Strong Henry Hub futures push rates of returns higher in dry gas plays
The Henry Hub average 12-month forward curve jumped nearly 50 cents in July, significantly increasing returns in US dry gas basins as the active rig count in the Haynesville reaches a multiyear high. The US dry gas basins improved in July as the average 12-month forward curve for Henry Hub settled at $3.62/MMBtu, an increase of 46 cents. The increase in natural gas prices lifted all of the major dry gas basins, with internal rates of returns in the Haynesville climbing to 29%, according to S&P Global Platts Analytics. In the Marcellus, IRRs are 31% in the wet window and 22% in the dry play. Utica IRRs improved this month as well to 26% in the wet and 28% in the dry. Given the relatively high prices of oil and gas this month, both the wet and dry portions of gas basins boast robust returns. Platts Analytics IRRs are based on a half-cycle, after-federal corporate tax analysis, which excludes sunk costs such as acreage acquisition, seismic expenses and appraisal drilling. Returns above 25% typically incentivize increased drilling and completion activity. Haynesville rig counts continued to increase for the week ended July 28, adding one rig to bring the total to 56, according to data by Enverus. Rig levels now sit at their highest since October 2019 for the core acreage of the basin. Expanding further to the non-core areas of the Haynesville, which include the non-Haynesville in Arkansas and Louisiana and East Texas non-Haynesville producing regions, total rigs pushed to 60 for the second time this year, tied for the highest level since November 2019. Haynesville production has steadily ticked higher during the second half of July as modeled production has averaged 12.9 Bcf/d since July 14, 150 MMcf/d stronger than the previous two weeks, according to Platts Analytics. The growth is forecast to continue in August with Haynesville production expected to average 13.2 Bcf/d, more than 300 MMcf/d above the July average. Rigs in the core Haynesville will need to remain above 55 for the majority of the year in order to incentive the current production growth in Platts Analytics’ forecast, reaching 13.9 Bcf/d by the end of the 2021 and 14.8 Bcf/d by the end of 2022. The average 12-month forward curve for the US domestic crude price benchmark, WTI, did not follow natural gas prices higher. It declined by $2.58 to $66.78/b in July. The decrease in oil prices caused returns within oil basins to fall by a couple percentage points. However, the Permian Delaware, Bakken, Eagle Ford and Permian Midland all still remained at or above 35% IRR. With prices holding relatively consistent for another month, it is expected drilling and completion activity will likely continue to climb in those basins, led by private operator activity. It remains clear public exploration and production companies are holding to their strategy to maintain capital discipline and working to pay down debt and returning value to shareholders. While rigs have steadily been increasing this year throughout most of the major basins, the Permian has seen a surprisingly slow recovery. When compared with pre-coronavirus levels, it remains down by roughly 40%. One potential explanation for the slower-than-expected recovery may be that many of the larger publicly traded exploration and production companies in the US have the bulk of their acreage in the Permian. Those companies have adhered to rigid capital discipline and have brought back fewer rigs than small and private operators.
Indian firms plan to invest $27 billion to boost refining capacity by 2025
India state refiners are set to invest 2 trillion rupees ($26.96 billion) to boost oil refining capacity by 20% in Asia’s third-largest economy by 2025, junior oil minister, Rameswar Teli, told lawmakers on Wednesday. India, the world’s third-biggest oil importer and consumer has refining capacity of about 249 million tonnes a year, equivalent to about 5 million barrels per day (bpd). Refining capacity is expected to climb to 298 million tonnes a year by 2025, Teli said in a written reply. “The refining industry has been modernized and upgraded continuously with the indigenous and imported technologies for refining cost reduction” and product upgrading, he said. The country’s top refiner, Indian Oil Corp, in its latest annual report said it would boost its annual oil refining capacity to 87.55 million tonnes by 2024/25 from the current 70.05 million tonnes to meet growing demand for petroleum products. India will be the main driver of rising demand for energy over the next two decades, accounting for 25% of global growth, and is set to overtake the European Union as the world’s third-biggest energy consumer by 2030, the International Energy Agency said in a report earlier this year. It is also nearly doubling its 3.2 million tonnes a year petrochemical capacity by adding another 3.1 million tonnes by 2024/25.
Gujarat: Natural gas supply goes ‘virtual’ in tribal areas of the state
Gujarat Gas, a government-owned entity, has begun supplying natural gas to consumers in the tribal areas of Narmada district by setting up a system where liquefied natural gas (LNG) is delivered using cryogenic trucks. This for the first time in the country where this new system is used in a tribal belt, said a senior official working with Gujarat Gas. Gujarat: Natural gas supply goes ‘virtual’ in tribal areas of the state “It is a very difficult terrain for laying pipeline networks. To make natural gas accessible and affordable in the most ‘aspirational tribal district’ in the shortest possible time, the company has rolled out a virtual CGD network in the district by setting up an LNG dispensing facility at Vavdi village in March this year,” said the official. Gujarat: Natural gas supply goes ‘virtual’ in tribal areas of the state The system comprises of LNG storage tank and re-gasification facility and is called virtual CGD network as it is not connected to the gas grid, he added. Gujarat: Natural gas supply goes ‘virtual’ in tribal areas of the state The total cost of the system, which includes an LNG tank of 24,000kg capacity, is under Rs 10 crore. Vavdi is about 19km away from the world’s tallest Statue of Unity at Kevadia and the system is used to supply natural gas for vehicular consumers as well as piped gas for cooking in villages and towns of the district, he said. At a time when Covid-19 pandemic has made setting up of physical pipeline infrastructure in the country a challenge, Gujarat government laid interior pipeline network at Vavdi and connected to 370 households through the system. Plans are in place to connect about 2,000 household in Narmada district using the virtual network over the next few months, according to a government official. While providing reliable and consistent supply of an eco-friendly energy source, the system also saves the cost and time spent to set up pipeline infrastructure. It also allows consumers to fulfil their specific needs through customizable supply. Till date, Gujarat Gas has laid about 33k of internal pipelines in Narmada, especially for last mile network connectivity to households. The company is currently catering over 10,000kg of CNG demand from vehicular consumers daily. Such pipeline systems play a significant role in gas distribution to remote locations in North America and the concept is slowly picking up in India. The systems can transport compressed natural gas (CNG) and liquefied natural gas (LNG) to consumers in the distribution network. Gujarat Gas won CGD license for Narmada district in the ninth round of bidding that was held by Petroleum and Natural Gas Regulatory Board (PNGRB). The company was the sole bidder for the Narmada geographical area (GA). The existing gas pipeline network is about 42km away from Jhagadia. The topography of Narmada district along with eco-sensitive belts demand considerable time to lay gas pipeline network to serve natural gas users across the district, said sources.
Centre making all efforts to reduce crude oil imports: MoPNG in RS
The Minister of State (MoS) for Petroleum and Natural Gas, Rameswar Teli in a written reply to a question in the Rajya Sabha on Wednesday informed that the Central Government is making all efforts to reduce crude oil imports. The Minister stated that the ministry is working in collaboration with various Central Government Ministries to achieve the goal to reduce the dependency on the import of oil and gas. The five-pronged strategy comprises promoting energy efficiency and conservation measures, giving thrust on demand substitution, promoting biofuels and other alternative fuels and renewables, increasing domestic production of oil and gas, and refinery process improvements. The government has taken several steps to enhance exploration and production of oil and gas in the country among policy for relaxations, extensions, and clarifications under Production Sharing Contract (PSC) regime for early monetization of hydrocarbon discoveries, Policy Framework for Exploration and Exploitation of Unconventional Hydrocarbons under Existing Production Sharing Contracts (PSCs) Coal Bed Methane (CBM), Reforms in Hydrocarbon Exploration and Licensing Policy for enhancing domestic exploration and production of oil and gas, Natural Gas Marketing Reforms, he added. The minister said that the government is also promoting the usage of environment-friendly transportation fuel, that is, CNG by expanding the coverage of the City Gas Distribution (CGD) network in the country. The government has also taken a number of initiatives to encourage the use of alternative fuels like ethanol and bio-diesel through Ethanol Blending in Petrol (EBP) Programme and Bio-diesel blending in diesel. To promote the use of compressed biogas, the government has launched a Sustainable Alternative Towards Affordable Transportation and has also formulated the National Bio-Fuel Policy 2018 to boost the availability of biofuels in the country, he further stated.
Oil prices rise on Mideast tensions; crude stock build caps gains
Oil prices edged higher on Thursday, supported by tensions in the Middle East, but failed to regain most of the previous day’s losses after a surprise build in crude stockpiles in the United States, the world’s top oil consumer. Brent crude oil futures rose by 14 cents, or 0.2%, to $70.52 a barrel by 0132 GMT, while U.S. West Texas Intermediate (WTI) crude futures increased by 18 cents, or 0.3%, to $68.33 a barrel. Both benchmarks fell by more than $2 a barrel on Wednesday. Israeli aircraft struck what its military said were rocket launch sites in south Lebanon early on Thursday in response to earlier projectile fire towards Israel from Lebanese territory. Two rockets launched from Lebanon on Wednesday struck Israel, which initially responded with artillery fire amid heightened regional tensions over an alleged Iranian attack on an oil tanker in the Gulf last week. The exchange came after an attack last Thursday that Israel blamed on Iran on a tanker off the coast of Oman. Two crew members, a Briton and a Romanian, were killed. Iran denied any involvement. The U.S. State Department said on Wednesday it believed Iranians hijacked the Panama-flagged Asphalt Princess tanker in the Gulf of Oman but was not in a position to confirm. Helping check gains, a rise in locally transmitted COVID-19 cases in China, the world’s second largest oil consumer, that has promped restrictions in some cities and cancellation of flights is threatening demand, analysts said. Prices also fell steeply in the previous session after the U.S. Energy Information Administration (EIA) said crude stockpiles rose by an unexpected 3.6 million barrels last week. [EIA/S] Still, some analysts pointed to a bigger-than-forecast 5.3 million barrel fall in fuel stockpiles. “The fall in U.S. gasoline stockpiles to the lowest level since November 2020 suggests that fuel demand conditions in the U.S. are still quite resilient,” analysts from Commonwealth Bank of Australia said in a note on Thursday. The bank expects Brent oil prices to rise to $85 a barrel by the fourth quarter as oil demand outpaces supply growth.
Indian firms plan to invest $27 billion to boost refining capacity by 2025
India state refiners are set to invest 2 trillion rupees ($26.96 billion) to boost oil refining capacity by 20% in Asia’s third-largest economy by 2025, junior oil minister, Rameswar Teli, told lawmakers on Wednesday. India, the world’s third-biggest oil importer and consumer has refining capacity of about 249 million tonnes a year, equivalent to about 5 million barrels per day (bpd). Refining capacity is expected to climb to 298 million tonnes a year by 2025, Teli said in a written reply. “The refining industry has been modernized and upgraded continuously with the indigenous and imported technologies for refining cost reduction” and product upgrading, he said. The country’s top refiner, Indian Oil Corp, in its latest annual report said it would boost its annual oil refining capacity to 87.55 million tonnes by 2024/25 from the current 70.05 million tonnes to meet growing demand for petroleum products. India will be the main driver of rising demand for energy over the next two decades, accounting for 25% of global growth, and is set to overtake the European Union as the world’s third-biggest energy consumer by 2030, the International Energy Agency said in a report earlier this year. It is also nearly doubling its 3.2 million tonnes a year petrochemical capacity by adding another 3.1 million tonnes by 2024/25.
Maharashtra State Road Transport Corp plans shift from diesel to LNG
The state bus corporation, MSRTC, plans to make its entire fleet of 18,000 buses run on green fuel. It has begun converting 500 of its polluting diesel buses to LNG and has invited bids this week. In phase II, 1,000 buses will be converted into CNG and later 2,700 buses to electric. MSRTC also for the first time floated tenders on Tuesday to procure 500 ordinary buses on wet lease. MSRTC managing director Shekhar Channe said, “Our fleet runs on diesel but we want to switch to green fuel. As per new electric vehicle policy, 15% of our fleet will be converted into electric. Besides, I am pushing for 1,000 buses to have CNG kits installed in the engine. LNG is a new experiment. We will have 500 buses plying across the state on this green fuel.” He stated that the entire fleet will have non-diesel buses, probably by 2022. On availability of LNG, Channe said it will be part of the contract in which the company converting the engine will ensure its availability. “It is a new experiment for our state and we hope more buses are converted to this green fuel,” he said. As for CNG, Mumbai region has close to 270 refuelling outlets, while the government is setting up 1,500 e-charging stations for electric vehicles. Channe said the 500 new wet lease buses will work on a business model in which a private contractor provides the bus with driver and pay for fuel and maintenance, while ST gets ticket box earnings after the monthly lease rent. Channe said the buses on wet lease will be new and will have comfortable seating arrangements.
With global crude fluctuating, OMCs to wait & watch on fuel
Oil marketing companies (OMC) continued to pause fuel price revision for the eighteenth consecutive day on Wednesday as wait and watch continues amidst fluctuating global crude prices. Global crude prices have swung in all directions in July starting with a low of $70 a barrel to quickly rise to over $77 a barrel, only to fall soon below $70 a barrel and crossing $75 a barrel later in the month. The oil prices have softened again to $72.5 a barrel. With no price increase by OMCs, in the national capital, petrol continues to be sold for Rs 101.84 per litre, while diesel is also being sold at the unchanged price of Rs 89.87 a litre on Wednesday. The pump price of fuel has been static since July 18. In the city of Mumbai, where petrol prices crossed Rs 100 mark for the first time ever on May 29, the fuel price is at Rs 107.83 per litre. Diesel price in the city is also at Rs 97.45, the highest among metros. Petrol prices in all metros have now crossed Rs 100 per litre mark. In Chennai Petrol is priced at Rs 102.49 a litre and in Kolkata Rs 101.08 a litre. Diesel is also priced at Rs 94.39 and Rs 93.02 per litre in both cities respectively. The price pause comes after fuel prices increased on 41 days in the current financial year. The 41 increases have taken up petrol prices by Rs 11.44 per itre in Delhi. Similarly, diesel has increased by Rs 9.14 per litre in the national capital. Prices of both auto fuels reduced only once in April by 16 and 14 paise per litre respectively. Diesel prices were also reduced by 16 paise per litre in Delhi on July 12. Since April 2020, petrol prices have increased by Rs 32.25 per litre from Rs 69.59 a litre to Rs 101.84 a litre now in Delhi. Similarly, diesel prices during the period have increased by Rs 27.58 per litre from Rs 62.29 to Rs 89.87 a litre in the national capital.
Low natural gas prices critical to meet India’s 15 per cent fuel share ambitions: CEEW
High natural gas prices and continued price controls could significantly slow down India’s efforts to improve gas penetration to 15 per cent of its energy mix by 2030, according to an independent study released today by the Council on Energy, Environment and Water (CEEW). If prices of natural gas remain high or increase further, its fuel share would rise from the current 6.3 per cent to only 6.4 per cent by 2030, and to 12 per cent by 2050, the study projected. The CEEW study ‘India’s natural gas future amid changing global energy dynamics’ also highlighted that a low-price regime could help India increase gas penetration to 13 per cent by 2030 and 21 per cent by 2050. However, the study recommended limiting penetration to an optimal fuel share of 18 per cent by 2050 to maximise economic gains while also meeting India’s decarbonisation requirements. Targeting this level of gas adoption would require investments of $62 billion in pipeline and LNG terminal infrastructure between 2020-50. It could also add 90,000 new jobs across the gas infrastructure value chain and generate import bill savings of around USD 835 billion, it said. “We need to accelerate gas infrastructure development by addressing regulatory challenges, increasing investments, and conducting more frequent bidding to expand coverage. In doing so, we should keep in mind two caveats,” Vaibhav Chaturvedi, Fellow, CEEW, and co-author of the study, said. He added it is critical to strike a balance between high gas penetration and deep decarbonisation to keep India on a low-carbon pathway and reduce the risk of stranded assets. The CEEW study argued that reforms are critical for creating a more market-friendly gas allocation system in India. This is despite the fact that such changes might adversely affect gas penetration in sectors currently considered “high priority”, such as fertiliser and city gas distribution.
Reliance BP Mobility planning to open retail outlets at fuel stations
Reliance BP Mobility, the fuel marketing joint venture of Reliance Industries and UK’s BP, is planning to open retail outlets including convenience stores and food joints at a number of its fuel stations, mainly along the highways. Reliance Retail will operate these outlets, including its Smart Point convenience stores, digital stores, charging points for electric vehicles, cafés and other food and beverages outlets, people familiar with the matter said. The company is also talking other food and beverage chains to open outlets at its properties, the people said. The move is aimed at tapping into the growing concept of highway retailing in India and to leverage its properties, they said. “Retail development will only happen in petrol pumps where retailing is feasible, and on the highways,” said one of the people. Reliance Retail and Reliance BP did not respond to an email seeking comment. Development of world-class highways and the growing number of Indians taking road trips have opened new opportunities for highway retailing in India, market watchers said. Property consultant Knight Frank said India’s highway retailing of food and beverages would offer a $2.7 billion opportunity by 2030. India’s road network of 5.8 million kilometres in 2017 was only second to the US, Knight Frank said in a report last year. “The existing road infrastructure presents a substantial modern retail potential in India, especially in food and beverage,” it said. Reliance had already tried its hands on highway retailing some years ago with food and beverage outlets on many of its petrol pumps, but the concept did not take off at that time. “Now they are reviving it big time,” said a second person. Others are also taking initiatives to club retailing options with fuel stations along India’s highways. Singapore-based Cube Highways has tied up with Bharat Petroleum, the country’s second largest fuel retailer, to open branded food outlets, convenience shops and toilets facilities at petrol pumps. Reliance BP aims to expand its fuel retailing network to 5,500 over the next five years from about 1,400 stations at present.