Small-scale LNG price competitive with diesel, LPG in India: CEEW study
Small-scale Liquefied Natural Gas (LNG) could be delivered at prices competitive with diesel and Liquefied Petroleum Gas (LPG) used in the industry, according to a study released by Council on Energy, Environment and Water (CEEW). Small-scale LNG systems transport the gas from LNG import terminals in containers and re-gasify the fuel at consumer sites, instead of relying on transmission pipelines. The study said that in locations currently served by city gas distributors, who get infrastructure exclusivity and charge high prices, LNG can offer a cheaper alternative. It added that the distributors can enable new CGD networks in locations without existing gas transmission pipelines thereby accelerating the government’s mission to connect 100 new cities to natural gas. The study estimates the delivered price of natural gas to be USD 11.11 (INR 815) per million British thermal units (mmBtu), as compared to the average industrial prices of USD 24.04 (INR 1,764) per mmBtu for diesel and USD 16.62 (INR 1,219) per mmBtu for LPG. “Small-scale LNG could bridge gaps in natural gas coverage by catering to consumers without pipeline connections or those unable to procure gas from city gas distributors (CDGs) at economical prices,” Hemant Mallya, Senior Programme Lead, CEEW said. He added that small-scale LNG could help industrial MSME customers transition to a cleaner fuel to address air quality issues. As per the study, on the pricing factor, the biggest contributors to the delivered price of LNG are truck loading charges, transport costs, and the Value-Added Tax (VAT) levied by states. Here, VAT plays the biggest role in determining price and it varies greatly between states that currently operate LNG terminals. The report mentions that reducing VAT to 3 per cent (as in Maharashtra) from 14.5 per cent (as in Kerala) could bring down the delivered price of natural gas by up to 8-10 per cent. “As a scalable, flexible, price-competitive fuel alternative, small-scale LNG could contribute significantly to India’s plans to achieve a 15 per cent share for natural gas in its primary energy mix by 2030,” Sabarish Elango, Research Analyst, CEEW said. The study recommends measures for the promotion of small scale LNG use and the expansion of natural gas access in India including standards for intermodal containerised transport of LNG, special railway tariffs for LNG transport, provisions in the Sagarmala initiative for the use of small scale LNG as a fuel in waterway transport, and reduced VAT on natural gas consumption for small consumers.
Amid India’s bid to cut Saudi oil imports, Aramco raises oil price for Asia
Saudi Arabia on Sunday raised the ‘official selling price’, or OSP, of oil shipments to Asia in May but left the price for Europe unchanged, indicating the world’s largest crude exporter is unimpressed by India’s plan to cut Saudi imports. The OSP has been raised between 20 and 50 cents per barrel for various grades of crude, Bloomberg reported. Saudi Aramco sets the OSP every month for oil supplied under term contracts. Other West Asian producers take a cue to tweak their prices. The OSP revision comes amid the government asking state refiners to cut Saudi oil imports and, in a throwback to 2014-15, use their “collective clout” to negotiate better contracts. New Delhi’s latest salvo follows a protracted war of words with Riyadh over OPEC-Plus ignoring India’s calls since December to end production cuts, which had pushed up prices. As fuel prices rose to record highs, partly aided by high taxes, oil minister Dharmendra Pradhan said the grouping “backtracked” on an understanding arrived among buyers and sellers amid demand meltdown in April 2020. His Saudi counterpart Abdulaziz bin Salman responded by suggesting India dip into its stockpile of cheap oil. This was in sharp contrast when officials claimed India’s victory in February when Saudi Aramco had left March prices for Asia unchanged but raised for Europe. In 2014-15, a team of executives from all state-run oil companies and government officials had visited Kuwait, Abu Dhabi and Saudi Arabia in the past without success since Riyadh is not willing to deviate from established norms based on market dynamics. The OSP is the difference in quality between any Saudi crude and the monthly base price of the Dubai-Oman basket quoted in Singapore. The base price is derived from a rolling average of 30-month quotes. For Indian refiners and mush of other Asian buyers, West Asia, which accounts for 60% of India’s oil imports, is hard to beat as a cost-effective source because of proximity, low shipping costs, capacity to supply committed quantities. Joint procurement iss also a non-starter because of the individual need of each refiner. For the same reasons, the US will not always be a cost-effective source, though it has become the second-largest supplier as India diversifies sources. African producers have issues over meeting their commitments.
Mozambique terror attacks: Anxiety hangs over India’s LNG project
The dastardly attacks in Mozambiques Palma, a resort city close to the French energy major Total-run gas project, by terrorists linked to the Islamic State (IS) have not hit headlines in India. But the recent bloodletting in the Indian Ocean nation has huge implications for Indand the domestic energy industry. Reason? State owned ONGC Videsh Ltd (OVL) and Oil India Ltd (OIL) along with other foreign investors secured $14.9 billion debt to part-finance their $24.1 billion liquefied natural gas (LNG) project being built on the Afungi peninsula. The project with one of the largest investments in Africa, is led by Total. It is expected to produce 12.88 million tonnes of LNG per annum. The French company has decided to recall all its staff from the site after the attacks leading to uncertainty over execution of the project. Last week hundreds of militants stormed Palma, rampaging shops, banks and a military barracks. Seven people were killed while trying to escape a siege on a hotel. The IS is leading an insurgency in the resource rich but predominantly Muslim region since 2017. The fighting has left more than 2,500 people dead while an estimated 700,000 have been displaced. Narendra Taneja, energy expert and BJP spokesperson told India Narrative that though the attacks were ghastly, there is no reason for panic yet. The World Economic Forum estimates India diaspora in Mozambique to be around 20,000. “The attacks have been going on for sometime. These are targeted at the country’s gas assets and foreign executives. Any project related to oil and gas typically tends to become political in nature but our state owned energy companies have operations even in Iran and Syria,” Taneja said. He added that the Mozambique government has also offered protection and enhanced security. “They are well equipped in dealing with adverse situations,” Taneja said. The Mozambique Oil and Gas Chamber said that the attacks are aimed at disrupting the project which “will fundamentally recast the fortunes of Mozambique from one of the poorest countries in the world to possibly a middle-income country”, Africanews, a platform highlighting events in the continent noted. According to a Bloomberg report published by World Oil, a weekly published by Gulf Energy Information, the African nation has been “battling an Islamic State-linked insurgency since October 2017”. It said that over the past year, attacks have grown increasingly sophisticated, while also drawing closer to the coastal site where Total leads a consortium building a project to extract, liquefy and export gas from offshore wells. India-Mozambique relations India and Mozambique have shared close ties, dating back to the pre-colonial period. Diplomatic ties between the two countries were established right after Mozambique achieved independence in 1975. Several Indian companies have invested in the resource rich African nation. Besides OVL and OIL, several private sector companies are also operating there. “Due to the strategic location of Mozambique and one of the longest coastline in its southern eastern part, Mozambique provides a good opportunity for India to enhance maritime cooperation since the Mozambican navy does not have the capacity to protect its coast,” said a report by the Vivekananda International Foundation (VIF). It added that Mozambique may very soon have the fourth largest reserves of gas in the world behind Russia, Iran and Qatar. Hence, India’s engagement and investments in Mozambique’s energy sector are also increasing.
India to buy 36 per cent less oil from Saudi Arabia
The government has decided to reduce oil imports from Saudi Arabia by a whopping 36 per cent in May, news agency Reuters reported quoting sources. The decision comes even after the Kingdom supported the idea of boosting output from the Organisation of the Petroleum Exporting Countries (Opec) and allied producers last week. Relations between the two nations have soured in the past few months as domestic prices of fuel spiked following repeated output cuts by the Saudis and other oil producers, thereby putting an upward pressure on crude prices. When Opec and its allies, known as Opec+ extended the production cuts into April, the Centre asked state-run refiners to cut imports from the Kingdom by about a quarter in May. However, on April 1, Opec+ agreed to gradually ease their oil output cuts from May, after the new US administration called on Saudi Arabia, the de facto leader of the group, to keep energy affordable for consumers. Crude oil suppliers to India In February, the United States accounted for 14 per cent of India’s crude oil imports. While oil imports from Saudi declined sharply by 42 per cent in the same month. Iraq was India’s biggest crude oil supplier at 8,67,500 bpd, followed by the United States and Nigeria. United Arab Emirates (UAE) and Kuwait are also some of the biggest suppliers of oil to India — are all Opec members. State-run refiners have placed orders to buy 9.5 million barrels of Saudi oil in May, compared with the previously planned 10.8 million barrels, sources told Reuters. India’s diversification drive The oil ministry had already urged domestic refiners to speed up their diversification of crude resources and reduce dependence on Middle East. According to the Petroleum Planning and Analysis Cell (PPAC) data, India’s crude oil imports in February fell 18.3 per cent from a year earlier to 15.24 million tonnes, the biggest year-on-year fall since October 2020. India has already curbed its reliance on the Middle East from more than 64 per cent of imports in 2016 to below 60 per cent in 2019. However, that trend reversed in 2020, when the pandemic pummelled fuel demand and forced Indian refiners to make committed oil purchases from the Middle East under term contracts, shunning spot purchases. As India shifts gears again after Pradhan’s call for faster diversification, refineries are looking for new suppliers, the oil ministry official said. Last month, the first cargo from new oil producer Guyana to India departed from a production facility off the South American nation’s coast in a vessel chartered by trading firm Trafigura, data from Refinitiv Eikon showed. Pradhan termed Saudi’s response “undiplomatic” Tensions between the two countries further escalated after Saudi energy minister Abdulaziz last month advised India to use the stocks of crude it bought cheaply during the price slump in 2020. Union minister for oil, petroleum and natural gas Dharmendra Pradhan termed Saudi Arabia’s response on India’s strategic oil reserves as ‘undiplomatic” and said that the country is conscious about its interest. Hit hard by soaring oil prices, the oil minister repeatedly called on the Opec and its allied to ease supply curbs. However, its plea was being overlooked. Aramco raises oil price for Asia World’s largest crude exporter Saudi Aramco raised the official selling price (OSP) of its shipments to Asia in May, but left left the price for Europe unchanged. The OSP revision came amid the government asking state refiners to cut Saudi oil imports and, in a throwback to 2014-15, use their “collective clout” to negotiate better contracts. For Indian refiners and much of other Asian buyers, West Asia, which accounts for 60 per cent of India’s oil imports, is hard to beat as a cost-effective source because of proximity, low shipping costs, capacity to supply committed quantities. Joint procurement is also a non-starter because of the individual need of each refiner. For the same reasons, the US will not always be a cost-effective source, though it has become the second-largest supplier as India diversifies sources.
Gas producers continue to bleed as govt-dictated prices remain low, says Icra
Natural gas production remains a loss-making proposition for most fields for the Indian upstream producers as government-dictated gas price remains at its lowest level, rating agency Icra has said. The domestic gas price notified at USD 1.79 per million British thermal unit for the six months beginning April 1 remains the lowest since the institution of the modified Rangarajan formula. Additionally, the ceiling on price for gas produced from deep water, ultra deepwater, high temperature and high-pressure fields has also been announced at USD 3.62 per mmBtu for April-September 2021-22 which is 10.8 per cent lower than the price ceiling of USD 4.06 for October-March 2020-21 which would dampen the development of such projects. “While this is unfavourable for domestic producers, it will benefit gas consumers. The consumers will also benefit in the long run from the expectations of continued supply overhang,” Icra said commenting on the gas price notified by the government earlier this week. As per an Icra note, at such low gas prices, gas production remains a loss-making proposition for most fields for the Indian upstream producers notwithstanding some decline in oil field services/equipment costs. However, the depreciation of Indian Rupee against US dollar, would aid the realisations of the gas producers but only to an extent. Sabyasachi Majumdar, Senior Vice-President & Group Head, Corporate Sector Ratings, Icra, said, “Going forward, the supply glut is expected to keep prices of domestic gas low in the near to medium term leading to poor returns even as domestic gas producers such as ONGC and Reliance Industries Ltd (RIL)-BP ramp up gas production significantly.” The absence of a floor and sustained low prices as has been seen in the past few years post implementation of the modified Rangarajan formula make exploration and production unviable even for benign geologies, Icra noted. “Accordingly, low natural gas prices remain negative for the upstream sector adversely impacting revenues, profitability and cash accruals and the incumbents have petitioned the Government of India to provide a floor price for gas prices.” Spot LNG prices had breached USD 30 per mmBtu in February 2021 due to increase in oil prices, unplanned outages at export facilities in several countries, multiple cold waves, high shipping rates and delays in the Panama canal. Though spot prices have come down to USD 6-6.5 per mmBtu levels, low inventory levels as winter ends are set to support prices, as well as demand, as North Asia and Europe look to refill gas storage. Nevertheless, the supply overhang remains with about 37.6 million tonnes per annum liquefaction capacity added in 2019 and 27.8 MTPA in 2020, besides which capacity additions till 2025 would be in excess of incremental demand which will weigh on gas prices, Icra said. From the consumers’ perspective, the low domestic gas price is a positive. “The continuation of the low domestic gas prices would lead to a competitive cost of generation for the domestic gas-based power generation projects,” it said. Given the cost-plus nature of the power purchase agreements tied up by the gas-based power projects, the benefit is expected to be passed on to the customers, mainly the state distribution utilities (discoms). However, the extent of the benefit would be limited for the discoms, given the subdued utilisation of the gas-based power plants in the country with annual average plant load factor (PLF) of 22-25 per cent for the gas-based capacity at all-India level, amid the inadequate supply of domestic natural gas. During first 11 months of 2020-21, the gas supply from domestic sources remained low at 22 per cent of the allocated quantity for gas-based power generation units as per the data from Central Electricity Authority. Moreover, with the uptick in spot LNG prices, the spot LNG consumption by gas-based power projects has reduced from the 11.85 million standard cubic meters per day in October 2020 to 2.62 mmscmd in February 2021. For every USD 1 per mmBtu variation in gas price, the cost of generation would vary by 60-65 paise per unit for gas-based power generation projects at prevailing rupee dollar exchange rate. For the fertiliser sector, nearly 36 per cent of the gas requirement of the fertiliser sector is met through domestic gas while the remaining is met through R-LNG imports. Moreover, the industry is supplied gas at pooled pricing, which takes into account the weighted average of the domestic and R-LNG prices. With no change in the domestic gas price, the pooled gas price will not witness any upward bias although term LNG prices have risen over the last couple of months with the strengthening of the crude oil prices, Icra said. However, the overall pool price is expected to remain in the range of USD 9.5-10 per mmBtu for 2021-22 if the crude oil prices sustain at current levels. As per Icra estimates, for every USD 1 rise in the pooled price, the subsidy requirement for the urea sector rises by around Rs 4,500-5,000 crore. With pooled prices at these levels, the subsidy budget for the urea sector will be adequate to meet the subsidy requirement for urea in 2021-22, it said. As regards the impact on the city gas distribution (CGD) sector, Prashant Vasisht, Vice President and Co-Group Head, Corporate Ratings, said “Sales volumes for CGD players have reached pre-Covid levels in Q4FY2021 supported by strong growth in CNG volumes. This has been supported by resumption in economic activity as well as the rising prices of auto-fuels which have resulted in higher preference of CNG vehicles.” Commencement of new CNG stations in recently awarded cities is also contributing to growth. “Amidst all this, the continuation of low gas prices is a positive. CGD players are likely to keep prices unchanged for their CNG and domestic piped natural gas consumers,” he said.
Reliance-BP seek buyers for 5.5 mmscmd gas from KG-D6
Reliance Industries Ltd and its partner BP Plc of UK have sought bids for sale of 5.5 million standard cubic meters per day of additional natural gas that will be available for sale from their eastern offshore KG-D6 block. The e-auction is slated for April 23 and the gas supply will start from late April or early May, according to the tender document. Bidders will have to quote a price linked to Platts JKM (Japan Korea marker), the liquefied natural gas (LNG) benchmark price assessment for spot physical cargoes. The lowest bid that can be placed is JKM minus USD 0.3 per million British thermal unit. The highest acceptable bid would be JKM plus USD 2.01 per mmBtu. This is the same benchmark the RIL-BP had used in February to sell out 7.5 mmscmd of gas from the block. At current price, the lowest price for the 5.5 mmscmd of gas that RIL-BP are auctioning comes to near USD 6.5 per mmBtu. But they will be entitled to a maximum of USD 3.62 per mmBtu ceiling fixed by the government for a six-month period to September 30. The consortium of RIL and BP Exploration (Alpha) Limited (a unit of BP Plc) “is developing deepwater gas fields viz. the R Cluster (D34), MJ (D55) and Satellites & Other Satellites (D2, D22, D29 and D30) in the KG D6 block,” the tender document said. The gas to be produced from the fields has been granted marketing and pricing freedom but this is subject to a ceiling price that the government fixes every six month. The ceiling price for April 1 to September 30, 2021 is USD 3.62 per mmBtu. Bidders can seek a supply tenure of 3 to 5 years. The minimum volume one could ask for is 0.01 mmscmd and the maximum could be the full volume on offer. “A Bidder shall be required to quote the variable denoted as ‘V’ in USD per mmBtu terms pursuant to the Gas Price formula specified below: Gas Price (in US$/MMBtu (GCV)) shall be = JKM + V,” it said. In the February auction, RIL picked up two-thirds of the 7.5 mmscmd gas sold. Reliance O2C, an affiliate of RIL, picked up 4.8 mmscmd of gas while state gas utility GAIL (India) Ltd won 0.85 mmscmd of supplies and Shell 0.7 mmscmd. Adani Total Gas got 0.1 mmscmd, Hindustan Petroleum Corporation Ltd (HPCL) 0.2 mmscmd and Torrest Gas 0.02 mmscmd. Other buyers include IRM Energy (0.1 mmscmd), PIL (0.35 mmscmd) and IGS (0.35 mmscmd). Sources said the gas was bought at a price of USD 0.18 per mmBtu discount to JKM i.e. price of JKM (minus) USD 0.18 with tenures ranging from 3 to 5 years. Reliance O2C is the new unit that holds the firm’s refinery and petrochemical assets. The April auction would be the third time RIL-BP conducted an e-bidding process which ran on a dynamic forward auction basis for sale of KG-D6 gas. In November 2019, 5 mmscmd of natural gas was sold at price in the range of around 8.6 per cent of Brent crude oil for tenure ranging from 2 to 6 years. RIL-BP started production of gas on December 18 last year from the R Cluster ultra-deep-water gas field in block KG D6 off the east coast of India. Essar Steel, Adani Group and GAIL had bought the majority of gas sold in that auction by bidding between 8.5 and 8.6 per cent of dated Brent price. RIL-BP is investing USD 5 billion in bringing to production three deepwater gas projects in block KG-D6 R-Cluster, Satellites Cluster, and MJ which together are expected to meet about 15 per cent of India’s gas demand by 2023. R-Cluster will have a peak output of 12.9 mmscmd while satellites, which are supposed to begin output from the third quarter of the 2021 calendar year, would produce a maximum of 7 mmscmd. MJ field will start production in the third quarter of 2022 and will have a peak output of 12 mmscmd. Reliance has so far made 19 gas discoveries in the KG-D6 block. Of these, D-1 and D-3 — the largest among the lot — were brought into production from April 2009 and MA, the only oilfield in the block was put to production in September 2008. While the MA field stopped producing last year, output from D-1 and D-3 ceased in February. Other discoveries have either been surrendered or taken away by the government for not meeting timelines for beginning production. Reliance is the operator of the block with 66.6 per cent interest while BP holds the remaining stake.
India sends out clear signal of its clout, foreshadowing coming changes in world oil scene
When India’s government last month asked refiners to speed up diversification and reduce dependence on the Middle East – days after OPEC+ said it would maintain production cuts – it sent a message about its clout and foreshadowed changes to the world’s energy maps. It was a move that had been in the works for years, fuelled by repeated comments from Indian Oil Minister Dharmendra Pradhan, who in 2015 called oil purchases a “weapon” for his country. When the Organisation of Oil Exporting Countries and Major Producers (OPEC+) extended the production cuts into April, India unsheathed that weapon. Indian refiners plan to cut imports from the Kingdom by about a quarter in May, sources told Reuters, dropping them to 10.8 million barrels from monthly average of 14.7-14.8 million barrels. Oil secretary Tarun Kapoor, the top bureaucrat in the ministry, told Reuters that India is asking state refiners to jointly negotiate with oil producers to get better deals, but declined to comment on plans to cut Saudi imports. “India is a big market so sellers have to be mindful of our country’s demand as well to keep the long-term relationship intact,” he said. The Saudi state oil company Saudi Aramco and the Saudi energy ministry declined to comment. Pradhan, who sees high oil prices as a threat to India’s recovering economy, said he was saddened by the OPEC+ decision. India’s fuel import bill has rocketed, and fuel prices – inflated by government taxes imposed last year – have hit records. The International Energy Agency forecasts India’s consumption to double and its oil import bill to nearly triple from 2019 levels to more than $250 billion by 2040. An oil ministry official, who declined to be named because of the sensitivity of the matter, said the OPEC+ cuts have created uncertainty and made it difficult for refiners to plan for procurement and price risk. It also creates opportunities for companies in the Americas, Africa, Russia and elsewhere to fill the gap. If India is successful, it will set an example for other countries. As buyers see more affordable choices and renewable energy becomes increasingly common, the influence of big producers like Saudi Arabia could wane, altering geopolitics and trade routes. DIVERSIFICATION DRIVE India’s oil demand has risen by 25% in the last seven years – more than any other major buyer – and the country has surpassed Japan as the world’s third-largest oil importer and consumer. The country has already curbed its reliance on the Middle East from more than 64% of imports in 2016 to below 60% in 2019. That trend reversed in 2020, however, when the pandemic pummelled fuel demand and forced Indian refiners to make committed oil purchases from the Middle East under term contracts, shunning spot purchases. As India shifts gears again after Pradhan’s call for faster diversification, refineries are looking for new suppliers, the oil ministry official said. Costly refinery upgrades that allow for the processing of cheaper, heavier oil grades have encouraged importers to seek out far-flung sources. HPCL-Mittal Energy Ltd bought the country’s first cargo from Guyana this month, and Mangalore Refinery and Petrochemicals Ltd just imported Brazilian Tupi crude for the first time. In past years, refiners have jointly negotiated oil deals with sanctions-hit Iran, which offered free shipping and price discounts, and now plan to do the same with other producers. Since the break with Saudi Arabia began, Pradhan has had meetings with United Arab Emirates’ minister of state and chief executive of Abu Dhabi National Oil Co (ADNOC), Sultan Ahmed Al Jaber, and U.S. energy secretary Jennifer Granholm to strengthen energy partnerships. Pradhan recently said African nations could play a central role in India’s oil diversification. The country is looking at signing long-term oil supply deal with Guyana and exploring options to raise imports from Russia, the oil ministry source said. A separate Indian government source said the government expects Iranian sanctions to ease in three to four months, potentially offering India a cheaper alternative to Saudi oil. Two traders agreed that Iran stood a good chance to benefit from India’s shift, as did Venezuela, Kuwait and the United States. An Indian refinery source said the U.S., Africa, Kazakhstan’s CPC Blend and Russian oil would probably get a look too. Although Indian importers will scoop up increasing volumes of attractively priced global grades, most analysts expect the Middle East to remain India’s primary oil supplier, mainly because of lower shipping costs. India’s oil ministry is working with refiners on a framework to jointly negotiate terms with suppliers. “Buyers have alternatives in today’s market and these alternatives are going to multiply going forward,” Kapoor said. “There are so many companies in India that do buying at their own level, so these companies coming together also becomes quite a big bloc.” On Thursday, Saudi Arabia and OPEC+ agreed after discussions with U.S. officials to ease oil curbs beginning in May. Saudi energy minister Prince Abdulaziz bin Salman conceded that the production cuts had put state oil company Aramco “in some difficulty with some of its partners.” THE RELATIONSHIP Analysts say the oil spat does not need to spill over into broader strategic ties in other sectors, including defence. “Until recently, the balance of power was skewed towards Saudi Arabia, but increasingly, India is using access to its market and the diversity of options to put pressure on Saudi Arabia,” consultancy Eurasia said in a note. “For Saudi Arabia, losing market share in a global environment in which most developed economies are already seeing their oil demand decline due to green policy implementation, would be a blow.” Abdulaziz confirmed that Aramco had maintained normal April oil supplies to Indian refiners while cutting volumes for other buyers – a sign Saudi Arabia is concerned about India’s search for new sources. Saudi Arabia is India’s fourth-biggest trade partner, importing a slew of items, including food. Saudi Armaco is looking at buying a 20% stake in Reliance Industries’ oil and chemicals business. It is also a part
Indian refiners may take less Saudi oil next year if contract terms are ‘unfavourable’
Indian state refiners may seek a smaller purchase deal for Saudi oil next year to pressure the kingdom into altering some of the contractual terms ‘unfavourable’ to the buyer, a person with direct knowledge of the matter said. “We can reduce the quantity in term contract next year if terms are not favourable to us,” the person said. Saudi Arabia is one of the top suppliers to India and most state and private Indian refiners have depended on it for supplies for decades. Refiners, however, feel some of the terms of the Saudi annual deals are unfavourable to India and must change quickly. “Contract should become flexible. Right now, it’s seller’s monopoly,” said the person cited above. “We can’t take more when prices are low. Nor can we order less when prices rise because orders are placed so much in advance and there are certain broader monthly commitments,” he added. For instance, a buyer must offer its loading plans for May by April 5. Refiners want ‘price flexibility’ and ‘certainty of supply’ even during times when production falls due to various reasons, he said. The annual contract permits Saudi to cut supplies to the buyer in the event of the organisation of petroleum exporting countries (OPEC) agreeing to artificially reduce production, the person said, calling the provision ‘unfavourable’ to the buyer. The OPEC output cut to boost oil prices has been at the heart of recent tensions between India and Saudi Arabia. After Saudi and allies ignored India’s call to increase supply last month, Indian state refiners discussed the possibility of taking less oil in May. Purchase contracts with Saudi permit refiners to vary volumes by month but the overall annual commitment must be honoured. India, the third-largest consumer of oil, hopes to use the might of its market to change the terms of engagement with big suppliers. State refiners plan to collectively bargain purchase terms with suppliers. They also plan to coordinate with Indian private refiners and share industry intelligence. To reduce dependence on Middle-East producers, Indian refiners are scouting for other supply sources. They are now sourcing more from the US. An Indian refinery has also taken the first consignment of oil from Guyana. Due to its geographical proximity, the middle-east can, however, supply cargoes in less time and at low freight rates. India imports 85% of its oil needs and is vulnerable to global supply and price shocks. It wants to have a diversified supply base.
Reliance Industries, BP seek bids for gas from their KG D6 block
Reliance Industries and BP have sought bids for 5.5 million metric standard cubic meters per day (mmscmd) of gas available for sale from their KG D6 block. The e-auction is slated for April 23 and the gas supply will start from late April or early May, as per the tender document. Bidders will have to quote a price linked to Platts JKM (Japan Korea marker), the liquefied natural gas (LNG) benchmark price assessment for spot physical cargoes. The lowest bid that can be placed is JKM minus $0.3 per mmBtu. The highest acceptable bid would be JKM plus $2.01 per mmBtu. Bidders can seek a supply tenure of 3 to 5 years. The minimum volume one could ask for is 0.01 mmscmd and the maximum could be the full volume on offer. Reliance and BP have the freedom to market and price the gas produced from the deepwater gas fields of R Cluster, MJ and Satellites in the KG D6 block but prices can’t rise above a ceiling the government revises every six months. The current price ceiling is $3.62 per mmBtu.
Low gas prices to impact financial performance of upstream oil and gas companies
The domestic natural gas price notified at $1.79 per unit for the first half of 2021-22, lowest since the institution of the modified Rangarajan formula, is unfavourable for domestic oil and gas producers and will significantly impact their financial performance, according to ICRA. At such low gas prices, gas production remains a loss-making proposition for most fields for the upstream producers notwithstanding some decline in oil field services and equipment costs, the rating agency said. The absence of a floor and sustained low prices as has been seen in the past few years post implementation of the modified Rangarajan formula makes exploration and production unviable even for benign geologies, it said. “Accordingly, low natural gas prices remain negative for the upstream sector adversely impacting revenues, profitability and cash accruals and the incumbents have petitioned the GoI to provide a floor price for gas prices,” said Sabyasachi Majumdar, Senior Vice President at ICRA. He added that going forward, the supply glut is expected to keep prices of domestic gas low in the near-to-medium term leading to poor returns even as domestic gas producers such as ONGC and RIL-BP ramp up gas production significantly. Also, the ceiling on price for gas produced from deep water, ultra deepwater, high temperature and high-pressure fields has also been announced at $3.62 per unit for the period between April and September 2021, 10.8 per cent lower than the price ceiling of $4.06 per unit for the period between October 2020 and March 2021. This would dampen the development of such projects.