half of India’s oil and gas, has been without a full-time CMD for more than a year. The main obstacle to rope in a top private sector executive is the lower remuneration at public sector companies, and the panel, therefore, is weighing options to give a lucrative compensation along with other terms that may be essential for the CMD to function smoothly. State-owned companies’ executives won’t be eligible for the pay package that will be on offer to those from the private sector. It is worth mentioning here that the panel has not met formally yet. It includes Public Enterprises Selection Board (PESB) chairperson Mallika Srinivasan, oil secretary Pankaj Jain and Indian Oil’s former chairman B Ashok. Srinivasan, the chairperson of tractor-maker Tractors and Farm Equipment (TAFE) is the first PESB chief from the private sector. Generally, the PESB selects directors and chairmen for state-run entities. Earlier, the committee rejected all nine candidates who were interviewed for the ONGC role last June. They included some ONGC executives and senior bureaucrats. India’s oil production has been on a downward slide during the past few years. From 35.7 million tonnes in 2017-18, it dropped to 34.2 million tonnes in the following year and 32.2 in 2019-20 and 30.5 million tonnes in 2020-21. Plus, ONGC has reported a gradual fall in output for over a decade now. ONGC’s production has fallen for years and its market value, at present at Rs 1950 billion, has dropped 11 per cent in five years. However, its shares are up about 36 per cent from a year ago because of elevated oil prices.
Oil at $110 a barrel not sustainable, says Hardeep Puri at WEF Davos
Crude oil price of $110 a barrel is not sustainable, Union minister of petroleum and gas Hardeep Singh Puri told the World Economic Forum in Davos on Tuesday. The Indian basket of crude comprising Oman, Dubai and Brent crude, was last recorded at $110.98 per barrel on 23 May. As countries around the world struggle with the impact of inflation on disposable income, India’s Commerce Minister Piyush Goyal said on the same WEF panel that food inflation in the South Asian country was at a “manageable level”. Goyal also said that India was producing enough wheat for domestic consumption, as some countries face shortages due to price rises and problems in getting the grain from major producer Ukraine following Russia’s invasion. India’s oil production This comes as official data showed India’s crude oil production fell 1 per cent in April after lower output from fields operated by the private sector wiped away gains by state-owned firms such as ONGC. India produced 2.47 million tonnes of crude oil in April, down from 2.5 million tonnes in the same month last year, according to data released by the Ministry of Petroleum and Natural Gas. Oil and Natural Gas Corporation (ONGC) produced 1.65 million tonnes of crude oil in April, which was nearly 5% more than the target set for it and 0.86% high than the 1.63 million tonnes produced last year. Oil India Ltd (OIL) produced 3.6% more crude at 2,51,460 tonnes but fields operated by the private sector produced 7.5% less crude oil at 5,67,570 tonnes. The government has been focused on raising domestic production of oil and gas to cut reliance on imports. India imports 85% of its oil needs and about half of its natural gas requirement. Natural gas output rose 6.6% to 2.82 billion cubic meters on the back of higher output from eastern offshore – home to the KG-D6 block of Reliance Industries Ltd and BP plc. ONGC produced 1 per cent less natural gas at 1.72 bcm, while eastern offshore output jumped 43 per cent to 0.6 bcm, the data showed. With demand return, refineries processed 8.5% more crude oil at 21.6 million tonnes in April. Public sector refineries turned 12.8% more crude into fuel, while private and joint sector units’ crude thruput was 1.8% higher. Meanwhile, the central government announced the reduction in central excise duty on petrol by ₹8 per litre and on diesel by ₹6 per litre on Saturday.
Sri Lanka hikes fuel prices; petrol at all-time high of Rs. 420, diesel Rs. 400 per litre
Crisis-hit Sri Lanka on May 24 raised the petrol price by 24.3% and diesel by 38.4%, a record hike in fuel prices amidst the country’s worst economic crisis due to the shortage of foreign exchange reserves. With the second fuel price hike since April 19, now the most-used Octane 92 petrol would cost 420 Sri Lankan rupees ($1.17) and diesel 400 Sri Lankan rupees ($1.11) a litre, an all-time high. The decision to raise the Octane 92 petrol price by 24.3% or 82 rupees and diesel by 38.4% or 111 rupees per litre was taken by the state fuel entity, Ceylon Petroleum Corporation (CPC). “Fuel Price will be revised from 3 a.m. today. Fuel pricing formula that was approved by the Cabinet was applied to revise the prices,” Power and Energy Minister Kanchana Wijesekara said on Twitter. “Price revision includes all costs incurred in importing, unloading, distribution to the stations and taxes. (1) Fuel Price will be revised from 3am today. Fuel pricing formula that was approved by the cabinet was applied to revise the prices. Price revision includes all costs incurred in importing, unloading, distribution to the stations and taxes. Profits not calculated and included. “The Cabinet also approved the revision of transportation and other service charges accordingly. The formula will be applied every fortnight or monthly,” he said. The hike came as the public continues to suffer in long queues at fuel stations hit by shortages. Lanka IOC, the Sri Lankan subsidiary of India’s oil major Indian Oil Corporation, has also raised the retail prices of fuel. “We have raised our prices to match the CPC,” Manoj Gupta, the CEO of LIOC, told PTI. Meanwhile, the autorickshaw operators said they would raise the tariff to be 90 rupees per first kilometre and 80 rupees for the second onwards. As a measure to mitigate the costs, the government announced that the heads of institutions would be given the discretion over which employees would be essential to report physically. The rest be allowed to work from home. Lanka IOC has been in operation in Sri Lanka since 2002. Sri Lanka has been mulling different options to facilitate measures to prevent fuel pumps from going dry, as the country faces a severe foreign exchange crisis to pay for its imports. The island nation is grappling with an unprecedented economic turmoil, the worst since its independence from Britain in 1948. It is struggling with a shortage of almost all essentials, due to the lack of dollars to pay for the imports. A crippling shortage of foreign reserves has led to long queues for fuel, cooking gas and other essentials while power cuts and soaring food prices heaped misery on the people.
IOC, HPCL and BPCL free to set their own fuel prices, says India’s oil minister
Oil marketing companies such as Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) are free to set their own fuel prices, said Hardeep Singh Puri, Minister of Petroleum and Natural Gas. The minister’s comment came after the Centre announced a cut in excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 per litre on Saturday. “They (OMCs) are very strong stakeholders in our system and clearly, they do their own decision making,” said Puri in an exclusive interview with CNBC-TV18, on the sidelines of the World Economic Forum Annual Meeting 2022. “Now, obviously, if they have under-recovery in one area — and this is for them to answer — maybe because they make up in petrochemicals or in refining and other areas, they are able to do it. But you know, it is not for me, as the Minister for petroleum and natural gas, to have to tell them what they can do and what they can’t do,” Puri said. OMCs fell on Monday after the government’s decision of reducing excise duty on fuel and giving subsidy of Rs 200 on gas cylinders. “At this stage it will be incorrect on my part to comment whether the OMCs will raise or not raise. I can only say that probably the excise duty rate card may help in or give some flexibility in the day-to-day management of the prices and it may also help a little bit on the working capital management. But how it needs to be handled, which way prices should be directed… that probably the OMCs have to decide,” said MK Surana, CMD, HPCL. Harshvardhan Dole, VP-Institutional Equities, IIFL, said the OMCs have incurred significant inventory losses and added the excise duty cut will incur a loss of almost Rs 50 billion for the companies collectively. “Big question marks as to how the government will let these OMCs recoup these losses and essentially take price increases and compensate on the LPG losses,” he said. Puri added that the excise duty cut on petrol and diesel is, in a sense, a sequel to the November reductions. “On the decision, which was taken yesterday, I would like to remind you that this is in a sense, a sequel. Earlier, a decision was taken on November 4 last year because of the Prime Minister’s considered and very well thought through assessment that the burden on the common man, the Aam Aadmi needed to be addressed,” Puri said. He said that Prime Minister Narendra Modi took the decision of petrol and diesel excise duty cut based on inputs he received from various stakeholders within the system. Samir Arora, Founder and Fund Manager, Helios Capital said that the excise duty cut cannot change much from a macro point of view. “We are talking only about the month of May. Oil prices are up more than 5 percent, which means if you were to give 5 percent back in terms of price cut effectively through excise cut or any duty cut, basically just takes you back to April 30. Separately, we know that the oil marketing companies themselves are sitting on a huge shortfall. So in theory, maybe one reason for doing this is to make sure that the oil companies at least are able to get some slight increase, and effectively instead of government getting the money, the OMCs get it,” he said.
Five Major Challenges Facing The Energy Industry
Record-high prices at the pump, a looming diesel shortage right when the summer season is starting, and an uncooperative OPEC are probably reasons for many headaches among government officials around the world. Yet these are, in fact, manifestations of deeper problems in the energy industry. Underinvestment In the past decade or so, Europe and, to a lesser but no less significant extent, North America, have made it their mission to reduce their reliance on fossil fuels and increase their reliance on renewable energy. This has spurred an investor exodus from oil and gas and the emergence of the so-called ESG investing trend. Money for new oil and gas developments has become more difficult to tap as banks join the ESG movement, and companies have had to cut back on spending. Saudi Arabia’s oil minister warned that underinvestment in oil and gas would have a boomerang effect on consumers earlier this year, and he is not the only one. Many OPEC officials have made the same warning but, apparently, to no avail. After all, none other than the International Energy Agency said last year the world does not need new oil and gas exploration because we won’t be needing any more new oil or gas supply. Of course, it was only a few months later that the IEA changed its tune, calling on OPEC to boost production, and it demonstrated one of the harsh realities of the energy industry: you cannot reverse a process that has been going on for years in a matter of months. Low discovery rates A topic that doesn’t get much talked about, the average rate of new oil and gas discoveries is, in a way, comparable to the average conversion rate of solar panels: it is well below 30 percent. Bloomberg recently reported that three wells that Shell had drilled offshore Brazil had come up dry. The supermajor had paid $1 billion for drilling rights in the area and had spent three years drilling to come up empty-handed. Exxon had also failed to tap any significant oil reserves in its Brazilian blocks, which cost it $1.6 billion. The news highlights the risky nature of oil and gas exploration even in places like Brazil, which has been touted as the next hot spot in the industry, probably alongside Guyana. Brazil has become a magnet for supermajors because of its prolific presalt zone, but, as one local energy consultant told Bloomberg, the big discoveries have already been made—back when the discovery rate was close to 100 percent. The average successful discovery rate for the oil and gas industry is much lower than that, however, at 24.8 percent, according to Bloomberg. And there are fewer and fewer big discoveries to be made. Production cost inflation Broader inflation trends, in large part driven by soaring energy costs, have not passed the energy industry itself. In the U.S. shale patch, production costs have risen by some 20 percent. Two companies recently warned they would be reporting higher costs for their second quarters, Continental Resources and Hess Corp, and they are far from the only ones experiencing these higher costs. Shortages of raw materials such as frac sand and, earlier this year, steel piping for wells, are one reason for the production cost inflation, not just in the shale patch but everywhere where these raw materials are used in oil fields. A shortage of labor is a special problem for the U.S. shale patch, too, helping to drive production costs higher. Lingering supply chain problems from the pandemic are also in the mix. The bigger problem is that the industry is not expecting any respite in the coming months, either, as Argus recently reported, citing oil and gas executives. The production cost squeeze comes at a time when the federal government really needs more oil and gas, which is probably the worst possible time as it has discouraged drillers further from spending more on new drilling. Cyberattacks Cybersecurity has become a cause for concern in the energy industry in the past few years as cyberattacks have multiplied significantly. The Colonial Pipeline hacking really helped out things in perspective on the cybersecurity front, but little action followed, it seems. A brand new survey by DNV, the Norwegian risk assessment and quality assurance consultancy, revealed this week that the industry is quite uneasy about cyberthreats and, what’s worse, not really prepared to handle them. According to the study, 84 percent of executives expect cyberattacks will lead to physical damage to energy assets, while more than half—54 percent—expect cyberattacks to result in the loss of human life. Some 74 percent of the respondents expect environmental damage as a result of a cyberattack. And only 30 percent know what to do if their company becomes a target of such an attack. Geopolitics The most chronic risk in the energy industry, geopolitics is never far away when prices start swinging wildly or, as is the case right now, remain stubbornly high. The prospect of an EU oil embargo on Russia, although dimming in the past few days, is one big bullish factor for oil prices. The lack of progress on Iran nuclear talks is another. And then there is, of course, OPEC’s evident unwillingness to respond to calls from the West for more oil. Russia itself does not seem bothered by the embargo prospects at all. “The same oil that they [the EU countries] bought from us will have to be purchased elsewhere, and they will pay more, because the prices will definitely rise; and once the cost of delivery and freight increase, it will be necessary to invest in building the corresponding infrastructure,” Deputy Prime Minister Alexander Novak said this week. Iran is meanwhile boosting its oil exports, which go almost exclusively to China. The country has signaled it will not agree to a deal with the U.S. unless the U.S. meets its demands, and it appears that the ball is now in Washington’s court. In the meantime, China will have Iranian oil, but no