Reliance Industries & ONGC to auction natural gas at different rates
Reliance Industries and ONGC plan to separately auction small quantities of natural gas with sharply different floor rates. RIL’s floor price is linked to crude oil and at the current rate of crude, would amount to $14 per mmBtu, while ONGC’s domestic gas price-linked floor is set at $4.5. Reliance has sought bidders for 0.65 million metric standard cubic meters per day (MMSCMD) of natural gas from its coal bed methane field in Madhya Pradesh, while ONGC is auctioning 0.15 MMSCMD from a small field in Rajasthan. RIL’s auction is planned for March 1 and that of ONGC is slated for March 7. A global gas crunch has pushed up LNG prices to record levels in the past few months, drying up spot cargoes at India’s gas import terminals and boosting domestic producers’ confidence that they can charge high prices for their produce. Reliance expects the bidders to quote a minimum premium of $1 per mmBtu over the base of 14% of the Dated Brent oil. The Dated Brent is calculated as the three-month average prices preceding the month in which supply is made. At the current Brent price of $93 per barrel, the floor would come to $14 per mmBtu. For the ONGC gas, the bidders will have to quote a premium above the reserve price subject to a floor price. The floor price is $4.5 per mmBtu. The reserve price is the sum of domestic gas price and a mark-up of $0.50 per mmBtu. Domestic gas price is linked to international rates and is revised every six months. Currently at $2.9 per mmBtu, the domestic gas price is expected to sharply rise in the next revision in April. Gas prices in Europe have risen four-fold, precipitating an energy crisis there. Prices in the US and other markets have also sharply risen. Expanding domestic supplies has to some extent shielded Indian consumers from pricey imports.
Veterans Plead For Oil And Gas PSUs’ Autonomy For Efficient Decision Making
Oil and gas industry veterans gathered at the World Energy Policy Summit pleaded with the government to grant full autonomy to the public sector undertakings (PSUs) in this sector for efficient decision making and professional business approach. Despite being full-fledged government-owned companies registered under the Ministry of Corporate Affairs (MCA), the board of oil and gas marketing companies contain at least one government nominee, who normally comes from the parent ministry – Ministry of Petroleum and Natural Gas – of a director-cadre bureaucrat. In absence of the government-nominee board member, decision makings get deferred, which means the government takes all day-to-day decisions including investments and divestments. These industry veterans normally get elevated to the chairman and managing director’s (CMD’s) post after dedicating several decades of service to the company. Apparently, they know every bit of industry and understand the business more efficiently than the government nominee. Sometimes, the PSU’s CMD possesses more experience than the cumulative experience of almost half the members of the board. Still, the government-nominee places advice and argues issues pertaining to the company’s business. “You will be surprised to note that sometimes the government-nominee does not know the difference between petrol and diesel, but advise the board in decision-making. Investment decisions are taken based on merits. On multiple occasions, the board needs to convince the government-nominee about the rationale for the new investment. The government-nominee gets in principal nod from the concerned minister which is a time-consuming job. We, therefore, had written to the government on multiple occasions to make the company independent for decision making as the entire company is run by a professional board,” said Subhash Kumar, former chairman of Oil and Natural Gas Corporation (ONGC). In addition to ONGC, Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL), and Gail India Ltd are the PSUs engaged currently in the oil and gas exploration, import, trading, and distribution businesses. While assuming the office of the chief of their respective organizations, these veterans have recommended the government on several occasions to form one parent ministry to avoid reporting to the multiple ministries. Sometimes, details are sought from the parent ministry – the Ministry of Petroleum and Natural Gas. “On several occasions, we had recommended to the government to form one ministry for the entire oil and gas sector under the banner of – Ministry of Energy. But, the recommendation has not been accepted yet. Currently, these PSUs need to report to several ministries. This kills a lot of time which can be utilized otherwise for productive purposes,” said Kumar. Despite these restrictions, Indian oil and gas PSUs have performed well and yielded a huge dividend for the exchequer. According to an estimate, the oil and gas sector has cumulatively paid Rs 11000 billion so far to the government as a dividend. Speaking on the webinar titled ‘Navigating the tough road ahead’, Bhuwan Chandra Tripathi, former chairman and managing director of GAIL India Ltd, called for a reduction in the government’s stake in oil and gas PSUs which may be called as ‘Golden Share’ and should not be more than 30-35 percent, as seen in the case of government-owned companies in Europe. “Let the remaining shares go to the foreign investors (FIs), foreign institutional investors (FIIs), domestic institutional investors (DIIs), and private companies. Bring in more professionals on the board and let them run the company professionally. Also, the PSUs boards do not follow listing guidelines as set out by the markets regulator – Securities and Exchange Board of India (Sebi). They must follow Sebi guidelines,” said Tripathi. Today, oil and gas PSUs’ cumulative annual investment is estimated at Rs 3000 billion. But, the investment is not exploited yet with their full potential due, primarily, to the delay in decision-making in the parent ministry. The need of the hour is to invest aggressively in the emerging sectors like hydrocarbon, specialty chemicals etc. either in partnership with the existing companies in this field or acquisition of the existing entity. “Several assets are built 50-60 years ago that is still serving the nation. It is, however, yet to be established whether the new investments taking place every year, are future-ready. PSUs also need to invest in the most important sector i.e. human resources which along with technology is very important for energy transition,” Tripathi added. Another former chairman and managing director of ONGC, R S Sharma, lamented, “An autonomy is needed for oil PSUs. The control comes from the parliamentary committee and the parent ministry. Often, explanations are sought from the person who does not know the difference between petrol and diesel. Infructuous time goes on parliamentary questions. There are so many controls on oil PSUs. The concerned officials get into a big problem in case of any difference in facts and figures. All these things do not happen with an autonomous body.” Kumar urged the government to extend financial support to the oil and gas companies, broadly equivalent to the amount distributed through various subsidies and schemes.
Indian Oil raises Iraq oil supplies to offset Mexico cuts: Report
Indian Oil Corp (IOC), the country’s top refiner, will increase crude purchases from Iraq by 11.5% in 2022 to 390,000 barrels per day (bpd), partly to make up for a shortfall from Mexico and a possible supply cut from Kuwait, two sources familiar with the matter said. Iraq is the top supplier of oil to India and its market share there is set to rise as another refiner Hindustan Petroleum Corp will also buy more crude from the Middle Eastern nation. India is the world’s third biggest oil importer. IOC has resorted to buying higher volumes from Iraq as Mexico is curbing supplies as it opens a new refinery, sources said. Indian refiners also expect oil supplies from Kuwait could be cut in the next fiscal year starting in April as Kuwait aims to start its 615,000 bpd Al-Zour refinery this year, the sources said. Last year, Kuwait had initially signed a nine-month oil supply contract with Indian refiners but later extended it by three months to March 2022 due to a delay in the commissioning of Al-Zour refinery. Mexico’s national oil company Pemex has agreed to supply 22,000 bpd (1.1 million tonnes) of oil to IOC, the sources said. Last year, IOC had term deals to buy 350,000 bpd (17.5 million tonnes) from Iraq’s oil marketing company SOMO, and about 40,000 bpd (2 million tonnes) from Pemex, one of the sources said. IOC, SOMO, Iraq’s oil ministry and Pemex did not respond to Reuters requests for comment. As OPEC’s second-largest oil producer, Iraq will be able to boost exports by as much as 250,000 bpd from the second quarter after finishing the installation of pumping stations at its Gulf ports, an Iraqi oil source has said.
Oil Demand In India Is Expected To Reach Around 11 Million Barrels Per Day By 2045 As Compared To 2021: Rameswar Teli
The Minister of State for Petroleum and Natural Gas, Rameswar Teli in a composed answer to an inquiry in the Rajya Sabha today said that the World Oil Outlook 2021, leader distribution by Organization of Petroleum Exporting Countries (OPEC), has projected that the oil interest in India is relied upon to stretch around 11 million barrels each day by 2045 when contrasted with roughly 4.9 million barrels each day in 2021. Government is finding different ways to accommodate the country’s energy security including Tamil Nadu, through, entomb alia, expanding homegrown creation of oil and gas in all States of India, enhancing import sources to new nations and areas; and broadening energy sources past customary hydrocarbons’ to arising energizes like Ethanol, Compressed Bio Gas, Hydrogen and so forth through plans like Ethanol Blending Program (EBP), Sustainable Alternative Towards Affordable Transportation (SATAT) and so on. Additionally, Government has been taking up the issue, respectively with raw petroleum delivering nations with OPEC and with heads of other global fora to pass India’s not to be neglected worries on over unrefined petroleum value instability, and India’s solid inclination for capable and sensible evaluating for buyer nations.
12% of India’s Petrol Pumps Are in Uttar Pradesh Alone: Union Govt
Poll-bound Uttar Pradesh (UP) has more than 12% of the country’s 81,099 petrol pumps, while there is not a single petrol pump in Lakshadweep, reveals data shared by the Union government in the Rajya Sabha. In a written reply, Rameswar Teli, minister of state in the ministry of petroleum and natural gas, says, “As on 1 January 2022, there were 81,099 numbers of retail outlets (ROs) of public sector and private sector oil marketing companies (OMCs).” As per the data shared by the minister, UP has 9,942 petrol pumps operational as of 1 January 2022. Maharashtra comes a distant second place with 7,468 petrol pumps and is followed by Tamil Nadu (6651), Rajasthan (5871) and Karnataka with 5,784 operational petrol pumps. Goa, the other election-bound state, has just 126 petrol pumps. Among the Union territories (UTs), Jammu & Kashmir has the maximum number of petrol pumps at 575. Puducherry comes at a distant second with 174 petrol pumps, while all other UTs have petrol pumps in two digits. Dr Fauzia Khan, a member of Parliament (MP) from Maharashtra, had asked for information about the total number of petrol pumps, total expenditure incurred in advertising government policies on these petrol pumps and steps taken by the government to ensure that basic facilities are provided at these petrol pumps. According to the minister, between April 2020 and December 2021, a total expenditure of Rs. 298.9 million was incurred on advertising various schemes and policies of the Union government on public sector OMCs petrol pumps. “The public sector OMCs have mandated basic facilities at their ROs. Periodic inspections are carried out by OMCs on their retail outlets to ensure the availability of basic facilities,” Mr Teli says.
BP records highest profit in eight years in 2021
BP BP.L reported on Tuesday a profit of $12.8 billion in 2021, the highest in eight years, as natural gas and oil prices soared and the global economy recovered from the pandemic slump. BP’s strong recovery, which followed a large loss in 2020, came as the London-based company said it plans to boost its spending on low-carbon and renewable energy. “2021 shows BP doing what we said we would – performing while transforming,” Chief Executive Bernard Looney said in a statement. In the fourth quarter of 2021, BP’s underlying replacement cost profit, the company’s definition of net earnings, reached $4.1 billion, exceeding analysts’ expectations for a $3.93 billion profit. That compares with $3.32 billion in profit in the third quarter and $115 million a year earlier. The quarterly results were supported by higher oil and gas prices and production which was partly offset by weaker oil trading results and the impact of higher energy costs on operations such as refining, the company said. Natural gas and electricity prices around the world have soared since the middle of last year on tight gas supplies and higher demand as economies rebounded from the pandemic. Benchmark European gas prices TRNLTTFMc1 and Asian LNG prices LNG-AS hit all-time highs in the fourth quarter. For the year, BP reported a profit of $12.85 billion, compared with a loss of $5.7 billion in 2020, which came after BP wrote off the value of its oil and gas assets by $6.5 billion amid a slump in energy demand due to the pandemic. BP’s debt fell sharply to $30.6 billion by the end of last year, down by $8.3 billion from a year earlier.
BHP unveils world’s first LNG-powered ore carrier, sees 30% emissions cut
BHP Group unveiled the world’s first liquefied natural gas-fuelled bulk carrier vessel in Singapore on Monday, one of five vessels that the mining giant will take delivery of in 2022 as part of efforts to curb supply chain emissions. The 299-metre (981 ft) long Mt. Tourmaline Newcastlemax ore carrier was built by Eastern Pacific Shipping in China and stopped off in Singapore to take on LNG fuel. It will next head to Port Hedland in Western Australia to load iron ore that will then be shipped to customers in China. BHP, which is the world’s largest miner and shipper of dry bulk commodities, is targeting net zero greenhouse gas emissions from its value chain by 2050. It views its fleet of LNG-powered bulkers as a key means to reduce emissions of carbon dioxide and other pollutants over the near term even as a majority of its fleet still runs on high-emitting fuel oil. BHP Chief Commercial Officer Vandita Pant said the LNG vessels would lower emissions by about 30% per journey. “That reduces our emissions for our customers and for our suppliers,” she said at the vessel launch at Jurong port in Singapore. While the vessel can also still burn traditional very low sulphur fuel oil, BHP intends to use LNG to power Mt. Tourmaline as much as possible, said Pant. BHP’s head of maritime supply chain, Rashpal Bhatti, said the engine and tank set up on the new vessels will allow the company to adjust the type of gas used from “LNG as we know it right now” to more energy dense and bio-LNG fuels that are expected to be developed in the future. It can also be retrofitted with “a little bit of capital expenditure to also burn ammonia,” he said.
Reliance Industries seeks minimum $14 for gas from CBM block
Reliance Industries Ltd is seeking a minimum of USD 14 for selling natural gas being produced from coal seams in a block in Madhya Pradesh as it looks to cash in on the recent spike in energy prices globally. Reliance sought bids from users for the sale of 0.65 million standard cubic meters per day of gas from its coal-bed methane (CBM) block SP-(West)-CBM-2001/1 for a one-year period beginning April 1, 2022, according to a Notice Inviting Offer (NIO) published by the firm. Bids have been sought at a premium over the base of 14 per cent of the Brent crude oil price. “A Bidder shall be required to quote the variable denoted as ‘V’ in USD per million British thermal unit terms as a positive number pursuant to the gas price formula” of “14% x Dated Brent + V,” the NIO said. The starting ticker for ‘V’ has been kept at USD 1 per mmBtu, which means bidders will have to quote at least USD 1 plus 14 per cent of dated Brent crude oil to buy the CBM gas. Brent crude oil is currently trading above US 92.5 per barrel and at this price, the floor rate for Reliance gas comes to USD 13 per mmBtu. Adding ‘V’ of USD 1, the minimum price comes to USD 14 per mmBtu. The sale price will be higher of the bid price or the government-approved rate for domestic gas, NIO said. The government dictated price for gas produced by state-owned firms such as ONGC presently is USD 2.90 per mmBtu. The rate Reliance is seeking is higher than the price at which the company had sold the same gas last year. Gas will be delivered at Shahdol in Madhya Pradesh, which is connected to the nationwide gas pipeline network through the HVJ pipeline, the NIO said. Last year, Reliance had sold three-fourths of the gas from the same CBM block to an affiliate of the company. India Gas Solutions Private Limited, a 50: 50 joint venture of Reliance and UK’s bp, bought 0.62 mmscmd out of 0.82 mmscmd gas bid out in that auction. State-owned gas utility GAIL India Ltd cornered 0.17 mmscmd while 0.03 mmscmd was picked by Reliance Gas Pipeline – the entity that transports gas from the CBM blocks in Madhya Pradesh to consumers. The price bid was 9.2 per cent of the prevailing rate of Brent crude oil price, which translated into a rate of USD 8.5 per mmBtu at current oil prices. In the last year’s auction, Reliance had sought bids for 0.82 mmscmd. Bids were initially sought at 9.5 per cent of Brent rate as the base or minimum price and asked bidders to “enter bids that are higher than or equal to it.” It later lowered the base price to 8.7 per cent of Brent. At the current USD 92.5 per barrel Brent crude oil price, the price of gas produced from coal seams, called CBM, comes to USD 8.5 per mmBtu. Reliance started commercial gas production from the CBM blocks in March 2017 and reached a peak of 3 mmscmd before the end of 2018. CBM is natural gas stored or absorbed in coal seams and contains 90-95 per cent methane. The pricing formula used last year and this year is a variation over the 2017 formula when Reliance had sought bids in the form of a deductible from 12.67 per cent of prevailing Brent crude oil price plus USD 0.52 per mmBtu plus USD 0.26 per mmBtu. In that bidding for up to 3 mmscmd of gas, Reliance had outbid rivals including GAIL to buy the entire volume. Last year, Reliance and its partner BP plc of UK bid out 7.5 mmscmd of gas from its eastern offshore KG-D6 block by pricing the fuel at JKM (Japan Korea Marker). The JKM represents the price for spot LNG delivered in the Asian market and is now being widely used in the LNG industry as a marker for medium/long-term LNG contracts instead of traditional linkage to oil.
Budget 2022: Govt focus on energy transition and clean energy
The Budget 2022 is growth-oriented with focus on ‘Make in India’ or ‘Atmanirbhar Bharat’ by rationalising custom duty exemptions and procedures and incentivising new manufacturing companies and startups. Additional restrictions have been introduced for availing Input Tax Credit (‘ITC’) in certain circumstances, which would require a detailed analysis of the supply chain by the oil and gas companies. In light of India’s commitment to the COP26 Glasgow summit, the Union Budget 2022 has focused on promoting the use of cleaner energy alternatives. Though there are no specific policy announcements for the oil and gas sector, various rationalisation measures are proposed with respect to customs duty rates, simplification of procedures relating to claiming current customs duty or exemptions and various conditions relating to obtaining Input Tax credit (‘ITC’) under GST regulations. Certain key changes in customs and GST regulations are: • Exemption from Basic Customs Duty (‘BCD) for imports for petroleum operations has been restricted to specified list of goods • Procedural conditions for availing aforesaid exemptions have been simplified by removing the requirement of producing a certificate from Directorate General of Hydrocarbons; • Exemption from BCD for raw material imports for manufacture of goods required for offshore operations has been withdrawn with effect from April 1, 2023 • Increase in BCD rates has been proposed for goods required for setting up crude petroleum refinery and LNG re-gasification plant; and • To promote blending of ethanol, methanol and bio-diesel, additional basic excise duty of Rs 2 per litre will be levied with effect from October 1, 2022, on unblended petrol and diesel. Further, additional restrictions have been introduced for availing Input Tax Credit (‘ITC’) in certain circumstances, which would require a detailed analysis of the supply chain by the oil and gas companies. Some of these circumstances include continued default in payment of tax by vendor, difference between tax filing and tax payment amounts of vendor, avail of excess ITC by vendors. No corporate tax concessions/benefits/incentives have been granted for Research & Development and technological upgradation for the sector. To their merit, there is no increase in the levy of corporate tax. In accordance with the expectations, the sunset date for commencement of manufacture or production for new manufacturing companies has been extended to March 31, 2024, to avail the concessional tax rate of 15%. Similarly, the sunset date for incorporating startups has been extended from March 31, 2022, to March 31, 2023, to claim tax holidays by such startups. Such extensions will incentivise new manufacturing companies and startups to make future investments within the extended time limit to obtain tax benefits, which in turn would optimise the overall cost in the supply chain. The Budget 2022 is growth-oriented with focus on ‘Make in India’ or ‘Atmanirbhar Bharat’ by rationalizing custom duty exemptions and procedures and incentivizing new manufacturing companies and startups.
With oil prices over $90, is demand at risk?
Even though in their latest meeting, OPEC+ ministers agreed to maintain the planned monthly increase of 400,000 barrels per day in March, prices remained firm while crude prices continued their backwardation. Bullish market sentiment is likely to continue, thanks to persisting supply outages and low oil inventories while the US-Russia tensions continue to add a risk premium to crude prices. Some signs are now emerging, however, that suggest a turning point in prices may be on the horizon. Oil prices could soften since some temporary drivers that are supporting high prices are falling away as we head into the second quarter of the year when refineries worldwide start their maintenance, leading to a lower demand for crude Winter is drawing to a close, which will lower demand for natural gas and, in turn, demand for diesel and fuel oil as cheaper alternatives for power generation and industrial use. The arrival of spring will also lower demand for heating oil. As for consumer sentiment, it is currently in the doldrums, falling to its lowest level since November 2011. This does not bode well for sustained demand under high prices. Furthermore, a US-Iran agreement could be reached earlier than the market anticipates, which could allow for the gradual lifting of sanctions as soon as April. Crude oil prices were supported by the EIA weekly report showing a draw in US crude oil and distillates stocks. Refining margins are recovering as demand continues to recover faster than supply, providing a boost for US refiners who just two years ago were struggling to break even on a barrel of oil. Crude exports from Russian seaports are poised to dip by almost 120,000 bpd in February. Capacity constraints will become more limiting in the coming months, raising concerns in the market. Genuine risks have already raised demand for inventory. India’s gasoline and diesel sales slumped in January as the third COVID-19 outbreak pushed people back to their homes, slowing consumption. Oil markets will be vulnerable to disruptions, capacity constraints and geopolitical risks, but supplies will be increasing in 2022, leading to an expected build-up of surplus in the market as it is projected by industry sources, which will likely put pressure on prices. US shale crude and condensate growth accelerated to 0.7 million bpd this year, after two years of decline. Global gas markets are painting distinctly different pictures as supply uncertainty in Asia supports prices but European markets are starting to see downside potential on the horizon. Mild weather in Europe and frigid forecasts for the US will drive price behavior in the coming days. With no sign of a diplomatic breakthrough to a potential conflict in Ukraine, Europe is engaged in diplomacy to see where it could acquire LNG supplies if Russian piped gas flows are cut off. Speculators are betting on higher prices because they see strong demand while supply struggles to keep up. Some experts argue that oil is on its way to $100 or higher, but there is no guarantee that this will not lead to demand destruction. Higher oil prices can have an indirect impact on oil demand by stalling the economic recovery from the pandemic and fueling inflation. Elevated levels usually take a toll on household and business budgets, ultimately slowing economic growth.