Saudi-UAE tussle could lead to further hike in crude rates
Hopes of any respite from rising fuel prices receded on Monday after a bitter dispute between Saudi Arabia and UAE on Monday stalled an Opec-plus output deal, raising the prospect of tighter supplies amid recovering demand and prompting oil prices to jump higher. The grouping abandoned a meeting to bring the two warring heavyweights on the same page without announcing any prospective date. UAE is opposing Saudi proposal to extend the current deal to 2022, with phased increase in production, and demanding a higher baseline for its output quota. Riyadh feels the global economic recovery is still tenuous and wants the deal extended to keep the market in balance. It is also opposing revision of baseline for one member as it will prompt others to demand the same. An immediate fallout is that there will be no increase in August supplies as was expected. This will tighten the market as demand gains traction, especially from the US, Europe, China and India. The market reacted predictably as global benchmark Brent crude rose 1 per cent to near $77/barrel, the highest since 2018. Several investment banks recently projected oil at $80/barrel. This means pump prices will keep on rising unless the Centre reduces taxes it had raised last year. India’s crude purchase cost has risen from about $60/barrel in January to almost $75. As a result, petrol is currently selling for Rs 100 a litre and diesel is headed towards a century in most parts of the country, helped largely by last year’s sharp increase in taxes. The Centre had raised excise duty by Rs 13 on petrol and Rs 16 on diesel between March and May last year when oil prices collapsed due to the pandemic. The two hikes raised excise duty by 65 per cent on petrol from Rs 19.98 to Rs 32.98 a litre and 79 per cent on diesel from Rs 15.83 to Rs 28.35. These high taxes are amplifying the impact of rising crude prices, sending petrol price above Rs 100 a litre and diesel above Rs 90 in most parts of the country.
OPINION: From cash rich to less cash – The digitisation of fuel retail
Covid may have brought regular life to a stand-still, but from a different perspective, it has only served to highlight the importance of specific essentials. Movement is one, and while we may think our physical movement has reduced, logistics sector has seen huge demand upside on account of e-commerce related delivery boom. Fuel Retail is the sector enabling logistics; and it also serves as a major component of the retail sector. Lockdown and its associated health concerns have strongly aided the adoption of digital payment methods in fuel retail, leading to transformational user experience as a whole. Digital payments, while increasing transparency for consumers, have also provided OMCs with far more reliable and granular oversight, as the PoS data can be tracked with incredible accuracy. This in turn, has helped optimize forecasting techniques to strike a fine balance between demand and supply for enhanced operational efficiency as well as customer satisfaction. In recent years, offerings of Indian fuel retail outlets have been focussed on enhancing the entire fuel replenishment cycle of the customer, by providing the customer a one-stop solution for all their needs. Additionally, with the surge in digital payments, leading OMCs in India have integrated digital payments in a cash-rich sector. This implementation not only offers greater transparency but also streamlines the payment process, which removes manual intervention whenever a customer chooses to pay digitally via PoS device. The integration of digital payments has turned out for the better with the sudden rise of the pandemic, where contactless & cashless transactions are the new normal. Impact of Covid-19 According to an industry report, the Global forecourt retail market stood at US$196.6 billion in 2019 and is expected to grow at a CAGR of 3.6 percent during 2019–23, to reach US$226.4 billion by 2023. The US held the largest market share while Argentina and China reported the largest forecourt growth. Developing countries are expected to drive growth in 2019–23, with Argentina, Iran, and Brazil growing at CAGR 17, 13, and 8 percent, respectively. The Chinese growth is expected to be fuelled by the growing consumer tendency towards convenience stores being available at fuelling stations. However, traditional fuel retail margins are declining and have been for some time now. Hence it is imperative for OMCs to unlock additional revenue sources and that is only possible by enhancing the overall value proposition provided to the customer. Here Covid, and it’s associated initial dip in fuel sold only served to emphasize this point. In India, a combination of nationwide imposed lockdowns, social distancing, and rising fuel prices have reduced the day-to-day commute and have subsequently impacted the bottom line at fuel retail outlets. Reports suggest that owing to the ongoing pandemic, customers are beginning to avoid visiting petrol pumps entirely if they accept cash-only payments. This is where contact-less remote-fuelling solutions hold huge appeal. In such circumstances, initiatives that have been started by the Government, and various Banks and Payment players that incentivize digital payments are a blessing. In India, fuel retail has traditionally been considered a cash-intensive sector. However, forecourt automation has helped aid and hasten implementation of the digital payment infrastructure. Due to this migration from cash to e-payments fuel retail outlets in India are increasingly looking at alternate revenue-making streams, such as Loyalty Programs, Instant Motor Insurance, and others in an attempt to offer value-added services to the regular customers. New-age solutions such as RFID-based fuelling have seen a surge during the lockdown. The RFID market is unpenetrated in India, and therefore holds great potential across the industry. Further, in light of Covid-19, hygiene and health have been the main focus of most retail outlets across all types of sectors and markets. Fuel retailers who strategically invest in their forecourt experience to address consumer expectations around health and safety will likely be ahead of the recovery curve, effectively taking market share. Introduction of digital payments also enables implementation of blockchain and AI technology to offer customers tailor-made solutions that anticipate and meet their specific requirements. For instance, at a petrol pump that offers a range of fueling options like 93 Octane, Speed 97, and diesel, AI can be used to analyze a regular customer’s data and predict their specific requirement before there is a surge or decrease in demand and thus providing suppliers and retailers enough time to change their operation accordingly. Such services will, in turn, prompt customers to remain loyal to the outlet and boost the business. What does the future hold? With offerings becoming more customer-centric and efficient, the forecourt of the future will have to evolve in all possible avenues to cater to customer requirements. Fuel retailers must be ready with personalized offerings and automated solutions to meet and exceed customer expectations when the automation wave reaches its peak and competition starts to rise (already happening in pockets). Of course, the ultimate beneficiary post-automation is the customer, as there is an endless potential to please her – Quick Servicing & Drop-Off, E-commerce Pick-Ups, ATMs, Insurance Renewals. From a convenience perspective, an additional service that could be offered in the future is vehicle servicing along with towing services. Retailers might also explore tie-ups with local highway dhabas so that meal-stops become an opportunity for refueling. Further, given the proliferation of digital payments and the exorbitant fees a bank levies on frequent ATM withdrawals, customers have reduced ATM visits. In such a situation, instead of having a customer look for the nearest ATM, fuel retailers could offer cash at POS as a service. This would serve the dual benefit of reducing the burden of cash management and act as a useful offering to customers. The ultimate convenience would be the fuel station traveling to the customer. On-demand fuelling is an idea that has already found a very receptive audience among select commercial customers like mines, airports, telecom towers, railways, bus depots, schools, etc. Offering it in a form factor that is commercially feasible for retail customers is the next frontier. The fuel retail industry’s future is
India’s natural gas consumption to rise 4.5% in 2021: IEA
India’s natural gas consumption will rise 4.5% while global demand will rebound by 3.6% in 2021, the International Energy Agency (IEA) has forecast. By 2024, the global gas demand is forecast to be up 7% from 2019’s pre-Covid levels, according to the IEA’s latest report. Global demand dropped by 1.9% in 2020 due to an exceptionally mild winter in the northern hemisphere and the impact of the Covid-19 pandemic. “The rebound in gas demand shows that the global economy is recovering from the shock of the pandemic and that gas is continuing to replace more emission-intensive fuels,” said Keisuke Sadamori, the IEA’s director of energy markets and security. Almost half of the increase in gas demand between 2020 and 2024 comes from the Asia Pacific region. India’s gas demand is expected to expand by 4.5% in 2021 despite a 5% year-on-year contraction in the first quarter. “The economic fallout from the ongoing second wave and high LNG prices present downside risks to our forecast,” the IEA said. Consumption contracted in the first quarter “as high spot LNG prices in the aftermath of the northeast Asian winter energy crisis tempered demand, especially in the refining and petrochemical sectors, where some operators reportedly switched from imported LNG to liquid fuels,” according to the IEA. Covid-linked lockdowns and high LNG prices hurt demand also in the second quarter. In Asia, LNG spot prices more than quadrupled year-on-year in Q2 to reach an average of $9.8/MBtu—their highest Q2 average since 2014. “Strong buying interest from China, India and Korea, together with a combination of planned and unplanned outages in liquefaction plants, provided upward support to LNG spot prices,” said the IEA. Asian spot prices are set to average close to $13/MBtu through the second half of the year, resulting in an overall annual average of over $11/MBtu—the highest level since 2014, according to the IEA.
Excise duty collections from petrol and diesel jump three-fold in April and May
Excise duty collections from petrol and diesel jumped three-fold in April and May, with the oil companies raising prices 16 times during May and reducing them once in April when the elections were on in the key states of Bengal, Tamil Nadu and Kerala. The price of petrol has crossed Rs 100 per litre in more than 15 cities of the country. The price or petrol has already hit the century mark in North Bengal. Collections in the corresponding period a year ago stood at Rs 109.96 billion. It could be argued that 2020-21 was an unusual year with the government imposing a lockdown because of the coronavirus pandemic. But the amount is also much more than the collections in the first two months of “normal year” 2019-20, when the government raised Rs 173.33 billion. April-May 2021 was also the time the second wave of the coronavirus swept through the country. Prices may rise further if global crude prices move up in the event of the Organisation of Petroleum Exporting Countries (Opec) and its allies including Russia (the Opec+ group) fail to reach an agreement to boost production. Opec+ is expected to resume talks over oil output on Monday, having failed to arrive at a unanimous agreement for the second day running on Friday. Analysts warned there may not be any output hikes till the next fiscal year if there is no resolution to the standoff between the UAE and the Opec+ members. The present agreement between the members will expire in April 2022. A failure to structure an agreement would likely lead to higher prices and create an inflationary effect on the economy. The Narendra Modi government can provide some relief to users by reducing the cess levied on petrol and diesel. “Higher consumption of fuels should support a rise in the indirect taxes levied on them, offering a window for a partial reversal in the cess hikes that were imposed last year. Our calculations suggest that the cesses levied on petrol and diesel could be reduced by Rs. 4.5/litre each, while maintaining the total cess revenues of the GoI on these fuels in FY2022 at the FY2021 level. Such a cut in the cess rates would offer some relief to household budgets and ease the inflationary pressures related to the rising global crude oil prices,” Aditi Nayar, chief economist, Icra said. Nayar said Icra has forecast the growth in the consumption of petrol at 14 per cent by the end of the fiscal and diesel 10 per cent on account of the rise in mobility as states wind up lockdowns.
Wärtsilä to develop regasification system for new LNG terminal in India
The technology group Wärtsilä said it will develop the regasification system for a new offshore LNG terminal to be built in the Bay of Bengal in India. The project is headed by Crown LNG, a Norwegian group specialising in developing LNG infrastructure for harsh weather conditions, with Oslo-based engineering company Aker Solutions as the main contractor, Wärtsilä said in a statement. Wärtsilä Gas Solutions will conduct the front-end engineering and design (Feed) of the regasification system. The early phase of the Feed contract was booked in May 2021. Final Investment Decision for the project expected in 2022 with further equipment delivery of the regasification systems. The terminal will sit on the seabed approximately 19 km north-east of Kakinada on India’s east coast, approximately 11 km from the shoreline. It will be exposed to challenging monsoon weather conditions, and Wärtsilä’s extensive experience in delivering regasification systems for more than 20 similar floating storage and regasification units (FSRU) around the world was cited as a major consideration in the award of the contract. The Wärtsilä system will serve the terminal with an annual regasification capacity of 7.2 million metric tonnes, and will include the boil-off gas (BOG) handling and fuel gas systems. “This will be a challenging project, and the companies selected to engineer and design the systems required must be well qualified. Wärtsilä has an excellent track record in delivering regasification systems, and we are confident that they are a good match this assignment,” said Sturla Magnus, EVP Topsides & Facilities in Aker Solutions. “We are honoured to have been chosen to design and deliver the regasification system for this LNG terminal project. Our regas systems are delivered as complete modules, with all the engineering, component procurement, and construction of the module carried out entirely by the company’s execution team. This makes integrating the modules very easy, and we look forward to smooth inter-connection work with the other project partners,” commented Reidar Strande, General Manager, Strategy & Business Development, Wärtsilä Gas Solutions. It is estimated that the LNG terminal will be completed and fully operational approximately three years after the final investment decision has been made. Wärtsilä Gas Solutions is a market leader with innovative systems and lifecycle solutions for the gas value chain. Our main focus areas are the handling of gas in seaborne transport (storage, fuel, transfer and BOG management), gas to power, liquefaction and biogas solutions. We help our customers on the journey towards a sustainable future through a focus on lifecycle, innovation and digitalisation.
BPCL launches first Model Fuel Stations in Kheda, Gujarat
BPCL’s First Model Fuel Stations in Kheda, Gujarat with fully digital services and other auromated amenities Bharat Petroleum Corporation Limited, an Indian government-owned oil, and gas corporation launched its first Model Fuel Stations in Kheda, Gujarat, as part of the 75th year of India’s independence ‘Amrut Mahotsav’. These fully automated stations feature amenities like banking services & ATM, 24×7 surveillance, MAK Quick Oil Change, Clean Toilets, PUC Check Service, and support digital ad NFC Card payments.
Gas market to grow at 9% but CNG segment faces uphill battle
The consumption of natural gas in India is expected to increase by 25 billion cubic metres (bcm) till 2024 at an average annual growth of 9 per cent, according to the International Energy Agency (IEA) forecast on Monday. “While India’s short-term outlook is clouded by a devastating second wave of Covid-19 infections, which had the most disruptive effect in April and May 2021, the prospects for continued growth in gas demand remain strong in the medium term, aided equally by expanding infrastructure and a highly supportive policy environment,” the IEA said in its gas outlook. Nearly 40 per cent of India’s net demand growth is expected to come from industrial consumers, while the remaining growth is roughly evenly split between the residential, transport and energy sectors, the IEA said. “Gas use for power generation is projected to remain almost flat throughout the forecast period, as most of the country’s stranded gas-fired fleet is uncompetitive without subsidies or an outright collapse of international gas prices.” CNG margins to thin India’s programme to expand CNG access is the most ambitious globally, the outlook said. “India will add another 4,500 CNG stations to its current network of 2,700 over the next four years as part of the ongoing rollout of city gas infrastructure. It is projected to more than double India’s CNG demand between 2020 and 2024.” However, the CNG segment is also staring at headwinds of upward revision in regulated gas prices. “Indraprastha Gas Ltd and Mahanagar Gas Ltd face the steepest uphill battle ever,” Motilal Oswal Financial Services said in a Monday note. “Domestic gas prices have risen. In the next scheduled revision in October, we expect domestic APM gas prices to be raised to $3.1/mmBtu from $2/mmBtu, the highest ever increase. If the current trend in [benchmark] gas prices remains, we may see another hike in April 2022.” Another concern of rising costs for the CNG segment is the demand from oil marketing companies to hike commissions, Motilal Oswal said. Imports to rise India consumed nearly 61.54 bcm of gas during 2020, more than half of which was imported as LNG, according to the Ministry of Petroleum and Natural Gas. “In 2021, India’s gas consumption is expected to increase by 4.5 per cent, but the economic fallout from the ongoing second wave and high LNG prices present downside risks to our forecast,” the IEA said. In the first half of 2021, India’s LNG imports dropped by 3 per cent year-on-year, as record-high spot prices in January and a devastating second wave of Covid-19 in April and May dampened LNG demand, it added. However, “India’s import growth is expected to re-accelerate from 2022 as the post-Covid gas demand recovery coincides with a slowdown in production growth,” the outlook added.
India procures 1 million barrels of crude oil from Guyana
India has procured the first shipment of one million barrels of ‘Liza light sweet’ crude oil from Guyana, in a significant move marking diversification of its sourcing of petroleum products. The Indian High Commission in the South American nation said the consignment was lifted for the Indian Oil Corp Ltd from Liza Destiny FPSO and that the purchase reflected the enhancement of bilateral ties. “Concrete step in Indo-Guyana economic relations, 1st 1 million barrels of Guyana Liza crude for @IndianOilcl loaded from FPSO Liza Destiny,” it tweeted, describing the move as an important step in the diversification of crude sourcing by India as well as a reflection of “future roadmap”. India has been majorly sourcing crude oil from the Gulf countries. It is learnt that the consignment from Guyana may reach India’s Paradip port on August 6. It was the first purchase of Guyanese crude oil from the government of Guyana’s share of oil by an Indian PSU refiner. The High Commission said the procurement is a reflection of enhanced bilateral cooperation between India and Guyana. It is learnt that the collaboration could potentially expand and could include India acquiring oil blocks, long-term agreement for sourcing crude from Guyana as well as training and capacity building in oil and gas sectors. IOCL is the first Indian PSU to buy oil from Guyana, but HPCL-Mittal Energy Limited, a joint venture between State-run Hindustan Petroleum Corporation Ltd (HPCL) and Indian steel tycoon LN Mittal, had also bought one million barrels of oil from Guyana in March 2021. There is a view that Guyana’s Liza oil — “light sweet crude” — is well suited for Indian refineries. India considered such purchase arrangements helpful to both sides as the governments are able to save on incurring costs on commission and marketing fees to third-party agencies, it is learnt.
Govt may issue guidelines for ‘flex-fuel’ vehicles by October
Auto companies may soon be asked to manufacture passenger and commercial vehicles that run on multiple fuel configuration aimed at reducing the use of polluting fossil fuels and cutting down harmful emissions. New guidelines for use of flexible fuel vehicles (FFVs) using flex engines is expected to be issued by the third quarter of current year (FY22) that would specify engine configuration and other changes required in vehicles to conform to stipulated changes in fuel mix. The government is also working on an incentive scheme to promote manufacture and use of flex engines in vehicles. The details would be specified when policy in this regard is unveiled. The use of flexible fuel vehicles (FFVs) is being actively looked at by the government to ensure increased use of bio-fuels for running vehicles, Petroleum Secretary Tarun Kapoor had told IANS earlier. An FFV is a modified version of vehicles that could run both on gasoline and doped petrol with different levels of ethanol blends. These are currently being used successfully in Brazil, giving people the option to switch fuel (gasoline and ethanol) depending on price and convenience. In fact, a majority of vehicles sold in Brazil are FFVs. For India, FFVs will present a different advantage as they will allow vehicles to use different blends of ethanol mixed petrol available in different parts of the country. The current regulations allow for mixing up to 10 per cent ethanol in petrol. However, due to short supplies and transportation challenges, 10 per cent blended petrol is available only in 15 states while bio-fuel in other states varies between 0 to 5 per cent. FFVs will allow vehicles to use all the blends and also run on unblended fuel. Introduction of FFVs will require adoption of vehicle standards, technologies and retrofitting configurations that will have to be looked at by the Ministry of Heavy Industries. The country is moving quickly in the direction of E-20 or 20 per cent ethanol blended petrol fuel that could be introduced as early as 2023 with a nationwide roll out by 2025. The urgency for policy of vehicle is keeping these goals in mind. For auto companies, introduction of FFVs will pose another challenge that they are already facing with the fast adoption of electric vehicles. If standards on FFVs are made mandatory, it would require additional investment in production lines and technology transfers to change the character of the vehicles. Already the use of 10 per cent ethanol blended petrol and introduction of BS VI fuel have added to the cost of making a vehicle. Taking blending to 20 per cent require few minor changes in vehicle configuration, but adoption of FFVs will future proof the design to adopt to any more changes in blending options and configuration.
Asian spot LNG prices jump on high demand: Al Attiyah Foundation
Oil prices steadied on Friday as Opec+ ministers resumed talks on raising oil output the day after the United Arab Emirates blocked a deal, which could delay plans to pump more oil through the end of the year. Brent crude futures rose 33 cents to settle at $76.17 a barrel, after rising 1.6 percent on Thursday, while U.S. West Texas Intermediate (WTI) crude futures fell 7 cents to settle at $75.16 a barrel, having jumped 2.4 percent on Thursday to close at their highest since October 2018. On Thursday, both benchmark contracts rose after Opec+ sources said the group aimed to hike output by less than expected. Opec+ are set to meet again tomorrow after UAE opposed the proposals, which also included extending the pact on output to the end of 2022. The long rally in prices could be undermined if Opec+ nations go their separate ways and add to supply as they see fit. WTI was on track for a 1.5 percent rise for the week, with the U.S. crude market expected to tighten as refinery runs pick up to meet recovering gasoline demand. Brent was largely steady on the week, as the market assessed fuel demand concerns in parts of Asia where cases of the highly contagious COVID-19 Delta variant are surging. Also, the rise in oil prices is contributing to global inflation, slowing the economic recovery from the coronavirus crisis. Citi analysts said they do not expect WTI to climb to a premium to Brent as they project US oil output to pick up at the end of 2021 and grow further in 2022. Meanwhile, the number of US oil rigs, an early indicator of future output, rose by four, to 376 in the week to July 2, its highest since April 2020, according to energy services firm Baker Hughes Co. Asian spot LNG prices spiked to a fresh eight-year seasonal high last week, as demand remained robust globally for power generation needs in summer. The average LNG price for August delivery into northeast Asia was estimated at about $14 per metric million British thermal units (mmBtu), up $1.50 from the previous week, trade sources said. This is the highest that spot prices have climbed for this time of the year since 2013, Reuters data showed. Global prices for natural gas are at multi-year highs, with hot temperatures driving up demand for power generation and air conditioning in the northern hemisphere and as traders in some regions replenish stocks ahead of winter. Demand from Latin America was also firm as drought affected Brazil’s hydropower, boosting its LNG imports, trade sources said. Argentine Energy Company (IEASA) is also seeking four cargoes for delivery in August and September. Elsewhere, buyers in Bangladesh and Pakistan have paid above $13 per mmBtu for cargoes to be delivered in July to meet summer air-conditioning demand. Gail India is seeking a cargo for delivery in July into Dahej in a tender that closes on Friday, while India’s Petronet likely did not award a tender seeking cargoes for delivery in the third quarter, industry sources said. Russia’s Sakhalin Energy likely awarded a cargo for August loading at about $13.70 to $13.95 per mmBtu on a delivered basis. In a knock-on effect of high spot Asian LNG prices, benchmark European gas prices soared last week with the British and Dutch front-month contracts both hitting record highs on Thursday. US natural gas futures on Friday rose to a fresh 30-month high ahead of the Fourth of July holiday weekend with a drop in output due to a problem with a natural gas liquids pipeline in West Virginia and on soaring global gas prices. The US price increase came despite forecasts for less hot weather and lower demand over the next two weeks than previously expected. Front-month gas futures rose 1.1 percent, to settle at $3.70 per mmBtu, their highest close since December 2018 for a fifth day in a row.