Rationing Looms As Diesel Crisis Goes Global
Earlier this week, Vitol’s chief Russell Hardy warned that a diesel shortage could trigger fuel rationing in Europe. Now, those warnings are multiplying, with fuel rationing no longer looking like an abstract idea. Europe is risking a blow to its economic growth, Reuters reported on Thursday, citing experts. Diesel is what freight transport uses to deliver goods to consumers, but it is also what industrial transport uses for fuel. With Russian refiners cutting their processing rates in the wake of several waves of Western sanctions, already tight diesel supply is going to get a lot tighter. “Governments have a very clear understanding that there is a clear link between diesel and GDP, because almost everything that goes into and out of a factory goes using diesel,” the director general of Fuels Europe, part of the European Petroleum Refiners Association, told Reuters this week. As Vitol’s Russell Hardy noted earlier this week, “Europe imports about half of its diesel from Russia and about half of its diesel from the Middle East. That systemic shortfall of diesel is there.” Europe is not the only one feeling the diesel pinch, however. Middle distillate stocks are on a decline in the United States, too, Reuters’ John Kemp wrote in his latest column. Distillate inventories, according to EIA data, have booked weekly declines for 52 of the last 79 weeks, Kemp reported, falling to 112 million barrels last week. The total decline for the last 79 weeks amounts to 67 million barrels. Last week’s inventory level was the lowest since 2014 and 20 percent lower than the five-year average from before the pandemic. “Diesel is not just a European problem, this is a global problem. It really is,” said Gunvor co-founder and chair Torbjorn Tornqvist at the FT Commodities Global Summit this week. Energy Aspects’ Amrita Sen echoed the sentiment, saying that the diesel shortage was the worst affected oil product, noting that Europe imported close to 1 million barrels daily of Russian diesel and that at the time of the Russian invasion of Ukraine, inventories of the fuel were already much lower than the seasonal average. The problem seems to be that diesel stocks were already tight globally when Russia invaded Ukraine and the West responded with sanctions that, although indirectly, targeted its energy industry. In addition to that, according to Vitol’s Hardy, there had been a shift in Europe from gasoline to diesel, which has further exacerbated the problem. Then there are the commodity traders who are shunning Russian diesel because of the sanctions as well as payment headaches and transportation challenges as many European ports have banned Russian vessels from docking. TotalEnergies is the latest: the French supermajor has said it will be suspending purchases of Russian diesel “as soon as possible and by the end of 2022 at the latest”, the company said, unless it receives other instructions from European governments. Instead of Russian diesel, TotalEnergies said it would switch to other suppliers, notably Saudi Arabia. It will hardly be the only one to look for alternative suppliers. It looks like a hunt for diesel is in the making, if not already fully underway. Meanwhile, the alternative suppliers may not have enough to respond to the spike in demand in short order: Saudi Arabia is already Europe’s second-largest diesel supplier after Russia but compared to its 50-percent share of the EU diesel import market, the Kingdom only has a 12-percent share. Per Kemp’s report, Asian diesel inventories are also tighter than usual, meaning all large markets for middle distillates are experiencing a shortage. This is pushing all oil prices higher, Kemp noted in his column but this is only the beginning of a bigger problem. In addition to freight transport, diesel is the fuel used to power mining and agricultural equipment, and it is also used in manufacturing. With prices for the fuel higher, the prices of the end products will also climb higher, fueling the inflation that has turned into a major headache for Europe and the United States. Boosting local diesel production is another option, but according to experts, they would be buying their crude oil at higher prices, and the end product will, yet again be more expensive. What’s more, this ramp up of middle distillate production will take time to materialize. “Over the next three months, diesel output needs to accelerate significantly, consumption growth must slow, and the market must avoid a significant loss of Russian exports,” Kemp wrote. That would be a best-case scenario and if it does not play out, Europe in particular is in for “a severe price spike” that would result in demand depression. Before the demand depression comes, however, inflation could enter double-digit territory in some of the most vulnerable countries. And if Moscow decides to extend its demand for ruble payments for gas to its oil exports, the situation will become even more interesting than it already is, especially for Europe.
Bring petrol, diesel under GST to ease inflationary burden: PHDCCI
Retail price of petrol and diesel has been increased by Rs 3.2 per litre in the last five days. Prices are set to be raised further given the sharp jump in crude oil prices in the international markets. It will have a cascading impact on the prices of other items and lead to inflationary pressure and hurt growth. It is high time that petroleum products including petrol, diesel and aviation turbine fuel (ATF) are brought under the single nationwide Goods and Services Tax (GST) regime.”Bringing petroleum products under GST will help a lot. It is good for everyone. It is good for the economy,” Pradeep Multani, President, PHD Chamber of Commerce and Industry, told ANI in an interview. He noted that the hike in the prices of petroleum products like petrol and diesel have a huge cascading effect on a number of sectors, ultimately impacting the common people, especially the poor, the most.” Bringing petroleum products in GST will minimise the cascading effect. Companies can avail of the input tax credit. Ultimately the prices will come down,” said Multani, who is also the chairman of Multani Pharmaceuticals Limited. The 45th meeting of the GST Council, chaired by Finance Minister Nirmala Sitharaman, in September last year, discussed the issue of bringing petroleum products under the GST. However, the Council decided to continue keeping the petroleum products out of the GST purview.
India pays for Russian LNG imports in US dollar
GAIL continues to pay for the LNG it imports from Russia’s Gazprom in US dollars and will seek exchange rate neutrality in case payments are sought in any other currency such as Euro, two sources said. GAIL has a deal to receive 2.5 million tonnes of liquefied natural gas (LNG) annually on a delivered basis from Russia’s Gazprom. This translates into 3 to 4 cargoes or ship loads of super-cooled natural gas every month. The contract with Gazprom provides for making payments in US dollars,” a source with direct knowledge of the matter said. “Payments become due 5-7 days after the delivery of the LNG cargo. The last payment was made on March 23, which was in US dollars.” An LNG shipload was received on March 25 and its payment will be due in early April. There is no indication that the payment for this cargo will be in a currency other than US dollar, sources said. “So far, the US dollar payment continues without any problem,” another source said. “Gazprom has so far not communicated anything to GAIL about change in payment mode.” The last payment was settled through State Bank of India (SBI) – the bank that has been used to pay for imports from Gazprom since the start of supplies in June 2018. GAIL, they said, has so far not received any written communication from Gazprom for change in the currency for settling the payments.
Mukesh Ambani vs Gautam Adani: Rivalry between India’s two richest billionaires set to get intense
Mukesh Ambani and Gautam Adani tiptoed around each other for years to reach the top two rungs of Asia’s wealth ladder. While one of them built an empire in telecom and retail, the other established a lock on transport and energy distribution. Increasingly, though, the two billionaires from India’s Gujarat state are starting to overlap, setting the stage for a clash that could alter the country’s business landscape. Given the duo’s proximity to politics, the shock is bound to reverberate through the corridors of power as well. In the latest sign of their coalescing orbits, the Adani Group has discussed the idea of buying a stake in Saudi Aramco from the oil-rich kingdom’s Public Investment Fund, potentially linking the investment to a broader tie-up or asset swap deal, according to Bloomberg News. This is just months after Ambani’s Reliance Industries Ltd. and Aramco called off more than two years of talks to sell 20% of the Indian conglomerate’s oils-to-chemicals unit to the Saudi behemoth for about $20 billion to $25 billion-worth of Aramco shares. In an attempt to cement the partnership, Reliance even got Aramco chairman Yasir Al-Rumayyan to join its board as an independent director last year. Aramco, the No. 1 crude oil producer, is still a better fit with Ambani’s Reliance, which owns the world’s largest refining complex at Jamnagar in Gujarat. Reliance is also a leading manufacturer of polymers, polyester and fiber-intermediates. But, Adani, too, has wanted to enter petrochemicals by putting up a $4 billion acrylics complex near his Mundra port in Gujarat in collaboration with BASF SE, Borealis AG, and Abu Dhabi National Oil Co., or Adnoc. Covid-19 put a dampener on the plan. This wasn’t the first retreat from his petro-ambitions: Nothing also came of a plant in Gujarat, which was looking to rope in Taiwan’s CPC Corp. Adani’s main interest in hydrocarbons continues to be coal. He mines it in India and Indonesia, produces coal-fueled power at plants like the one in Mundra and berths vessels laden with the stuff at his vast network of ports. Exports of coal from the Carmichael mine would start soon, the group said in December, after slogging for a decade over the environmentally controversial project in Australia’s Galilee Basin. But while coal is very much India’s past and present, it’s not the future. Which is why Adani made a big bet on solar power. He also started circling around plastics. After Adani set up a new petrochemicals subsidiary last year, it became clear that sooner or later he was going to try and breach the moat of stable cash-flows established by the rival group’s founder Dhirubhai Ambani, India’s “Polyester Prince” (and father of Reliance’s current boss). The tantalizing question is whether Adani’s ambitions include a refinery as well. Back in 2018, Aramco and Adnoc were going to partner with state-owned Indian firms to set up a mammoth $44-billion refinery. That plan has gone nowhere after the project lost its original site in India’s Maharashtra state because of local political opposition. Could the Adani Group insert itself into a revival of that project? For now, the preliminary talks with Aramco seem to have a modest focus: collaboration in renewable energy, crop nutrients or chemicals, according to Bloomberg News. However, if Aramco is still keen on owning a captive refinery in India, the contours of its Adani partnership might well expand. That would put the billionaires in direct competition — though not for the first time. In June last year, Ambani told his shareholders he was embarking on his life’s “most challenging” undertaking by making a pivot to clean power and fuel. He followed up with a blitzkrieg of acquisitions in the field. Before that, it was Adani who wanted to be the world’s largest renewable energy producer by 2030. By revealing his plans for four gigafactories in Jamnagar — one each for solar panels, batteries, green hydrogen and fuel cells — Ambani put Reliance in the lead role in India’s climate-change narrative. And he did it just before the COP26 summit in Glasgow where Prime Minister Narendra Modi made a bold commitment to lower the country’s dependence on fossil fuels. Analysts like to clump Ambani and Adani together as a kind of India Inc. duopoly. “By backing the ‘2As’ at the expense of other companies, both domestic and foreign, the government is encouraging an extraordinary concentration of economic power,” economist Arvind Subramanian, an adviser to the Modi administration until 2018, and Josh Felman, a former International Monetary Fund official in New Delhi, wrote in a recent Foreign Affairs article about how India’s inward turn could stymie its rise. The two superstar business groups are indeed reducing the competitive intensity in the broader economy by swallowing smaller and weaker firms adjacent to their operations. Still, every indication suggests they’ll compete fiercely against each other. Ambani took the telecom route to emerge as the czar of India’s consumer data; Adani wants to come in from the other end by providing storage services to bits and bytes, powered by green energy. Ambani is engaged in a brutal contest with Amazon.com Inc. for control of the grocery supply chain. Adani warehouses grain for the state-run Food Corp. of India and owns the country’s No. 1 edible oil brand. Their balance sheets are different. For the past five years, firms linked to Adani have been hyperactive in the international debt market, borrowing more than any other Indian company. Ambani, meanwhile, has turned Reliance into a sparsely leveraged fortress — not a bad place to be as global interest rates harden. Visions are different, too. While Adani, 59, supplies grid power (and cooking gas, in partnership with with France’s TotalEnergies SE) to households, Ambani, who’s five years older, imagines a future in which “every house, every farm, factory and habitat could, in principle, free itself from the grid by generating its own power.” Will the two billionaires try to shape policies — and influence politics — according to their competing goals? You bet.
House panel asks govt to take concrete steps to raise domestic oil production
The standing committee on petroleum and natural gas has recommended the government to review its strategy to increase the domestic oil production and take concrete, tangible steps for the same. In its latest report submitted to the Parliament, the committee raised concern over the “very minimal” contribution of oilfields under the ‘new exploration licensing policy’ in the overall production of crude oil in the country. The report noted that the ministry of petroleum and natural gas has assured the panel that from the upcoming financial year (FY23), there would be turnaround in the production of crude in the country and it will witness an increase in production. It has suggested that the ministry to “seriously review” the strategy to increase the domestic production in crude oil and gas in the light of various policy initiatives undertaken during the last several years to assess its effectiveness and fix accountability upon the organisation or the state-run oil companies which have been mandated with the task. “The committee therefore, recommends the ministry to take concrete and tangible steps to increase the domestic production of crude oil and natural gas for overall energy security of the country,” said the report submitted on Tuesday. The recommendations gain significance as global crude oil prices are surging, raising anticipation of severe impact on India’s current account deficit, inflation and balance of payments. The panel under the chairmanship of Ramesh Bidhuri, a member of the Lok Sabha, observed that the domestic production of crude oil and natural gas assumes significance given the excessive reliance of the country on imports. India currently meets around 80% of its energy requirements through imports. With regard to the performance of state-run ONGC during the last three financial years, the panel said in its report that, there has been a consistent decline in the crude oil and natural gas production both under the nomination and NELP regimes. Further, Oil India Ltd’s performance in terms of crude production too has witnessed a decline in the last four years. The committee said that it has been informed that ONGC has initiated steps in exploration and production, including monetisation of discoveries, redevelopment of matured fields and development of new fields, among others. Although the panel noted that the Centre has laid down a road map for reducing India’s import dependence for its oil requirement and has taken several steps, it suggested study of the sectoral policies to assess the impact of the measures taken. It expressed dismay at the fact that there has been no inter-ministerial coordination mechanism to discuss the steps taken to reduce import dependence. “The committee recommends that the ministry should devise a suitable mechanism and set measurable target and assess the success of its measure in achieving the objectives,” it said.
No One Really Knows What’s Next For Russian Oil
It’s exactly one month since Russia invaded Ukraine, and the oil markets remain as volatile as ever with little clarity as to how direct and self-sanctions will impact Russian crude output as well as global oil demand. After the volatility-induced speculative unwind, which caused the 30% price fall from the 7 March high, oil prices have moved sharply higher over the past week. Front-month Brent settled at $115.62 per barrel (bbl) on 21 March, a w/w increase of $8.72/bbl and $18.69/bbl above the 16 March intra-day low. The value of the OPEC basket rose by $3.17/bbl w/w to $113.84/bbl and by EUR 2.18/bbl to EUR 103.34/bbl. Volatility remains high: according to commodity analysts at Standard Chartered, the 30-day annualized realized Brent volatility rose 10.1ppt w/w to a 21-month high of 72.8%, while the 10-day measure rose 4.9ppt to 108%. With positioning reset and significantly less crowded, crude oil prices have been staging another rally. Yet, market experts can’t seem to agree on the oil price trajectory, with key energy agencies revealing large differences in views on Russian oil output. Divergent views OPEC+ and the U.S. Energy Information Administration are the most bullish on Russian crude outlook, while the International Energy Agency and Standard Chartered are less optimistic. The latest forecast comes from the IEA: in its March 16 report, the Paris-based energy watchdog warned of a potential global oil supply shock, with ~3 million b/d of Russian oil production likely to be shut-in next month. In its latest monthly report, the IEA projects lower demand growth for 2022 by 1.1 million b/d to 2.1 million b/d thanks to reduced Russian consumption and higher prices. The main reductions in the IEA growth forecast by country were Russia (430kb/d), the U.S. (180kb/d), and China (70kb/d). The EIA was more conservative than the IEA in cutting its 2022 forecast by 415kb/d to 3.13mb/d and increasing its 2023 forecast by 77kb/d to 1.95mb/d. While acknowledging the scale of the potential demand risks, the OPEC Secretariat has maintained its 2022 demand growth forecast at 4.15mb/d. Big Supply Deficit For its part, StanChart has become even more pessimistic about the Russian outlook. In its March 9 report, StanChart lowered its 2022 forecast to 1.94mb/d, nearly a million b/d lower than its February forecast. StanChart says ongoing sanctions, continuing consumer reluctance to buy from Russia as well as shortages of capital, equipment, and technology will continue to depress Russian output over–at least–the next three years. The commodity experts have predicted that Russia’s output decline will peak at 2.306mb/d in Q2-2022. StanChart says that rebalancing the oil markets would require around 2mb/d extra supply for the remainder of 2022, mainly due to the current very low inventory levels, and an additional 2mb/d in Q2 to ease the dislocations caused by the displacement of Russian oil. StanChart’s model assumes that the current OPEC+ deal continues, no increase in Iran’s exports and U.S. output growth Y/Y is just over 1.5mb/d. But here’s the main kicker from the StanChart report: only OPEC can bridge the big supply deficit. StanChart estimates that an Iran deal could potentially provide an extra 1.2mb/d in H2-2022, still leaving a significant gap that can only be realistically filled by those OPEC members with spare capacity, particularly Saudi Arabia and the UAE. And, prospects for a sharp increase in U.S. shale production are not looking great at the moment. According to the latest Baker-Hughes survey, the U.S. oil rig count fell by three w/w to 524 while the gas rig count gained two to 137. The largest w/w increase in oil activity came in the Midland Basin, where the rig count gained four to 123. Elsewhere in the Permian Basin, Delaware Basin oil drilling activity fell by two w/w to 158, while other Permian activity fell by three to 32 rigs. The Bakken region of Montana and North Dakota registered its first w/w fall in activity in over a year, with the oil rig count losing one to 32. The latest EIA Drilling Productivity Report showed a m/m increase of 13 to 429 for Permian well completions in February, leaving them 48 lower than 2019 average monthly completions. Permian drilled-but-uncompleted wells (DUCs) fell 86 m/m to 1,396 in February, allowing monthly completions to stay significantly ahead of wells drilled. With the inventory of DUCs as well as production per rig having fallen off a cliff, U.S. producers need to sharply ramp up drilling activity just to maintain current production clips. According to StanChart, Russian oil exports to Europe could be cut to zero without medium-term price overheating, but only if Q2 dislocations are eased by large strategic stock releases and if OPEC production increases significantly. The prospects for the latter depend on whether there is a deal in the nuclear negotiations with Iran in Vienna and whether key OPEC members (particularly Saudi Arabia, UAE, Kuwait, and Iraq) are nimble enough in their policy thinking to move away from the OPEC+ agreement. If OPEC ministers accept the lower two lines as a base case(see chart above), they will conclude that there are few advantages, and multiple disadvantages, in staying within the current OPEC+ agreement.
India imports less than 1% oil from Russia: Puri
Petroleum and Natural Gas Minister Hardeep Singh Puri told the Rajya Sabha that facts regarding the stand taken by western oil companies on pulling investments out of Russia varied on the ground. Less than 1% crude oil was imported from Russia, he noted. “When we are in discussion with these companies, the facts on the ground vary. Some have indicated an intent and others said they will not make fresh investment. We are monitoring the situation. Insofar as oil imports from Russia are concerned, contrary to what has been played up in the press, these are miniscule. Even now, the total amount contracted will be less than three days’ supply from Russia to India and that also spread over the next three to four months,” he stated. Mr. Puri was responding to Shiv Sena’s Priyanka Chaturvedi, who asked whether the new energy cooperation agreements, including a contract for Rosneft signed in December 2021, may be impacted by the ongoing Ukraine-Russia crisis and whether the exit of British Petroleum from Rosneft impacted the Indian Oil Corporation’s investment. ‘Profitable investments’ Mr. Puri observed that Indian oil companies have invested $16 billion in Russia and some of those investments were very profitable. “For example, Sakhalin-1 where OVL [ONGC Videsh Limited] has a 20% take, the investment of $337 million has led to an overall revenue $3.7 billion and we still have 20 years of assets left. The one facility where one of the western entities is the operator, one of our oil companies has a 20% share. We got worried when we read those reports because if the operator is exiting, then the facility’s production will be undermined. But we were told that no production facilities will continue. So, we will discuss on a case-by-case basis with everyone. We have typical arrangements, which are government to government and company to company,” he said. In the first nine months of the year, India imported only 0.2 % of the requirement from Russia, he remarked. The Minister’s written reply stated that in 2020-21, India imported 85% of its crude oil requirements and 54% of its natural gas requirement. “As per Petroleum Planning & Analysis Cell (PPAC), India’s major sources of crude oil imports are Iraq, Saudi Arabia, UAE, Nigeria and the U.S. Indian Oil and gas Public Sector Undertakings had imported approximately less than 1% of its total crude oil import from Russia in the year 2021-2022 [till January],” it pointed out. When asked by Congress member Neeraj Dangi if the trade with Russia would impact relations with the U.S., Mr. Puri said, “India imported 14 million metric tonnes of crude from the U.S. and this represented 7.3 % of our requirements as against the less than 1 % from the Russian Federation… likely to go up from 14 million metric tonnes to 16.8 million metric tonnes or a value of about $10 billion of imports of crude oil from the U.S. If I add to that the amount of gas that we are importing, and coal, I think the figure comes closer to $13.5 billion of imports from the U.S. So, it is a robust relationship on the energy front, and I see this continuing for some time.”
Wang for Russia-China-India gas pipeline
In the shifting geopolitical landscape post the Russia-Ukraine crisis, Chinese foreign minister Wang Yi is likely to propose a Russia-China-India (RCI) oil/gas pipeline project during his upcoming New Delhi visit later this month. The move is said to have been formulated in response to the US sanctions against Moscow not only hitting the economic interests and businesses of Russia but also hitting India and China hard, top sources privy to the development said. The possible proposition of the RCI Pipeline project comes in the backdrop of the Tajikistan-Afghanistan-Pakistan-India (TAPI) Pipeline not taking off due to security risks posed by a destabilised Kabul and the perennial anti-India stance of Islamabad. The TAPI has been under discussion for nearly three decades. However, India is unlikely to go ahead with any such proposal without gauging the possible impact on domestic audiences as well securing national interests, according to officials. Taking advantage of its sanctions against the Kremlin, the US has been seeking to leverage with New Delhi to further enlarge its defence procurement from Washington which has even threatened India with sanctions under Countering America’s Adversaries through Sanctions Act (CAATSA) for the acquisition of S-400 missile defence systems from Russia, the sources said. However, New Delhi is in no mood to budge and spoil its decades-long strategic relations with Moscow, especially with a firm realisation here that not only American defence assets are costly but investments in technology transfers in India by the US in the sector are low as compared to Russia, they said. During the likely visit of Yi, a proposal of Alternative Payments System (APS) between Russia, China and India to offset the impact of the sanctions against the Kremlin, including the removal of Moscow from the SWIFT payment system, is also likely to come up. Initially, Russia, China and India could be the part of the proposed APS and subsequently more countries can join the grouping, shifting the global order in the process by shaking off the dominance of the American Mastercard and Visa. The three countries have a combined population of nearly three billion out of the global population of 7.9 billion and a corresponding captive market with a sizable consumer base. Counter-terrorism and defence analyst Dr Rituraj Mate said, “China’s proposal of RCI Pipeline Project is based on a double game with Beijing gaining the contract for installation of the pipeline on the one hand and getting royalty from India on the other hand.” “Once the pipeline comes to fruition, oil and gas prices will decrease in India and also improve New Delhi’s bargaining leverage with other energy supplying countries. This will help Beijing in improving its image in India. The pipeline will also increase China’s goodwill in India,” he said. At the geopolitical level, China will get another lever to arm twist New Delhi into submission to fulfil its larger dominance in the region and push global strategic ambitions. Beijing will just have turn the knob of the supply line, squeezing India’s energy needs instantly, he added.
Discounted LNG from Russia to cut costs of importers, users
GAIL India, on an average, imports around 250 cargoes or 14 million tonne of LNG per annum. Higher spot LNG prices have led to a decline in India’s import of the commodity since January compared with the year-ago period. However, with the war in Ukraine and economic sanctions on Russia, the price of Russian natural gas has dropped by over $10 per million metric British thermal unit (mmBtu) or about 29%, presenting a big opportunity for LNG importers and firms across sectors which use natural gas as feedstock or fuel. Companies that FE spoke to see a possibility of imports from Russia going up in coming months given the competitively cheap gas available there. The Russian LNG has turned cheaper than spot rates in major hubs after US and UK banned both Russian crude oil and gas, and shipping lines declined to insure the Russian cargoes. LNG prices are ruling at $39 per mmBtu in Asia. As against this, spot rate at Petronet LNG ‘s Dahej terminal is $35 per mmBtu in India, said Rajesh Mediratta, managing director at Indian Gas Exchange. The cost at Dahej terminal for exchange gas is low because there are various suppliers at different prices, reducing the average price. As against this, the Russian gas will now cost Indian buyers around $25 per mmBtu. The low Russian gas prices will allow Indian companies to ramp up inventories and cut losses caused by high spot prices over the last ten months or so. LNG terminals in Dahej and Hazira in Gujarat are underutilised after imports declined by 10.6% on year in January 2022, and over 3.2% on year in 10 months since April 2021. GAIL India, which is the largest importer of natural gas in the country already has a long-term contract with Russia for 2.75 million metric tonne per annum (mmtpa), which it plans to raise to 3 mmtpa soon. India received its first gas cargo from Russia’s Yamal project in October 2021. “There is a possibility that GAIL will look at discounted LNG from Russia to meet its short to medium term requirement,” said a source. A query to GAIL did not elicit any response till the time of going to press. GAIL India, on an average, imports around 250 cargoes or 14 million tonne of LNG per annum. It has a 5.8 mmtpa LNG contract with US suppliers that is linked to the US gas market Henry Hub. It also sources 4.8 mtpa of LNG through Petronet LNG on long-term contract from Qatar, and another 0.4 mtpa from Gorgon in Australia. India’s LNG imports had fallen in January due to higher international prices and a rise in domestic production. LNG imports fell 10.8% over a year ago to 2,408 million standard cubic meters in January, according to data released by the Petroleum Planning & Analysis Cell. Excluding the 1,640-mmscm imports in the pandemic-marred April 2020, it’s the lowest in 32 months. The international prices have been rising for the past few months on low storage inventories and higher winter gas demand. The rally was fuelled after Russia invaded Ukraine, causing uncertainties over gas supply to central Europe. While spot LNG prices, as measured using the Japan-Korea Marker, have retreated from a high of $51.8 an mmBtu in the first week of March, they are still elevated at around $35-$37 per mmBtu level. The Institute for Energy Economics and Financial Analysis said, ‘gas/LNG has neither been affordable nor available’. The institute, in its January report, raised concerns about LNG price volatility as it can increase operating costs of downstream projects in the industrial, power, and city gas distribution sectors. High spot LNG prices have already started to affect several sectors dependent on gas. Many have shifted to alternative fuel like Naphtha and coal. “Sourcing competitively priced Russian LNG will definitely aid the current demand scenario,” said another official.
Saudi Arabia Remains China’s Top Oil Supplier Despite Deep Russian Discounts
The world’s largest oil exporter, Saudi Arabia, was once again the top supplier of crude to the world’s top importer, China, beating its partner in the OPEC+ deal, Russia, to the top spot for deliveries in January and February 2022. Chinese crude oil imports from Russia fell by just over 9 percent in the first two months of this year, per data from China’s General Administration of Customs cited by Reuters, as independent refiners reduced purchases of crude, including of one of their favorite blends, Russian ESPO, due to lower quotas and a crackdown on illicit practices from the Chinese authorities. Going forward, it is not clear how much Russian crude China will import, considering the fact that China isn’t shying away from Russia’s energy as most of the rest of the world has already done following Putin’s invasion of Ukraine. However, some large Chinese state-owned banks have halted the issuance of dollar-denominated letters of credit for physical Russian commodities purchases. Being unable to secure such letters of credit, some independent refiners, the so-called teapots, have reportedly started looking for alternatives. On the other hand, China has generally not followed Western sanctions – as is the case with Iran – so it’s likely that it could see an opportunity to snap up heavily discounted Russian crude. In January and February, Russia was superseded by Saudi Arabia as the top Chinese oil supplier, after Russia was the biggest supplier of crude to the world’s top importer in December 2021. China’s imports from Saudi Arabia averaged the equivalent of 1.81 million barrels per day (bpd) in the first two months of 2022, down by 3 percent year over year, per Chinese customs data in tons converted into barrels by Reuters. Imports from Russia stood at 1.57 million bpd, down by 9.1 percent annually, as Chinese teapots reduced overall imports. That’s because Chinese authorities granted at the end of last year 11 percent lower crude import quotas to independent refiners in the first batch of quota allowances for 2022. The government, intent on reforming the independent refining sector and cracking down on tax evasion and illicit practices at the teapots, is now allowing its independent refiners to import 109 million tons of crude oil in the first batch for 2022, down by 11 percent compared to the first batch of quotas granted for 2021. The three biggest private refiners in China—Zhejiang Petrochemical, Hengli Petrochemical, and Shenghong Petrochemical – together accounted for around 38 percent of all first-batch import allowances, a document seen by Reuters showed. This suggests that China is now favoring giving quotas to the newer and more sophisticated private refineries as it cracks down on smaller and more polluting independent refiners, some of which are being investigated over alleged irregular tax and trade practices. In the coming months, however, China could turn to more barrels of Russian crude at hefty discounts, which could make Russia a top supplier of crude to the world’s top oil importer again. Some Russian oil producers are reportedly selling crude to China without bank guarantees. For example, Russian oil firm Surgutneftegaz continues to sell its oil to Chinese buyers even without bank guarantees, from which many banks have pulled out after the Western allies kicked several Russian banks out of the SWIFT system, Reuters reported exclusively earlier this month, quoting three sources familiar with the matter. Oil traders are staying away from Russian crude after the Western countries banned selected Russian banks from SWIFT, while Russian producers have not been able to sell their spot cargoes in tenders in Europe because no one is bidding. But in China, the trade continues, as Surgutneftegaz is now allowing Chinese customers to take oil without providing the bank guarantees, the so-called letters of credit, according to Reuters’ sources. China will likely be unable to take all the crude that Western buyers and traders are shunning right now, but it will likely take advantage of discounted Russian barrels when they become available.