There’s no reason why India should turn down Russian oil discounts
India is buying Russian crude in defiance of Western, especially US pressure, to isolate the country economically and financially. India could be buying Russia’s flagship Urals grade at discounts of as much as $35 a barrel on prices before the war. Given that Brent prices have risen more than that since the war began, substantial savings can accrue from the deep discounts. Indian producers are confident of their capacity for refining increasing quantities. Reuters has reported that India has already bought at least 13 million barrels in the weeks since Russia invaded Ukraine compared with some 16 million barrels for the whole of last year. The US isn’t pleased, going by the noises that came out of a press meet in New Delhi called by the deputy national security adviser for international economics in the Biden Administration, Daleep Singh. The Western sanctions seeking to isolate Russia in international trade and finance are his work mostly. For which, the western media has given him the sobriquet, ‘Mr. Sanctions’. Singh made three main points in the press meet: None of the Western sanctions prohibits at present energy imports from Russia; The US stands ready to provide alternative sources for oil imports, much like is the case for defence resources, over a period of time; The Biden Administration would not like to see a rapid acceleration of India’s energy imports from Russia or trade in non-Western currencies, for that will help in resurrecting the ruble, which sank considerably on the initial impact of the sanctions but is slowly correcting. Should India pay heed? Not really. India should go ahead and buy all the discounted Russian oil it can, paying in the national currency, the rupee. First, as Singh said, the sanctions do not cover Russia’s energy trade. There’s a reason, and that is Europe’s dependence on Russian gas. Europe will take more than a year to replace the volume of energy imports it receives from Russia and in the meantime households and businesses will pay a lot more for fuel, electricity and heating. The US has completely banned all Russian oil; its shale production becomes viable at higher prices. But Britain says it will phase out in a year’s time. Germany has said that it will reduce its dependence on Russian gas over time; it isn’t in a position to turn off the supplies immediately. And so, even as the war is on, Europe is buying oil and gas from Russia at rising prices, paying for Putin’s war. There’s no move to cut back consumption. In fact, Europe has forgotten all about the anti-fossil fuel slogans and climate change and is beginning to subsidize consumption. Country after country is introducing blanket fuel tax cuts and subsidies, something that wasn’t done when global crude prices were at all-time high a few years ago. If Kremlin insists on ruble-denominated payments rather than euros, as some of its recent statements suggest, will Europe stop buying? And if it doesn’t, will we see Singh tell Berlin publicly to refrain from challenging the dollar’s hegemony? Similarly, India can trade in its national currency, the rupee.
India more than doubles price of locally produced gas
The Central Government on Thursday more than doubled the price of domestically produced natural gas for the six months beginning tomorrow (1 April), reflecting a surge in global prices The Petroleum Planning and Analysis Cell of the federal oil ministry announced the new prices today. This will raise the prices of gas sold to households, the power sector, industries and fertiliser firms, adding to overall inflation. As per a notification issued by the oil ministry’s PPAC, the price of gas from regulated fields of state-owned Oil and Natural Gas Corp Ltd and Oil India Ltd will rise to a record $6.10 per million British thermal unit from the current $2.90. The rate paid for difficult fields like deepwater will rise to $9.92 for April-September from $6.13 per mmBtu, the notification stated. India links prices of locally produced gas from old fields to a formula tied to global benchmarks, including Henry Hub, Alberta gas, NBP and Russian gas. High natural gas prices will boost earnings of producer ONGC, Oil India Ltd and Reliance Industries. India’s annual retail inflation exceeded 6% for the second consecutive month in February.
Russia offers oil to India at $35/bbl discount from pre-war price
Russia is offering India steep discounts on the direct sale of oil as mounting international pressure lowers the appetite for its barrels elsewhere following the invasion of Ukraine, according to people with knowledge of the matter. The sanctions-hit nation is offering its flagship Urals grade to India at discounts of as much as $35 a barrel on prices before the war to lure India to lift more shipments, the people said, asking not to be identified discussing confidential deliberations. Headline Brent prices have risen about $10 since then, implying an even larger reduction from current prices. Russia wants India to take 15 million barrels contracted for this year just to begin with, they said, adding the talks are taking place at government level. Asia’s No. 2 oil importer is among a handful of nations that have been doubling down on Russian crude, defying international pressure and sanctions. Russian barrels have been flowing to Asia in greater volumes as buyers across Europe and the U.S. shun the supply following the invasion of Ukraine. India and China have been the key buyers. Russia has also offered rupee-ruble-denominated payments using Russia’s messaging system SPFS, that could make trading more attractive for India, they said. No final decision has been taken and the matter will probably be discussed when Russian Foreign Minister Sergei Lavrov arrives in India for a two-day visit Thursday. The direct purchase is expected to involve Russia’s Rosneft PJSC and the Asian nation’s biggest processor Indian Oil Corp., which have an optional term contract — that’s rarely used — for close to 15 million barrels a year. It’s not clear what the upper end of the buying might be, but India is thought to have limited appetite for the grades being offered.
Natural gas demand seen up 12-14% next fiscal despite high prices: Crisil
The domestic demand for natural gas is seen rising by 12-14 per cent next fiscal, despite prices remaining high for the past several months, said ratings agency Crisil. According to it, this trend is supported by economic recovery and lower-than-usual inventories in key European consumption centres. Besides, Russia’s invasion of Ukraine, which began in February 2022, drove already-elevated gas prices even higher, Crisil said. At present, Russia accounts for 17 per cent of global gas output, and its pipeline via Ukraine caters to more than a third of European gas demand. The agency said that the heightened supply uncertainty because of the ongoing conflict and Europe’s intensifying efforts to reduce dependence on Russian gas by importing more LNG will keep gas prices high at least in the near term. Already, the US spot gas prices are 50 per cent above the long-term average and long-term liquefied natural gas (LNG) contracts, benchmarked to crude oil, are 30-40 per cent higher than usual. Similarly, the Asian spot LNG prices are at an elevated level, at above $30 per mmbtu (metric million British thermal unit), which is more than 4 times the past seven-year average. India will feel the heat, too, as domestically produced gas, which meets half of the total gas demand, is linked to prices at international gas trading hubs. The balance demand is met by term and spot LNG imports. “The impact of higher global gas prices is not yet reflected in the domestic prices, and will only be visible from April 2022. This is because the domestic gas price is determined and fixed biannually using the ‘Administered Pricing Mechanism’,” said Naveen Vaidyanathan, Director, Crisil Ratings. “This is based on average international gas prices in the preceding 12-months, and calculated with a lag of one quarter. The price of domestically produced gas is expected to average $6 per mmBtu next fiscal.. around 2.5 times the average price of $2.3 this fiscal.” As per the agency, while the price of LNG is expected to moderate from current highs, it will still be more than the average seen this fiscal. “Healthy growth in downstream sectors, particularly the city gas distribution (CGD) and fertilisers together accounting for almost half of domestic gas consumption, will drive growth in domestic gas demand next fiscal, despite the high prices. Demand has already reached the pre-pandemic level this fiscal. “Demand from CGD segment will be driven by increasing compressed natural gas (CNG) and piped natural gas (PNG) penetration.” In addition, the agency said that CNG stations are expected to increase to 5,000 next fiscal from 3,700 at present, and domestic PNG connections to 10 million from 8.5 million as of November 2021. “Demand from the fertiliser sector, already largely insulated because of the government subsidy to ensure cost pass-through for manufacturers, will be further supported by capacity ramp-up and conversion of some existing capacity from naphtha to natural gas as a feedstock,” Crisil Ratings said. “Other downstream sectors such as refining and petrochemicals will also exhibit healthy increase in demand after muted growth this fiscal.”
Petrol, diesel prices in India are rising even as global oil rates slump
Petrol and diesel prices in India have started to soar as domestic oil marketing companies have been revising fuel rates. On Tuesday, petrol and diesel prices were hiked for the seventh time since the ending of a four-and-half-month-long hiatus in rate revision on March 22. On the first four occasions, prices were increased by 80 paise a litre – the steepest single-day rise since the daily price revision was introduced in June 2017. On Sunday, petrol price went up by 50 paise a litre and diesel by 55 paise. Petrol price on Monday was hiked by 30 paise a litre and diesel by 35 paise. Today, the rates are increased by 80-85 paise and 75 paise respectively for petrol and diesel. Overall, petrol price has gone up by Rs 4.80-Rs 4.85 per litre and diesel rate has been hiked by Rs 4.85 a litre. Fuel rates have been increased across the country but prices vary from state to state depending upon the incidence of local taxation. INTERNATIONAL OIL PRICES On Monday, crude oil prices on the international market fell sharply as Ukraine and Russia headed for peace talks and on fears of a drop in fuel demand in China after the country began its most extensive coronavirus lockdown in two years to conduct mass testing and control a growing outbreak in Shanghai, the financial hub. On Tuesday, the global oil benchmark Brent crude futures were trading down by $1.18, or 1.1 per cent, at $111.30 a barrel. US West Texas Intermediate (WTI) crude futures hit a low of $103.46 on Tuesday and were down $1.09, or 1.0 per cent, at $104.87 per barrel, according to a Reuters report.
Natural gas demand seen up 12-14% next fiscal despite high prices: Crisil
The domestic demand for natural gas is seen rising by 12-14 per cent next fiscal, despite prices remaining high for the past several months, said ratings agency Crisil. According to it, this trend is supported by economic recovery and lower-than-usual inventories in key European consumption centres. Besides, Russia’s invasion of Ukraine, which began in February 2022, drove already-elevated gas prices even higher, Crisil said. At present, Russia accounts for 17 per cent of global gas output, and its pipeline via Ukraine caters to more than a third of European gas demand. The agency said that the heightened supply uncertainty because of the ongoing conflict and Europe’s intensifying efforts to reduce dependence on Russian gas by importing more LNG will keep gas prices high at least in the near term. Already, the US spot gas prices are 50 per cent above the long-term average and long-term liquefied natural gas (LNG) contracts, benchmarked to crude oil, are 30-40 per cent higher than usual. Similarly, the Asian spot LNG prices are at an elevated level, at above $30 per mmbtu (metric million British thermal unit), which is more than 4 times the past seven-year average. India will feel the heat, too, as domestically produced gas, which meets half of the total gas demand, is linked to prices at international gas trading hubs. The balance demand is met by term and spot LNG imports. “The impact of higher global gas prices is not yet reflected in the domestic prices, and will only be visible from April 2022. This is because the domestic gas price is determined and fixed biannually using the ‘Administered Pricing Mechanism’,” said Naveen Vaidyanathan, Director, Crisil Ratings. “This is based on average international gas prices in the preceding 12-months, and calculated with a lag of one quarter. The price of domestically produced gas is expected to average $6 per mmBtu next fiscal.. around 2.5 times the average price of $2.3 this fiscal.” As per the agency, while the price of LNG is expected to moderate from current highs, it will still be more than the average seen this fiscal. “Healthy growth in downstream sectors, particularly the city gas distribution (CGD) and fertilisers together accounting for almost half of domestic gas consumption, will drive growth in domestic gas demand next fiscal, despite the high prices. Demand has already reached the pre-pandemic level this fiscal. “Demand from CGD segment will be driven by increasing compressed natural gas (CNG) and piped natural gas (PNG) penetration.” In addition, the agency said that CNG stations are expected to increase to 5,000 next fiscal from 3,700 at present, and domestic PNG connections to 10 million from 8.5 million as of November 2021. “Demand from the fertiliser sector, already largely insulated because of the government subsidy to ensure cost pass-through for manufacturers, will be further supported by capacity ramp-up and conversion of some existing capacity from naphtha to natural gas as a feedstock,” Crisil Ratings said. “Other downstream sectors such as refining and petrochemicals will also exhibit healthy increase in demand after muted growth this fiscal.”
98% of India’s population will be covered with piped cooking gas: Minister
More than 82 per cent of India’s land area and 98 per cent of the population will be covered with piped cooking gas after the latest round of expansion work, the government informed the Rajya Sabha on Monday. Bids for the expansion work will be opened on May 12 this year Replying to supplementary questions of members during Question Hour, Minister of Petroleum and Natural Gas Hardeep Singh Puri said once the award of bidding is done, it typically takes a certain number of years for the infrastructure to be laid. “After the 11th round of bidding, we would have over 82 per cent of our land area and 98 per cent of our population complete so that piped cooking gas can be delivered to households,” he informed the house. “The only population that will be left will be some areas in the North East and Jammu and Kashmir because they are widely dispersed. Typically, cooking gas that comes through the pipe is cheaper and more consumer friendly than that supplied through cylinders,” he also said.
There Is No Short Term Solution To Europe’s Oil Addiction
One of the hottest topics in the media in the past month has been the possibility of an oil embargo on Russia in response to its invasion of Ukraine. Oil prices have climbed higher on the constant speculation of a broader oil ban, but that speculation appears to be unjustified. The UK banned Russian oil and fuel imports earlier this month, and so did the United States. For both of these countries, Russian oil and fuels are a small portion of total oil imports. Yet the bans had a pronounced negative effect on retail fuel prices in both, even though in the UK, the ban was to take place gradually, by the end of this year. Is it any wonder, then, that the EU, after undoubtedly intense negotiations last week, failed to agree on banning Russian oil and fuel imports? Russia provides 29 percent of the crude oil that Europe consumes, as well as 51 percent of the oil products that the continent consumes. And Europe consumes a lot of oil and oil products despite its eager energy shift. But that’s not all. Two years ago, the European Union received almost 97 percent of the oil and oil products it consumed from external sources, according to Eurostat. In other words, the EU is more import-dependent than India when it comes to oil. Obviously, with such a degree of dependence, an oil embargo on the union’s biggest supplier would be a disaster for the continent. This means that the discussions held last week and reported on in abundance by the media were likely nothing more than an exercise in political posturing. It was obvious from day one such an embargo was not happening anytime soon. An immediate oil embargo on Russian imports “from one day to the next would mean plunging our country and the whole of Europe into a recession,” Germany’s Chancellor Olaf Sholz said last week, as quoted by Reuters’ John Kemp. On the other hand, “Why should Europe give Putin more time to earn more money from oil and gas? More time to use European ports? More time to use unsanctioned Russian banks in Europe? Time to pull the plug,” the foreign minister of Lithuania, Gabrielius Landsbergis said. Lithuania buys almost all of the oil it consumes from Russia. What we seem to have here is, once again, politics versus pragmatism, a situation very much similar to the energy transition narrative and plans. In this case, it seems that common sense is winning. “The question of an oil embargo is not a question of whether we want or don’t want (it), but a question of how much we depend on oil,” Germany’s foreign minister, Annalena Berbock, said last week. “Germany is importing a lot (of Russian oil), but there are also other member states who can’t stop the oil imports from one day to the other.” What these officials seem to tell us is that the EU, just like India or China – or the rest of Europe, really – has an oil addiction, and kicking it is much easier said than done, despite all the work done by EU governments to stimulate less oil consumption at least in the form of car fuels by encouraging the electrification of transport. No wonder, then, that besides the International Energy Agency’s 10-point plan for cutting oil demand, alternative oil supplies are being considered as a remedy for the current situation. The president of Ukraine, who has become perhaps the most public personality over the past few weeks, recently urged Middle Eastern oil producers to boost their output to help Europe reduce its dependency on Russia. “They can do much to restore justice. The future of Europe depends on your effort. I ask you to increase the output of energy to ensure that everyone in Russia understands that no country can use energy as a weapon and blackmail the world,” Volodymyr Zelensky said at the Doha Forum last week, as quoted by Reuters. So far, the Gulf oil states have demonstrated a clear unwillingness to boost production or condemn Russia’s actions in Ukraine. In fact, the UAE is forging stronger ties with Russia, and Saudi Arabia has reaffirmed its commitment to the OPEC+ agreement with Russia and the Central Asian republics. Unless it gets the security support it wants from the U.S. and Europe, OPEC’s top producer is unlikely to budge on that. Even with the guarantees, the Middle East is quite unlikely to agree to take Russia’s place in Europe. Reuters’ kemp put it eloquently: “Breaking long-term contracts and giving up Asia’s lucrative growth markets to supply refiners in declining Europe, possibly only for a few months or years, would make little strategic sense.” Europe, then, is overwhelmingly dependent on foreign oil and gas, and more specifically, Russian oil and gas. Despite its efforts to first diversify and then wean itself off fossil fuels, oil and gas will remain essential for European economies. A 10-point plan will hardly help change that in any meaningful way, and neither would pleas to Middle Eastern producers – what sort of oil exporter wants a market eager to reduce its consumption of oil?
Europe biggest importer of Russian oil & gas even as India is targeted
Energy hungry India is being targeted for purchasing Russian oil to meet its growing demand but fact remains that Europe and parts of Asia are bigger importers of Russian oil and gas even to this date. India’s daily requirement of crude oil is about five million barrels or about 1800 million barrels a year. And it is a well known fact that 85% of India’s crude oil requirements are met through imports. For FY 2020-21, India’s oil imports stood at 1440.3 million barrels; while for the current FY, India has already imported 1289.3 million barrels. Even with announced reductions by one third, EU’s reliance on Russian gas will still remain significant. For gas itself, Europe is still the largest regional importer of Russia’s natural gas, accounting for nearly 75% of Russia’s total natural gas exports. The recipients include Germanyand Italy. Exceptions and exclusions have been built into the design of the sanctions so that Europe can continue to use and pay for Russian crude and gas, sources pointed out. China and Japan are among the top 10 destinations, together accounting for approximately 10%, or 882 billion cubic feet, of Russia’s natural gas exports. Principal sources of import of crude oil by India are: Iraq – 23%; Saudi Arabia – 18%; UAE – 11.3%; Nigeria – 8% and USA – 7.3% It may be pointed out here that Russia is not in top 10 sources of Indian crude imports.
Gas companies in Gujarat invoke force majeure
Manufacturing units dependent on piped natural gas are staring at massive cost pressures. Along with increasing PNG prices, Adani Total Gas Limited and GujaratGas Ltd have imposed force majeure for their industrial customers effective from March 25. This means gas firms have not only revised gas prices but also curtailed the threshold limit to 80% of the daily contract quantity. Due to this, industries taking gas will have to pay pre-determined price for 80% of their DCQ consumption and pay hefty ‘excess gas charges’. ATGL has raised prices of PNG from Rs 71.34 per SCM (standard cubic meter) to Rs 72.34 per SCM effective March 25 for non-Minimum Guarantee Obligation customers. The price for MGO customers has surged from Rs 69.84 to Rs 70.84 per SCM. Excess gas rates have been set at Rs 96.79 per SCM. GGL has kept PNG prices at Rs 58 per SCM but imposed consumption threshold of 80% on DCQ. Excess gas charges applicable are Rs 120 per SCM.