Oil Prices Surge Past $113 As Shanghai Signals End Of Lockdown
Oil prices have topped $113 per barrel on optimism that China’s lockdowns are coming to an end and demand will not take a prolonged hit. In early afternoon markets Monday, news that Shanghai was seeing a strong recovery from COVID cases, with plans in place to ease lockdown restrictions beginning this week, outweighed a litany of bearish news for oil. Brent was at $113.6 per barrel on 1:38 pm EST, while WTI was trading at $113.5. Authorities in Shanghai on Monday said restrictions would finally ease, in stages, after nearly six weeks of lockdowns that have shaken the Chinese economy and disrupted global supply chains. On 1 June, Shanghai is scheduled to see lockdowns end, with a gradual easing beginning on May 21st. “From June 1 to mid- and late June, as long as risks of a rebound in infections are controlled, we will fully implement epidemic prevention and control, normalise management and fully restore normal production and life in the city,” the Guardian quoted deputy mayor Zong Ming as saying Monday. The announcement comes shortly after downward pressure was put on oil prices over new releases of weak Chinese economic data and signals that the European Union’s plans to ban Russian oil had faltered. On Monday, China published official economic data, showing a significant slowdown, with industrial output falling by nearly 3% year-on-year in April, and retail sales down by around 11%. Shanghai’s port volumes were also down by 40%, according to DW. All of this has led to a decline in demand for oil coming out of China. However, according to new data from the Saudi Arabia-based Joint Organizations Data Initiative (JODI), global oil demand surpassed pre-pandemic levels in March, at 101%, despite declines in Chinese demand. However, the report noted that crude oil production was at 97% of pre-COVID levels. The data is based on submissions that account for 70% of global oil demand and 55% of global crude production.
Failure To Implement Russian Oil Ban Could Send Oil Crashing To $65
A key factor in the upper band of the benchmark crude oil trading ranges over the past weeks is market concern over a ban of Russian oil exports to the European Union (E.U.). Prior to the invasion of Ukraine, Europe was importing around 2.7 million barrels per day (bpd) of crude oil from Russia and another 1.5 million bpd of oil products, mostly diesel. This fear, though, is vastly overblown for several reasons analysed below. The removal of this particular fear factor in the oil price will allow oil prices to move back over the course of this year to the level they were before the Russia-Ukraine ‘war premium’ began to be priced in by the smart money in September 2021, which was around US$65 per barrel (pb) of Brent. The primary reason why a meaningful E.U. ban on Russian oil (or gas) will not occur is that it would require the unanimous backing of all of its 27 member countries. Even before the E.U.’s 27 member states met on 8 May to discuss pushing forward with the ban on Russian oil, Hungary and Slovakia had made it clear that they were not going to vote in favour of it. According to figures from the International Energy Agency (IEA), Hungary imported 70,000 bpd, or 58 percent, of its total oil imports in 2021 from Russia, while the figure for Slovakia was even higher, at 105,000 bpd, equating to 96 percent of all its oil imports last year. Other E.U. countries also heavily reliant on Russia’s Southern Druzhba pipeline running through Ukraine and Belarus have also made it clear that they are not willing to support the ban on Russian oil exports, the most vocal of which have been the Czech Republic (68,000 bpd, or 50 percent or its 2021 oil imports came from Russia) and Bulgaria (which is almost completely dependent on gas supplies from Russia’s state-owned oil giant Gapzrom, and its only refinery is owned by Russia’s state-owned oil giant, Lukoil, providing over 60 percent of its total fuel requirements). Other E.U. member states that are also especially dependent on Russian oil imports are Lithuania (185,000 bpd, or 83 percent of its 2021 total oil imports) and Finland (185,000 bpd, or 80 percent of its total oil imports). Even compromise proposals offered by the E.U. of allowing Hungary and Slovakia to continue to use Russian oil until the end of 2024 (and the Czech Republic until June 2024) were not enough to remove their opposition to the idea of the E.U. ban on Russian oil. In fact, the only real flurry of activity in terms of a concerted effort by any group within the E.U. since Russia invaded Ukraine on 24 February has been to ensure that Russia did not stop supplying its member states with either oil or gas due to their not being able to pay in the way Moscow preferred. This followed the 31 March decree signed by Russian President Vladimir Putin requiring E.U. buyers to pay in roubles for Russian gas via a new currency conversion mechanism or risk having supplies suspended. According to an official guidance document sent out to all 27 E.U. member states on 21 April by its executive branch, the European Commission (E.C.): “It appears possible [to pay for Russian gas after the adoption of the new decree without being in conflict with E.U. law],… E.U. companies can ask their Russian counterparts to fulfill their contractual obligations in the same manner as before the adoption of the decree, i.e. by depositing the due amount in euros or dollars.” The E.C. added that existing E.U. sanctions against Russia do not prohibit engagement with Gazprom or Gazprombank, beyond the refinancing prohibitions relating to the bank. Not only have several E.U. member states made it plain that they will veto any E.U. proposal to ban Russian oil (or gas) imports – and recall that all 27 E.U. member states must vote in favour of such a ban for it to come into effect – but also its own executive branch, the E.C., has been busy sending out crib notes on how best to continue to pay for Russian oil and gas imports, effectively to bypass any wider sanctions on them, including those from the U.S. Added to this is the lack of ideological surety emanating from the E.U.’s de facto leader, Germany, on the subject of the ban on Russian oil. There can be little doubt that the E.C.’s handy directive of 21 April on how to skirt sanctions on paying for Russian oil imports received the tacit approval of those responsible for such matters in Germany, otherwise, simply, it would not have been drafted or sent out. Germany is also set to be hit hard itself by any ban on Russian oil in the first instance, and gas later on, being the recipient in 2021 of the most crude oil from Russia of any country in the E.U. – an average of 555,000 bpd, or 34 percent of its total oil imports in that year, according to the IEA. Comments from German Economics Minister, Robert Habeck, that Berlin was prepared for a ban on Russian energy imports were overlaid with considerable detail about how Germany has still not been able to find alternative long-term fuel supplies for the Russian oil that comes by pipeline to a refinery in Schwedt operated by Russia’s state-owned oil giant Rosneft. He concluded that fuel prices could rise and that an embargo “in a few months” would give Germany time to organise itself in this regard. The lack of clear leadership in the E.U. from Germany is not just another reason why there will be no meaningful E.U. ban on Russian oil (and gas) any time soon, if ever, but also opens up the probability that even if there were such a ban then it would have more holes in it than a fine Swiss cheese, just like the earlier bans and sanctions on Iran. As analysed
Saudi energy minister says oil capacity may hit 13.4m bpd with increased output from Neutral Zone
Saudi Energy Minister Abdulaziz bin Salman has said the Kingdom could produce between 13.2-13.4 million barrels of oil per day by the end of 2026 or beginning of 2027 thanks to increased output in the divided zone. While talking at the opening of the 29th Middle East Petroleum and Gas Conference in Bahrain, the energy minister revealed that oil demand has increased post-pandemic, but there is no refining capacity commensurate with the current demand. He also made it clear that there are no issues surrounding the availability of crude. “We have no money to waste on anywhere else,” he told the conference. On the Durra natural gas field, located in an energy-rich area shared with Kuwait, the minister said both countries were proceeding with its development. Iran says it has a stake in the field and considers a Saudi-Kuwaiti agreement signed earlier this year to develop it “illegal.” Saudi Arabia and Kuwait invited Iran in April to hold negotiations to determine the eastern limit of the joint offshore area and reaffirmed their right to develop the gas field located within it. “We are proceeding with that field, we have made a joint public statement encouraging Iran to come to the negotiation table if they claim they have a piece of that and it remains a claim,” Prince Abdulaziz said, adding Saudi Arabia and Kuwait wanted to work together in any discussions as they had a common interest in the resources. Prince Abdulaziz also took a swipe at world leaders claiming there is a transition to cleaner energy sources, saying that countries are buying coal for almost four times the previous price and also telling France not to push ahead with new nuclear energy provisions. He added that Saudi Arabia is working together with countries like Kuwait to return to old oil output capacities The minister stated that power generation using gas and renewables domestically will help free a million barrels of oil per day for export. He noted that the Kingdom is running out of capacities at all levels which is truly a matter of concern for the whole world. The minister added that more hydrocarbon investments are needed to resolve issues surrounding energy generation.
BPCL sale on back burner
The government has put the privatization of Bharat Petroleum Corp Ltd (BPCL) on hold. Several reasons, like rising crude prices and indifferent performance of the BPCL share, are said to be responsible for the halt. “BPCL privatization is not on track,” a senior official in the Department of Investment and Public Asset Management (Dipam) informed Bizz Buzz. “It’s not moving. Decision is on the table. We have to take it.” He, however, didn’t specify what decision the government is contemplating. The Dipam official actually confirmed what Vedanta Group Chairman Anil Agarwal had said on April 24. “It (BPCL divestment) will not happen. They’ve said that they (the government) have withdrawn the offer, they will come back with a new strategy,” he had told a news website. Vedanta Resources and private equity (PE) firms Apollo Global and I Squared Capital’s arm Think Gas had expressed interest in BPCL in November 2020, though Think Gas opted out later. Vedanta Resources was even reportedly planning to raise a $10-billion fund to buy the government’s 52.98 per cent equity in the oil major. The government intended to privatize BPCL by March 2021, but even financial bids have not been invited. One reason for the delay was the Covid pandemic. When the privatization process was ongoing, BPCL last year sold its 61.65 per cent equity in the Assam-based Numaligarh Refinery Ltd (NRL) for Rs 98.75 billion. NRL sale, however, was not a privatization, as the company was bought by a consortium of two public sector companies, Oil India Ltd and Engineers India Ltd (49 per cent), and the Assam government (13.65 per cent).
IOCL lays gas pipeline for 75km in district
Coimbatore The Indian Oil Corporation Limited (IOCL), which is implementing the city gas distribution network, has laid the underground natural gas pipeline for up to 75km in the district. IOCL won the licence for the city gas distribution network in the district in the ninth round of bidding that the Petroleum and Natural Gas Regulatory Board held in August 2018. Under the project, IOCL would lay the underground gas pipeline for 212km, develop 273 CNG stations and provide 9,12,783 domestic piped natural gas connections. H Suresh, manager, district chapter of IOCL, said they were working on laying the underground gas pipeline on Avinashi Road and Trichy Road, where the flyover work was underway. “We hope to supply piped natural gas to the households on Kurichi-Malumichampatti stretch by the end of this year.” Recently, IOCL had inaugurated a city gate station cum mother station for compressed natural gas at Pichanur. It is equipped with a pressure reduction-cum-regulating skid that has a capacity of 13,000 standard cubic metres per hour. After its inauguration, IOCL reduced the price for compressed natural gas by Rs5 in the district. According to Suresh, they have plans to expand the CNG network in the district to 41 stations by the end of the current fiscal. Referring to the customers converting their vehicles to CNG, he said the same must be done through an RTO approved retro fitment centre. “Later, they have to update their insurance and endorse their registration certificate.
Iran considering gas exports to Europe: official
Iran is considering the possibility of exporting gas to Europe, an oil ministry official said Sunday against the backdrop of soaring energy prices due to Russia’s war in Ukraine. “Iran is studying this subject but we have not reached a conclusion yet,” deputy oil minister Majid Chegeni was quoted as saying by the ministry’s official news agency, Shana. “Iran is always after the development of energy diplomacy and expansion of the market,” he added. Though Iran boasts one of the world’s largest proven gas reserves, its industry has been hit by US sanctions that were reimposed in 2018 when Washington withdrew from a landmark nuclear deal between Tehran and world powers. Talks aiming to revive the 2015 nuclear deal began last year in Vienna but have been on pause for weeks amid outstanding issues. Russia’s invasion of Ukraine in February sent global oil and gas prices soaring, with many European countries dependent on energy imports from Russia. The situation worsened Wednesday when Kyiv said Russia had halted gas supplies through a key transit hub in the east of the Ukraine, fueling fears Moscow’s invasion could worsen an energy crisis in Europe. Last year, the European Union received around 155 billion cubic meters of Russian gas, accounting for 45 percent of its imports. Iran’s deputy oil minister also confirmed that Tehran and Baghdad had signed a memorandum of understanding a few weeks ago that will see the Islamic republic increase gas exports to Iraq. “Gas exports from Iran increased and in this memorandum it was stated that Iraq’s debt of $1.6 billion to Iran will be paid by the end of May,” Chegeni added. Despite considerable gas reserves of its own, poor investment due to decades of war and sanctions have left Iraq dependent on imports from its eastern neighbor for a third of its gas needs. US sanctions on Iranian oil and gas, however, have complicated Iraq’s payments for the imports. Baghdad uses a complex payment method to comply with an exemption from US sanctions on Iran. Iraq is not allowed to simply hand over cash to Iran as payments must be used to fund imports of food and medicines.
Europe Looks To African Gas To Reduce Dependence On Russian Imports
Africa is conservatively forecast to reach peak gas production at 470 billion cubic meters (Bcm) by the late 2030s, equivalent to about 75% of the expected amount of gas produced by Russia in 2022, according to Rystad Energy research. In early March, the European Union announced it aims to reduce its dependence on Russian gas by two-thirds by the end of this year alone and is currently headed for a supply crunch that will reverberate around the globe. Even with the number of gas projects being developed or currently delayed, Africa still has significant production potential. The continent is forecast to increase its gas output from about 260 Bcm in 2022 to as much as 335 Bcm by the end of this decade. If oil and gas operators decide to up the ante on their gas projects on the continent, near and mid-term natural gas production from Africa could surpass the above conservative forecasts. Russia has historically been the dominant natural gas supplier to Europe, with an average of about 62% of overall gas imports to the continent over the past decade. Africa has also been a consistent gas exporter to Europe during that time, with an average of 18% of European gas imports coming from Africa. Projects in Africa are, however, historically seen as having increased risk and can be delayed or go unsanctioned due to high development costs, challenges accessing financing, issues with fiscal regimes and other above-the-ground risks. Recent signals from oil and gas majors such as BP, Eni, Equinor, Shell, ExxonMobil and Equinor indicate a shift, however, in strategy towards further investment in Africa, with several projects that were previously on ice – including liquefied natural gas (LNG) projects – as they consider restarting or accelerating previously shelved projects in response to rising global demand. “The geopolitical situation in Europe is changing the landscape for risk globally. While LNG flows from the US are substantial, demand is much higher. Asian and European importers will need to consider African priorities as they develop projects, as many African producers are focusing on supplying energy locally as well as to intra-African markets along with catering to global markets. Existing pipeline infrastructure from Northern Africa to Europe and historical LNG supply relationships make Africa a strong alternative for European markets, post the ban on Russian imports,” says Siva Prasad, senior analyst at Rystad Energy. African nations that have historically been gas suppliers to Europe are well placed to scale up their exports. Africa’s advantage is that it already has existing pipelines connected with the wider European gas grid. Current pipeline exports from Africa to Europe run through Algeria into Spain and from Libya into Italy. Talks of long-distance pipelines connecting gas fields in Southern Nigeria to Algeria via the onshore Trans Saharan Gas Pipeline (TSGP) and the offshore Nigeria Morocco Gas Pipeline (NMGP) have picked up in recent months. While the TSGP aims to utilize existing pipelines from Algeria to tap into European markets, NMGP aims to extend the existing West Africa Gas Pipeline (WAGP) all the way to Europe via West African coastal nations and Morocco. Further afield, African LNG exports have predominantly come from Nigeria and Algeria, with smaller volumes from Egypt, Angola, and a fraction from Equatorial Guinea. In addition, large-scale discoveries offshore in Mozambique, Tanzania, Senegal, Mauritania, and South Africa have the potential to yield additional natural gas exports once developed. Europe is now considering how gas-rich African nations can be helped to scale up production and exports in the years to come. The European Union’s decision earlier this year that all natural gas investments are equivalent to investments in “green” energy signal that African gas is considered sustainable. The supply crisis driven by security interests may push Europe to fund projects that will also help with energy affordability back home. For instance, Europe could be a key financer of the proposed $13-billion TSGP project. BP’s Russia exit: A boost for uncontracted gas in Senegal-Mauritania BP chief executive Bernard Looney has said the decision to exit Russia is not only the right thing to do but is also in the company’s long-term interests. The UK giant recently booked pre-tax charges of $24 billion and $1.5 billion in its first-quarter 2022 financial results due to its decision to pull out of Russia. The company is now looking to African projects to seize the opportunity to target European markets with gas supplies. BP has several big gas projects in Senegal and Mauritania – the Greater Tortue Ahmeyim (GTA), Yakaar-Terenga and BirAllah LNG projects. LNG volumes from the 2.5 million tonnes-per-annum (tps) GTA floating LNG (FLNG) Phase 1 have already been sold, and some gas from Yakaar will be used as feedstock for Senegal’s gas-to-power plant. Meanwhile, gas from GTA LNG Phase 2, the remaining gas from Yakaar–Teranga and BirAllah are still uncontracted and these volumes could benefit from what is expected to be a supply-constrained LNG market in the coming years. GTA FLNG Phase 2 has a planned capacity of 2.5 million tpa, while the Yakaar–Teranga and BirAllah LNG facilities could have capacity of 10 million tpa. However, front-end engineering and design (FEED) on Yakaar–Teranga, which was kicked off in November 2021, will determine the final capacity for the project, and BP is also currently carrying out studies to see whether to accelerate development of the Bir Allah project targeting sales to Europe. Like BP, other major companies might also look towards their African gas portfolios to address the likely gas supply deficit. Eni plans ramp up of African gas to Italy Italian major Eni has said that it can alleviate Europe’s dependence on Russian gas to an extent through supply from its African projects, including in Algeria, Egypt, Nigeria, Angola and Congo-Brazzaville. In the past month, Italy, in association with Eni, signed deals to boost gas imports from the North African nations of Algeria and Egypt, and then more recently, two more gas supply agreements with two Sub-Saharan African nations, Congo-Brazzaville and Angola. Other African nations
Energy Security Concerns Are Fueling A Renewable Boom
Back in 2013, an announcement by the Federal Reserve about pulling back on the central bank’s easy-money policies sent markets into a tizzy. Treasury bond yields skyrocketed, junk bond prices fell, emerging-markets stocks tumbled, and stock volatility was off the charts leading to the coining of a new phrase on Wall Street, “taper tantrum.” We are currently going through another phase of quantitative tightening, with the Fed aggressively hiking interest rates in its fight against a 40-year high in inflation. This time around, the market is taking things in stride–comparatively–avoiding an all-out meltdown. Nevertheless, an expensive stock market that was trading near record highs, higher interest rates, supply chain disruptions, and high inflation have all contributed to investors increasingly shunning growth stocks in favor of more defensive value companies. Among the first casualties has been the renewable energy sector. After enduring a torrid season in 2021, renewable energy stocks have continued to underperform in 2022, with the sector’s popular benchmark iShares Global Clean Energy ETF (NASDAQ:ICLN) down 21.2% in the year-to-date compared to a 36.5% gain by its fossil fuel equivalent, the Energy Select Sector SPDR Fund (NYSE:ARCAXLE). But don’t let the anemic returns by clean energy stocks fool you: the green energy sector is in the pink of health and enjoying robust growth. In fact, Russia’s invasion of Ukraine has lit a fire under the sector, with the International Energy Agency (IEA) predicting that renewable energy is on pace to set new records in 2022. According to the IEA, new capacity for generating electricity from solar, wind, and other renewables is set to hit new records this year as governments seek to take advantage of renewables’ energy security and climate benefits. Energy Security According to the IEA’s latest Renewable Energy Market Update, last year, a record 295 gigawatts of new renewable power capacity was added to the global power grid, a remarkable achievement considering the crippling supply chain challenges, construction delays, and high raw material prices that the industry has been grappling with. Renewable growth is expected to be even more impressive this year, with global capacity additions expected to clock in at 320 gigawatts – or nearly enough to match the European Union’s total electricity generation from natural gas. Solar PV is expected to be in the lead again, with the sector on course to account for 60% of global renewable power growth in 2022, followed by wind and hydropower. Global additions of solar PV capacity are on course to break new records both this year and next, with the annual market expected to reach 200 GW in 2023. Indeed, the IEA says the additional renewables capacity commissioned for 2022 and 2023 has the potential to significantly reduce the European Union’s dependence on Russian gas. About 16 percent of the EU’s total power demand is currently met via electricity generation with natural gas, a significant share of which is sourced from Russia. The EU’s natural gas-fueled electricity generation annually ranges from 340 TWh to 600 TWh, with Russian gas accounting for 100 TWh to 200 TWh of that. “Energy market developments in recent months–especially in Europe–have proven once again the essential role of renewables in improving energy security, in addition to their well-established effectiveness at reducing emissions. Cutting red tape, accelerating permitting and providing the right incentives for faster deployment of renewables are some of the most important actions governments can take to address today’s energy security and market challenges, while keeping alive the possibility of reaching our international climate goals,” IEA Executive Director Fatih Birol has said. To meet its goal of accelerated adoption of clean energy, the bloc will start allowing some renewable energy projects to receive permits within a year. The European Commission will propose rules requiring countries to designate “go-to areas” of land or sea suitable for renewable energy at next week’s meeting in Brussels. Overall, the IEA says that renewables’ growth so far this year in China, the European Union, and Latin America, has been more than compensating for slower-than-anticipated growth in the United States.
CNG price hiked by Rs 2 per kg in Delhi-NCR and other cities
The prices of Compressed Natural Gas (CNG) in Delhi and the National Capital Region (NCR) were hiked by Rs. 2 per kg with effect from Sunday 06:00 am. In a key development, the prices of Compressed Natural Gas (CNG) in Delhi and the National Capital Region (NCR) were hiked by Rs. 2 per kg with effect from Sunday 06:00 am. The Indraprastha Gas Limited (IGL) has hiked the CNG price in Delhi-NCR, with the fuel now priced at Rs. 73.61 per kg in New Delhi. With this new hike, CNG is now being sold at Rs. 76.17 per kg in Noida, and Rs 81.94 per kg in Gurugram. In addition to these cities, IGL has hiked CNG prices in other parts of the country as well. In Haryana, the price of CNG is retailing at Rs 84.07 per kg in Rewari and Rs. 82.27 per kg in both Karnal and Kaithal. Meanwhile, in Uttar Pradesh’s Kanpur, Hamirpur and Fatehpur, the price of CNG is now Rs. 85.40 per kg. The cost of CNG is Rs. 83.88 in Rajasthan’s Ajmer, Pali and Rajsamand after the surge. It is pertinent to mention here that the city gas distributors have been periodically increasing prices since October last year when domestic as well as international gas prices started to ascend. Notably, earlier in April, the prices of CNG in the national capital were hiked by Rs. 2.50 per kg and that of piped cooking gas by Rs. 4.25 per unit to record levels against the backdrop of the surge in raw material cost.
Petronet seeks lower price for renewing Qatar deal
India’s top gas importer Petronet LNG Ltd wants Qatar Gas to lower prices for it to renew a long-term liquefied natural gas (LNG) import deal beyond 2028, its CEO Akshay KumarSingh said on Thursday. The company in the immediate term is looking to tie up 0.75 to 1 million tonnes of LNG to meet the burgeoning energy demand in the country, particularly of the city gas sector. Petronet also buys an additional 1 million tonnes of LNG at a slight variation to this price. The 8.5 million tonnes a year contract ends in 2028. “They (Qatar Gas) have contracted to our neighbouring countries including Bangladesh, China and Pakistan at a lower slope (than 12.67 per cent). Our expectation is to have the long-term deal renewed at those levels,” he said. “We are very seriously engaged with them and are negotiating for a better price.” Qatar’s recent contracts with China, Bangladesh and Pakistan are linked to a slope of about 10.2 per cent of the Brent crude price on a delivered ex-ship basis. He indicated that Petronet may seek higher volume than the current 8.5 million tonnes. “Our first priority is to secure the extension of 8.5 million tonnes a year deal. Beyond that additional volumes can be sought based on a demand assessment. We have not frozen additional requirements,” he said. Petronet LNG Ltd’s 7.5 million tonnes a year liquefied natural gas (LNG) import deal with Qatar Gas is ending in 2028. Renewal, if any, has to be confirmed five years ahead of that (i.e. end of 2023). However, the company wants 0.75 to 1 million tonnes of LNG supplies in the next one year to meet the rising gas demand in the country, he said. Gas demand in India is surging as the government pushes for raising the share of the clean fuel in the energy basket to 15 per cent by 2030 from the current 6.7 per cent. A massive expansion of city gas that entails the supply of CNG to automobiles and piped natural gas to households, is creating additional demand.