India turns to expensive foreign gas to ease its power crisis
Sweltering heat and ongoing blackouts are forcing India’s liquefied natural gas importers to top up with expensive shipments. Torrent Power Ltd. and GAIL India Ltd. bought LNG for May delivery in the last week, with the fuel set to be used to help power plants boost generation, according to traders with knowledge of the matter. The utilities paid about triple the normal spot rate for this time of year, as Russia’s invasion of Ukraine exacerbates a global supply crunch. The purchases are unusual for India’s cost-sensitive power generators, which tend to avoid buying LNG at such high rates. They illustrate how a domestic coal shortage is forcing the South Asian nation to look for alternative fuels no matter the price, further elevating international demand. While natural gas makes up just a small portion of India’s power mix, a scarcity of coal and hot weather has triggered scheduled blackouts, threatening to upend the economy. Gas was used to produce about 4% of the nation’s electricity in 2020, versus 71% for coal, according to BloombergNEF. GAIL is seeking at least one more shipment for late-May, the traders said, adding that several other Indian firms are inquiring about cargoes in the bilateral market. The heat wave also prompted neighboring Pakistan to purchase the nation’s most expensive shipment of the fuel ever to avoid blackouts during the Eid holiday this week. Cash-strapped Pakistan recently released a tender seeking to purchase another two cargoes for June.
Russia’s Oil Output Is Plummeting, And It May Never Recover
Russian oil production is falling. In March, it shed half a million bpd, which by the end of April reached a full 1 million bpd, according to BP’s CEO, Bernard Looney. And this may well grow to 2 million bpd this month. These barrels may not be returning to the market any time soon. As the European Union targeted a barrage of sanctions on Moscow, oil was excluded as a direct target but financial and maritime sanctions affected the industry. Now, the EU is proposing a full oil embargo, save for a handful of member states too dependent on Russian oil to comply, and this will mean a further loss of barrels at a time when the global oil market is already stretched thin. “We could potentially see the loss of more than 7 million barrels per day (bpd) of Russian oil and other liquids exports, resulting from current and future sanctions or other voluntary actions,” the secretary-general of OPEC, Mohammed Barkindo, told the European Union last month. This does not appear to have made any lasting impression on the decision-makers in Brussels, who are moving full steam ahead with the oil embargo. Meanwhile, alternative suppliers would struggle to fill the void left by Russian oil. Russia expects it could lose some 17% of its pre-war oil production this year, Reuters reported last month, citing a document from the country’s economy ministry. The report noted this would be the biggest production drop since the 1990s—a tumultuous time for Russia following the breakup of the Soviet Union. That would be close to 2 million bpd—a figure similar to Looney’s forecast and also to a forecast made by Rystad Energy about lost Russian oil production between 2021 and 2030. If the Rystad projections are right, the fallout from the EU oil embargo would be limited and most Russian production will simply be redirected as it already is. If, however, production declines more, this could see international prices spike much higher. When European buyers started refusing to accept Russian oil cargoes, those cargoes had to return home to be stored somewhere. According to local reports, however, storage space is limited, and this has probably forced the idling of some wells, which if idled, can see their ability to produce in the future affected. But there is also danger ahead for Russia’s future production. This may also not materialize as previously planned because of the exit of Big Oil majors from the country, Dan Dicker, host of The Energy Word, told Yahoo Finance earlier this week. Their exit, combined with financial sanctions on Russian banks, will make developing new resources in eastern Siberia more challenging. Meanwhile, OPEC is producing less, rather than more, oil, and U.S. producers are under fire from legislators for alleged profiteering from the oil price rally and struggling with shortages of materials, equipment, and workforce. U.S. oil production will rise by only 800,000 bpd this year, according to the Energy Information Administration’s latest Short-Term Energy Outlook. That’s not good news for America’s European partners. It’s not good news for Americans, either, because it means prices will likely remain high. Except for OPEC and the United States, there are few producers large enough to spare oil for Europe, if any. Brazil is expanding its oil production but its total stands at around 3 million bpd, which is what the EU was importing from Russia before the war in Ukraine began. That leaves the Central Asian producers, who are parties to the OPEC+ agreement and firmly within the Russian sphere of influence, too. What all this means is that with the loss of 2 million bpd of Russian production, a lot of the world is in for prolonged oil price pain, which means all-price pain as well. The beneficiaries are China and India, who are buying Russian crude at a discount, with no logical reason for them to stop, despite threats from Washington. But Russia’s oil production could still fall by more than 2 million bpd. “Europe’s dependence on Russian energy has been a deliberate and decades-long and mutually beneficial relationship. In this early phase of sanctions and embargoes, Russia will benefit as higher prices mean tax revenues are significantly higher than in recent years,” said Daria Melnik, senior analyst at Rystad Energy. “Pivoting exports to Asia will take time and massive infrastructure investments that in the medium term will see Russia’s production and revenues drop precipitously,” she added. With most producers constrained in their capacity to boost production fast, should this scenario play out, oil could become a lot more expensive with little in the way of downside pressure, including electric vehicles. Electric vehicles are about to experience a shortage of batteries and still higher prices. There are some really interesting times ahead.
What India should do to achieve 500 GW non-fossil fuel capacity by 2030
Our total electricity generating capacity now is over 390GW, out of which renewables are over 100 GW. At COP26, India announced that by 2030 its non-fossil fuel capacity would be 500GW, a massive increase in ambition. Is such a large capacity creation feasible? What would happen to thermal power? Do we need to just scale up what we have been doing? Or would new programs be also needed? Our success so far has been through tariff-based bids for grid scale solar projects. The pace of solar capacity addition can be ramped up by tapping the potential of decentralised small solar power installations in rural India. Solar panels can be put up in villages on roof tops, over cattle sheds, grain stores, wastelands, and water bodies. The policy instrument of a feed in tariff to tap this potential would work. The Distribution Company would need to announce the rate at which it would buy electricity through a long-term power purchase agreement from those who put up solar panels. The offtake could be at the substation, the distribution transformer, or the consumer connection point with the purchase being limited to the Kw range and subject to absorption capacity. Our success so far has been through tariff-based bids for grid scale solar projects. The pace of solar capacity addition can be ramped up by tapping the potential of decentralised small solar power installations in rural India. Solar panels can be put up in villages on roof tops, over cattle sheds, grain stores, wastelands, and water bodies. The policy instrument of a feed in tariff to tap this potential would work. The Distribution Company would need to announce the rate at which it would buy electricity through a long-term power purchase agreement from those who put up solar panels. The offtake could be at the substation, the distribution transformer, or the consumer connection point with the purchase being limited to the Kw range and subject to absorption capacity.
India wants Russia to sell its oil at less than $70 per barrel: Report
Indian refiners have bought over 40 million barrels of discounted Russia crude since Vladimir Putin launched his ‘special military op’ against Ukraine on February 24, Bloomberg said India is trying to convince Russia to offer deeper discounts on crude oil – Delhi is looking to pay less than $70 per barrel – to offset risks in dealing with the OPEC+ producer in light of increasingly harsh financial sanctions against Moscow over its invasion of Ukraine. Sources told Bloomberg discounts are being sought to compensate for hurdles like securing financing for purchases. Bloomberg said the Indian government did not immediately comment. At the time of writing, global benchmark Brent is trading near $108 a barrel, down from a high of nearly $130 a barrel in the war’s initial days. Indian refiners – state and private – have bought over 40 million barrels of discounted Russia crude since Vladimir Putin launched his ‘special military op’ against Ukraine February 24, Bloomberg said. Last month too Russia offered India discounts on a fixed one-time purchase of 15 million barrels. Russia offers India discount on purchase of 15 million barrels of oil. Total purchases are significant in volume – 20 per cent more than Russia-India flows in 2021, according to Bloomberg calculations from trade ministry data. The purchases have also invited pointed remarks from the West, including the United States and the European Union, but those were countered by the government pointing out the EU too had bought more from Russia and that India welcomed competitive offers to meet domestic demand.
Lured by cheap oil, India becomes largest customer of Russian Urals crude
India emerged as the largest buyer of Russian Urals crude in April enticed by hefty discounts, as several of the grade’s regular European customers have boycotted this oil following Russia’s invasion of Ukraine Urals has been trading at record-lows in recent weeks, with some deals being done at discount of almost $40/b to the Platts Dated Brent crude oil benchmark. Around a quarter of Russia’s seaborne crude exports of the medium sour Urals in April is poised to travel to the South Asian country, according to trading sources and ship tracking data. Russia exported 627,000 b/d of Urals crude to India in April compared to according to 274,000 b/d and zero in March and February respectively, according to data from commodity intelligence firm Kpler. Seaborne Urals crude exports averaged 2.24 million b/d, its highest since May 2019, despite sanctions and boycotts by several of Europe’s refiners, Kpler data showed. Until Russia’s invasion of Ukraine, India very rarely bought Russian oil. But with Russian crude trading at record-lows in recent week weeks, Indian refiners have been unable to resist buying cheap crude despite pressure from Western governments. The medium sour grade Urals was assessed at its lowest level ever relative to Dated Brent at minus $39.40/b CIF Rotterdam on April 29, according to S&P Global Commodity Insights’ Platts assessment. The price of Russian Urals CIF Rotterdam averaged $69.89/b in April, according to Platts data. This compares with a monthly average of $104.40/b for United Kingdom’s Forties, which is similar in quality to Urals. Record lows Russia has been desperate to find new customers after a dramatic decline in interest for its oil among Western consumers and it has found an opportunistic buyer in India, according to trading sources. “Indian refiners are always desperate for a bargain. Russian crude is so cheap compared to other alternatives. They just could not resist Russian oil at these prices,” said a Geneva-based crude trader. Russian Urals crude exports to India were as less as 16,000 b/d and 32,000 b/d in 2020 and 2021 respectively, Kpler data showed. These shipments are heading to several of Indian’s refineries such as Reliance’s two refineries in Jamnagar which have a capacity of 1.36 million b/d, Nayara Energy’s 400,000 b/d site in Vadinar, Indian Oil Corporation’s 300,000 b/d Panipat refinery, Hindustan Petroleum Corp Limited’s 166,000 b/d Vizag plant and Bharat Petroleum Corp Limited’s 310,000 b/d Kochi refinery. Newfound appetite Despite strengthening energy ties between the two countries, India has not been an active buyer of Russian crude oil, mainly due to economic and logistical issues. Urals crude, which is exported from the Baltic and Black Sea ports, involves long shipping voyages, and even Russian ESPO crude has not very convenient for Indian refiners to import. But at these prices, refiners have found it tough to ignore Russian crude. India’s newfound appetite for Russian oil has come under pressure from Western governments such as the US, UK and Germany. But the government has defended its purchases of Russian oil. “The quantum of oil imports by India from Russia is a small fraction of what the rest of the world imports from Russia. Ultimately, we look at this from the perspective of energy security which not just India, but other countries are also pursuing,” India’s Foreign secretary Vinay Kwatra said at a press conference on May 2. India’s oil demand is also rebounding sharply as the country’s economy is on an upward curve after it emerges from COVID-19. Russian crude accounted for less than 3% of the around 4.3 million b/d crude that India imported in 2021, according to S&P Global Commodity Insights. This comes as the EU is likely to propose an embargo on Russian oil in its next sanctions package against Moscow this week, according to Germany’s economy minister, but may carve out exceptions for countries such as Hungary and Slovakia that continue to oppose a halt. But Indian refiners’ purchases of Russian crude could scale down with the tightening of sanctions by the EU and US from mid-May, which might hit logistics. The bulk of India’s refiners bought this crude on a delivered basis, with sellers bearing costs related to insurance and shipping. India, which has recently emerged as the world’s third-largest crude oil importer, has been hugely reliant on crudes from the Middle East and West Africa, but it has been diversifying its suppliers over the past few years. Russia is a significant supplier of oil to the world, exporting more than 7 million b/d of crude and petroleum products, or some 13% of total oil trade.
Japan’s ENEOS withdraws from Myanmar gas project
Japanese energy conglomerate ENEOS Holdings said on Monday it will withdraw from a gas project in coup-hit Myanmar, days after its Thai and Malaysian partners announced they would pull out. ENEOS is the latest energy giant to retreat from the Southeast Asian country, whose military has waged a widespread crackdown on dissent since it ousted and detained civilian leader Aung San Suu Kyi last year. For the latest headlines, follow our Google News channel online or via the app. The company is involved in the Yetagun project off southern Myanmar along with the Japanese government and Mitsubishi Corporation. Together they hold a 19.3 percent stake in the gas field, which has been operational for two decades. ENEOS said it had “decided to withdraw after discussions taking into consideration the country’s current situation, including the social issues, and project economics based on the technical evaluation of Yetagun gas fields.” “This withdrawal will be effective after approval from the Myanmar government,” it added in a statement. An official at Japan’s natural resources and energy agency told AFP that the government “takes the same position” as ENEOS, noting the Yetagun project has experienced a reduction in output over the past decade. Malaysia’s Petronas and Thailand’s oil and gas conglomerate PTTEP also announced their withdrawal on Friday. Petronas subsidiary Carigali holds a roughly 41 percent stake in the Yetagun project, while PTTEP owns 19.3 percent. More than 1,800 civilians have died in Myanmar during the military crackdown and more than 13,000 have been arrested, according to a local monitoring group. With the economy tanking and pressure mounting from rights groups, companies from France’s TotalEnergies to British American Tobacco and Norway’s Telenor have upped sticks. Tokyo is a major provider of economic assistance to Myanmar, and the government has long-standing relations with the country’s military. After the coup, Japan announced it would halt all new aid, though it stopped short of imposing individual sanctions on military and police commanders.
No gas for new city distributors to start
Over a dozen new city gas distribution companies are waiting to start operations, but there is no allocation of domestic natural gas to their kitty, said executives from these companies. New city gas distribution (CGD) companies, specifically the ones who won bidding rounds-IX, X and XI, include Adani Total Gas, Torrent Gas, Indian Oil-Adani Gas, Gail Gas, Indraprastha Gas, Unison Enviro Pvt Ltd, AG&P and Think Gas. “There is no gas available for us. Last month all companies met the petroleum secretary, requesting for an increase in gas allocation to the CGD sector but to no avail. It will not be financially viable for us to buy gas in the spot market,” said an executive. As per the Gas Utilisation Policy, domestic gas is first allocated to the priority sector such as the CGD sector, then the fertiliser, power and LPG sector. Any demand over and above domestic gas may be met through imported R-LNG (regasified liquefied natural gas). The ministry reviews domestic gas allocations every six months based on actual consumption during the previous half year. However, due to the Covid-19 lockdowns, gas consumption remained low. Thus, since last April, there has been no fresh allocation. Demand, however, has picked up since the economy opened up. “Since April last year, there has been no fresh allocation of domestic gas to the sector. So, this impacts not just the new ones but the existing ones too as they are sourcing LNG for their operations,” said Prashant Vasisht, vice president and co-group head at ratings firm ICRA. Vasisht said the best solution to this is probably to tie up for the long term and midterm. “So, my guess is that players will wait and watch and slow down their capex, till there is more clarity on additional gas allocation by the government,” he said. The CGD sector is allocated 17 million metric standard cubic metres per day (mmscmd) of domestic gas which is used up by existing players including Indraprastha Gas Adani-Total Gas; Mahanagar Gas GSPC-owned Gujarat Gas and GAIL Gas. The sector needs more than 23 mmscmd of gas to meet its demand. Currently, due to the reduced allocation of domestic natural gas, coupled with a 110% hike in domestic gas price from April 1, CGD companies are blending RLNG with domestic gas to meet their needs. The companies have also increased CNG and PNG prices over the past few months.
Sri Lanka extends credit line with India by $200 mn for fuel: Power Min
Sri Lanka has extended a credit line with India by $200 million in order to procure emergency fuel stocks, the country’s power and energy minister said on Monday, with four shipments due to arrive in May. Colombo was also in talks with New Delhi over extending the credit line by an additional $500 million, minister Kanchana Wijesekera told a news conference. Hit hard by the pandemic and short of revenue after Gotabaya Rajapaksa’s government imposed steep tax cuts, the island nation is now also critically short of foreign exchange and has approached the International Monetary Fund for an emergency bailout. Rampant inflation and shortages of imported food, fuel and medicines has led to weeks of sporadically violent protests. Sri Lanka has used $400 million, on multiple shipments in April, of the $500 million credit line extended by India earlier this year, Wijesekera said. Two fuelshipments will be paid for from the remaining funds in May. “The Indian credit line was extended by $200 million recently and this will be utilised for four shipments in May. Talks are continuing for a further $500 million with India so in total the credit line will be $1.2 billion,” Wijesekera said. However, Sri Lanka is still facing payment challenges for fuel imports with the state-run Ceylon Petroleum Corporation (CPC) owing $235 million for shipments already received, while about $500 million more will be needed to pay for letters of credit maturing over the next six weeks, he added. Sri Lanka will also need dollars to pay for crude oil shipments to supplement imports from India. “We have made procurement plans till June but we still need to resolve how to find sufficient amounts of foreign exchange to make payments,” Wijesekera said.
Soaring pump prices weigh on growth in India retail fuel sales
The three biggest retailers in April sold just 0.3% more diesel than in March and 2.1% more gasoline, according to refinery officials with knowledge of the matter. That’s the slowest growth rate since sales rebounded in February following the easing of coronavirus rules that boosted activity at the nation’s factories and service providers. The slowdown is mainly because of a surge in pump prices toward the end of March that coincided with higher food prices to dent disposable incomes and consumption. Prices for diesel and gasoline, which together account for more than half of all petroleum products consumed, have risen more than 10% in New Delhi since March 22. Sales of liquefied petroleum gas, a cooking fuel that had seen fairly stable sales through the pandemic, fell 9% in April in the first decline since November. That follows a 5.6% price increase in late March, the first in more than six months.
The U.S. Shale Patch Is Facing A Plethora Of Problems
here is a fairly blithe assumption in government circles that shale production can be raised at will. That assumption is about to be put to the test as the American shale drilling and fracking industry attempts to respond to the entreaties and outright demands of legislators, members of the administrative branch’s leadership, and even the president himself to put more capital toward increasing production. This is happening, but at a level and rate that will be insufficient to boost production significantly. In fact, data from the most recent publication of the Energy Information Agency’s Drilling Productivity Report-DPR indicates trouble could lie ahead. As the graph taken from EIA-DPR data reveals, the rig count is going steadily higher, but production from the eight major shale basins has leveled off and, as of Feb, 22, has actually slightly declined. If the May edition of the DPR confirms this trend then there is going to have to be a drastic reevaluation of what will be expected from shale in the future. Shale One obvious cause of the decline is not directly related to the rig count, but in the decline of Drilled but Uncompleted-DUCs, wells being turned to production. Over the last couple of years, operators have cut the DUC inventory from ~8,500 to ~4,200. A year ago in an Oilprice article, I predicted this point would come. It has now arrived as operators have drastically curtailed the DUC withdrawal that was maintaining and increasing production over the past couple of years. There are multiple reasons for this situation and the primary ones will be discussed in the remainder of this article. Forecasting the rig count Physicist Niels Bohr once commented, “That prediction is difficult, especially about the future.” Anyone who has put a sales forecast together can relate to this wry witticism. Recently I attended an industry conference, The American Association of Drilling Engineers-AADE, where the Keynote speaker- Richard Spears, an industry analyst, and consultant, spoke about a key difficulty in forecasting in regard to estimating the likely year-end rig count. His point was that events occur and make prior forecasts seem ridiculous. His case in point was the invasion of Ukraine, which was on no one’s radar…until it happened, and immediately made every forecast up to that point out of date. Almost ludicrously so. He then took a poll of the room as to where we thought the land rig count would end up for 2022. He threw out numbers starting with 800, about a hundred higher than where we are now, and we responded when he hit the number that matched our personal belief. Virtually every hand rose with 800, about half dropped at 900, half again at 1,000, and just a few at 1,100. One or two hands stayed up at 1,200 and he stopped there. He then gave us his number, 800. This surprised me as I was one of the 1,100 hands. His justification for that number didn’t surprise me, as it involved capital restraint, lack of financing, and logistics impacts that are causing inflation in the oilfield. All things I have discussed in prior Oilprice articles. An article in the Wall Street Journal put a personal spin on this situation, as they quoted a small independent driller’s frustration with being able to secure needed materials. “If somebody walked in and put a pile of money on the table and said, ‘Drill me a well next week,’ it isn’t going to happen,” said Jamie Small, president of private-equity-backed oil producer Element Petroleum III. “You just can’t get the stuff to do it.” Take this operator’s frustration and multiply it by dozens of other small-time independent oil operators that drill about half the wells drilled annually, and you can see serious problems are brewing. Capital restraint Oil companies revised their playbook after nearly going bankrupt post-March of 2020. As oil prices rose, these companies moved their capital allocation from growth to maintenance capex, which freed up huge sums for paring down debt, rewarding long-suffering stockholders with dividends, and buying back their stock – which was at ridiculous lows following the pandemic. This is all pretty well known by now. What isn’t so well understood, is that despite some very public comments from the big players, ExxonMobil, (NYSE:XOM), and Chevron, (NYSE:CVX) to bump up production sharply, most companies are sticking closely to previously announced capex budgets. That could have profound implications for estimates of future production. Access to financing The big institution’s repugnance for oil and gas investing is well known, at least as regards the big players operating the leases. What I hadn’t realized is how severely service companies are affected by this mindset. Note this quote from the Schlumberger, (NYSE:SLB) press release- “First-quarter cash from operations was $131 million, including a first-quarter build-up of working capital above the usual level, ahead of the anticipated growth for the year. We expect free cash flow generation to accelerate throughout the year, consistent with our historical trend, and still expect double-digit free cash flow margin on a full-year basis.” SLB public filings In Q-1 they burned half a billion in cash, likely supporting working capital builds for current project mobilization. SLB SLB public filings SLB isn’t alone. Halliburton, (NYSE:HAL) burned nearly a billion in cash in Q-1, likely for the same reasons as their larger rival. HAL Halliburton public filings If the big players like HAL and SLB are shut out of traditional financing, you can imagine the difficulty lower tier or private companies are having. A final point here that Spears made is that service costs are still below the cost of replacement, and that is going to have to change in a hurry. He commented that based on his research talking to drilling contractors day rates for high spec rigs will be about $40K/per day at the end of 2022. Roughly twice current levels. Other service companies will be doing the same. One of the points he made here is that oil companies may have to become