‘$104bn in stranded asset risk for oil, gas pipelines in India’
With the Union Budget for 2021-22 laying a major focus on the launch of a National Hydrogen Mission for generating hydrogen from green power sources, a survey by international researchers on Tuesday said there is $104 billion in stranded asset risk for oil and gas pipelines in India. While the Indian government has not announced any net zero targets, continued deflation in renewable energy price is making its economics of continued dependency on fossils untenable. India’s energy sector has the highest exposure to nonperforming assets (NPAs), said the survey by Global Energy Monitor. Globally, continuing a decade-long slowdown and year-on-year oil and gas pipeline additions fell by 13 per cent in 2020. Nevertheless, over $1 trillion in pipeline expansion projects are in development, drastically undermining pledges by the world’s major economies to achieve carbon neutrality by mid-century. The report cites seven major policy options available to the Biden Administration for reining in pipeline overbuilding. The report findings include stranded asset risk of $1 trillion. A planned 2,12,000-km expansion in the global system of oil and gas transmission pipelines, amounting to $1 trillion in capital expenditures, is on a collision course with commitments by most large economies to transition to carbon neutrality by mid-century, setting the stage for large amounts of stranded assets. It says there is lock-in of future emissions. Pipeline projects under construction and in pre-construction will support a lifetime increase in oil and gas CO2 emissions of 170 gigatonnes, only 15 per cent less than the projected lifetime CO2 emissions of the currently operating global coal plant fleet. The gas dominates the mix. Eighteen of the 20 longest pipelines in development and 82.7 per cent of all pipelines in development will carry gas, reflecting the fossil fuel industry’s success in perpetuating the myth that gas can be a “bridge fuel” to a clean energy future. The findings say the US is the leading developer of pipelines as measured by capacity, with 19.6 million barrels of oil equivalent per day in development. This expansion presents a major climate risk since US exports of liquified natural gas have the highest greenhouse gas intensity of any major exporter, according to Boston Consulting Group. China continues a massive 32,800-km expansion of the country’s oil and gas pipeline network. That network is being consolidated under a new company, PipeChina, which will soon be the largest builder of gas pipelines in the world, says the report. The global pipeline expansion has slowed in the past decade and some projects were delayed in 2020 by the Covid-19 pandemic. Overall, however, the expansion curve has been bent rather than broken, with pipelines continuing to enjoy both policy support and financial support by governments and major financial institutions. The findings are based on the Global Fossil Infrastructure Tracker, a project-by-project survey of oil and gas pipelines and terminals. “The policy landscape facing the new administration in 2021 is radically different from the one that Biden left in 2017,” said James Browning, lead author of the report. “Fossil gas is now recognised as a climate buster, not a climate solution. That means Biden faces the tough decision to rein in gas infrastructure, which is the most effective way to limit emissions.” “Last month the head of the European Investment Bank, the world’s biggest publicly owned financial institution, remarked that ‘Gas is over’,” said Greig Aitken, GEM’s finance researcher. “It’s high time for other significant financial institutions, both public and private, to step up and follow the EIB’s lead in ending their support for oil and gas infrastructure projects and companies.”
Fuel prices will not increase: Javadekar
Ruling out the possibility of a hike in fuel prices after the imposition of Agriculture Infrastructure and Development Cess in the Budget presented on Monday, Union Minister Prakash Javadekar said that the Modi government’s budget will take the country forward. He said, “There will be no increase in petrol and diesel prices. There will be no additional burden on people. The cess has been imposed to re-constitute the taxes. The government has reduced excise, and has started new agricultural cess.” Rs 5.71 crore will be invested in infrastructure, including roads, electricity, water, ports, railways, roads, runways and gas pipeline which is a huge success. The budget aims to provide justice to the farmers, general public and introduce reforms in all the sectors including law, he added.
No cut in excise duty on petrol, diesel; tweak in rates to accommodate agri cess
Petrol and diesel prices will not be cut as Finance Minister Nirmala Sitharaman ignored calls for a reduction in excise duty rates to help bring down prices from historic high levels. Instead, her Budget for the 2021-22 fiscal tweaked excise duty structure to accommodate an agriculture infrastructure development cess, whose accruals would not be shared with the states. Besides the tweak, the Budget proposed monetisation of oil and gas pipelines of gas utility GAIL and oil refiners Indian Oil Corporation (IOC) and Hindustan Petroleum Corporation Ltd (HPCL). Ujjwala scheme of providing free cooking gas to poor women will be extended to 1 crore more beneficiaries. A gas pipeline to Jammu and Kashmir as well as setting up of an independent gas transport system operator (TSO) also form part of the budget. Sitharaman in the Budget imposed a Rs 2.5 per litre agri cess on petrol and Rs 4 a litre on diesel. But this was offset by an equivalent reduction in excise duty. As of now, a basic excise duty (BED) of Rs 2.98 per litre is levied on petrol, and another Rs 12 a litre is charged as special additional excise duty (SAED) and Rs 18 as road and infrastructure cess. To accommodate the agri cess, the BED was cut to Rs 1.4 and SAED to Rs 11. Similarly, on diesel, BED was cut from Rs 4.83 to Rs 1.8 a litre and SAED to Rs 8 from Rs 9 per litre. The government had last year hiked excise duty by Rs 13 and Rs 16 per litre to mop up benefits arising from falling international oil prices. It hasn’t cut the duty now that oil prices have risen, resulting in fuel prices climbing to record highs. Petrol comes for Rs 86.30 per litre in Delhi and diesel for Rs 76.48. In her Budget speech in the Lok Sabha, Sitharaman spoke of monetising operating public infrastructure assets for new infrastructure construction. “A ‘National Monetization Pipeline’ of potential brownfield infrastructure assets will be launched.” Infrastructure assets that will be rolled out under this programme will include “oil and gas pipelines of GAIL, IOC and HPCL,” she said. The Finance Minister said the government had kept fuel supplies running across the country without interruption during the COVID-19 lockdown period. Now, the Ujjwala Scheme under which 8 crore poor households were provided free cooking gas connection will be extended to cover 1 crore more beneficiaries. Also, 100 more districts will be added in the next 3 years to the City Gas Distribution network. “A gas pipeline project will be taken up in Union Territory of Jammu & Kashmir,” she said adding an independent Gas Transport System Operator will be set up for facilitation and coordination of booking of common carrier capacity in all-natural gas pipelines on a non-discriminatory open access basis. Commenting on the budget proposals, Deepak Mahurkar, Partner and Leader Oil & Gas, PwC India, said: “The transparent, independent and digital Transport Service Operator will unlock pipeline capacity for the shippers.” Also, the future energy carrier Hydrogen gets the Energy Mission to deal with planning green generation and transportation, he said. Prashant Vasisht, Vice President and Co-Head, Corporate Ratings, ICRA said the move towards a gas-based economy is clear in the budget with city gas distribution planned to be rolled out in 100 additional districts and independent gas pipeline operator to be set up for non-discriminatory pipeline access. “Besides, monetisation of several large oil and gas assets including pipelines through InvITs would open other avenues of funding for the sector,” he said adding the reduction in customs duty on naphtha to 2.5 per cent would reduce the realisations of refineries and impact their gross refining margins (GRMs) marginally. Oil subsidy provided for FY22 and FY21 is fairly adequate, which is positive for the PSU OMCs, he added.
Govt announces gas pipeline project for J&K
The Centre has announced a maiden gas pipeline project for the Union Territory of Jammu and Kashmir. In her Budget speech on Monday, Finance Minister Nirmala Sitharaman said a gas pipeline project will be taken up in Jammu and Kashmir. She also announced setting up of a central university in Leh district of Union Territory of Ladakh for accessible higher education. The Centre has provisioned Rs 30,757 crore budget for the Union Territory of Jammu and Kashmir, while Ladakh has been allocated Rs 5,958 crore in the Union Budget for 2021-22. “We recognise our commitment to fiscal federalism and propose therefore to adhere to this recommendation. Jammu and Kashmir in the 14th Finance Commission was entitled to get devolution being a State. Now, the funds to the UTs of Jammu and Kashmir and Ladakh would be provided by the Centre,” Sitharaman said.
Shell targets power trading and hydrogen in climate drive
Royal Dutch Shell is betting on its expertise in power trading and rapid growth in hydrogen and biofuels markets as it shifts away from oil, rather than joining rivals in a scramble for renewable power assets, company sources said. Shell and its European rivals are seeking new business models to reduce their dependency on fossil fuels and appeal to investors concerned about the long-term outlook for an industry under intense pressure to slash greenhouse gas emissions. Shell will present its strategy on Feb. 11 and unlike Total and BP the company will focus more on becoming an intermediary between clean power producers and customers than investing billions in renewable projects, the sources said, giving previously unreported details of the plan. Shell announced in October it would increase its spending on low-carbon energy to 25% of overall capital expenditure by 2025 and the sources said that would translate into more than $5 billion a year, up from $1.5 billion to $2 billion now. The Anglo-Dutch company will, however, keep its overall oil and gas output largely stable for the next decade to help fund its energy transition, though gas is set to become a bigger part of the mix, the sources told Reuters. A Shell spokeswoman declined to comment on the details of the company’s new strategy ahead of its February announcements. BP, meanwhile, plans to slash its oil output by 40% by 2030 and has swept aside its core oil and gas exploration team to focus on renewables, with spending on low-carbon energy set to rise 10-fold to $5 billion over the coming decade. While Europe’s big oil firms are all rolling out strategies to survive in a low-carbon world, investors and analysts remain sceptical about their ability to transform centuries-old business models and triumph in already crowded power markets. POWER TRADING Central to Shell’s plans are its experience in trading all types of energy from oil to natural gas to electricity and its vast retail network, which has more outlets than either of the world’s two biggest food chains, Subway and McDonald’s. Shell is already the world’s leading energy trader, an activity it calls “marketing”. It trades about 13 million barrels of oil a day, or 13% of global demand before the pandemic, using one of the biggest fleets of tankers. It is the top trader of liquefied natural gas (LNG), buys and sells power, biofuels, chemicals and carbon credits, and now aims to use its pole position to snare a large chunk of the fast-growing low-carbon power market. “The future of energy is particularly bright for our marketing and our customer-facing businesses where we already have scale. So we will accelerate a growth plan which is already underway,” Chief Executive Ben van Beurden said in October. Trading has been key for oil majors for decades, allowing them to use their global operations to quickly take advantage of changes in supply and demand. Shell’s trading helped it avoid its first-ever quarterly loss in the second quarter of 2020 even as consumption plummeted due to the coronavirus epidemic. Nevertheless, analysts say Shell’s trading division will face a challenge because it is heavily reliant at the moment on sales of refined fossil fuel products, which also account for a large proportion of its carbon emissions. “Shell faces difficult choices on how to balance its trading cash flow that leverages oil products while still having carbon-intensive operations,” JP Morgan analyst Christyan Malek said. “But because of their scale, customer base and distribution, they can be much more flexible.” HYDROGEN HUBS At the same time, Shell plans to boost its consumer base by expanding its electricity supply business for homes and its network of electric vehicle charging points, as well as signing long-term corporate power purchase agreements (PPA). Shell already has 45,000 retail outlets worldwide, far more than its European rivals, and it is planning to add another 10,000 by 2025. As a major biofuel producer, Shell wants to ramp up its production of fuel made from plants and waste as an alternative source of energy for transportation, the sources said. Shell’s is also betting on future growth in hydrogen, the sources said. While still a niche market, hydrogen has attracted huge interest in recent months as a clean alternative to natural gas for heavy industry and transportation. Hydrogen, and so-called green hydrogen which is made solely with renewable power, comes with high costs and infrastructure challenges though Shell is already investing. Its push will centre initially on Europe, where it is developing a hydrogen hub in Hamburg, Germany, and it is one of several firms developing a hub in Rotterdam in the Netherlands. It is also looking to expand into the United States and Asia. The U.S. state of California, for example, is backing the rollout of hydrogen fuel cell vehicles to help achieve its climate goals while countries such South Korea and Japan are betting heavily on hydrogen as an alternative fuel. The sources did not give any targets for increases in Shell’s production of either hydrogen or biofuels. Like Shell, rivals including BP, Total, Italy’s Eni and Spain’s Repsol also plan to expand in hydrogen and biofuels markets, as well as add electric vehicle charging points to generate new revenue away from oil. COMPETITIVE EDGE? However, Shell won’t chase the same ambitious targets some of its European rivals have for adding wind and solar generation capacity and will prioritise trading and selling electricity instead, the sources said. Shell is wary about investing heavily in renewable projects where it won’t have any particular competitive edge over other oil companies or utilities, such as Spain’s Iberdrola and Denmark’s Orsted that are already becoming significant green energy producers. Shell will still expand its renewable capacity, especially in offshore wind farms where it believes it has an advantage after years of operating offshore oilfields, but the business will centre on profitability rather than size, the sources said. “Shell will have some volumetric targets but that is not the focus,” a senior company official
Fuel demand weakens in January, indicates slow economic recovery
India’s fuel demand faltered in January as festive and holiday season demands evaporated, indicating economic recovery still remains shaky. But Shrikant Madhav Vaidya, chairman of the country’s largest oil refiner and fuel retailer IndianOil, expects demand to exceed pre-Covid levels by March. Latest sales data of the public sector fuel retailers, which have 90% market share, show diesel sales dropping 4% and petrol 2.3% in January from a month earlier, when consumption had posted gains of 1.8% and 1.4%, respectively. But compared to January 2020, diesel consumption, a bellwether for economic activity, stood just 1.4% short of the year-ago period. Petrol consumption was 7.5% higher than in January 2020. This is lower than December when sales were 8.7% higher than the year-ago period. Jet fuel sales in January improved by 1.2% over December as the government further eased flight restrictions. But sales were still 57% lower than in January 2020. According to Vaidya the pieces to propel and sustain demand are all there. “With the vaccine rollout, the govt would be able to ease restrictions further. This, together with the pent up demand and sheer dynamism of the Indian economy will drive oil demand forward,” Vaidya told reporters on Friday. “Oil demand is expected to rise and be above the pre-Covid levels in the January-March quarter of 2021. ATF will take a few months to get to the pre-pandemic levels, even though that is recovering. Consumption has posted month-on-month increase for the fourth straight month in December. Consequently, consumption in the October-December period was just 1% below the level for the third quarter (of 2019-20),” he said. According to him, easing of restrictions so far has revived demand from transportation and business activities are “roaring” back to normal. “Already we have seen manufacturing, rail traffic, auto sales, imports, port traffic, GST collections posting robust growth and recovery,” he said. Diesel consumption had covered slack to reach 97% of the year-ago period in December. It had dropped 7% from the year-ago period in November after shooting past the pre-pandemic level for the first time in eight months in October by clocking a 6% year-on-year growth.
PM to dedicate infra projects in oil, gas sector at Haldia on February 7
Prime Minister Narendra Modi will visit Haldia in West Bengal on February 7 to dedicate several infrastructure projects in the oil and gas sector, Union minister Dharmendra Pradhan said. The projects include 347-km long Dobhi-Durgapur natural gas pipeline built at a cost of Rs 2,433 crore by state-owned GAIL, Indian Oil Corporation (IOC) said in a statement. This pipeline is a part of the ambitious Pradhan Mantri Urja Ganga project. “Conducted an oil industry meet at Haldia ahead of PM@narendramodi ji’s visit where he will dedicate to the nation oil, gas & road projects worth Rs 4742 cr. I invited family members of our oil industry to be a part of this momentous occason in the developmental journey of Bengal,” the Union Petroleum and Natural Gas minister tweeted. During the project stage, it had generated 15 lakh mandays of employment and will help in the revival of the HURL fertiliser plant at Sindri in Jharkhand and supply gas to Matix fertiliser plant at Durgapur, the IOC statement said. The Prime Minister will also dedicate an LPG import terminal at Haldia, built by Bharat Petroleum at a cost of Rs 1,100 crore, to meet the rising demand of cooking fuel of the region. He will also lay the foundation stone for the second catalytic dewaxing unit of IOC at Haldia refinery and a road- overbridge (ROB) at Ranichak in Haldia. West Bengal Governor Jagdeep Dhankar and Chief Minister Mamata Banerjee have been invited to the programme, the statement said.
Budget 2021-22: Major focus on energy transition, traditional reform areas
The Union Budget for 2021-22 has laid a major focus on capturing the emerging energy transition trends — from Renewables to Hydrogen and even Smart Metering. At the same time, it has ramped up focus and outlay for traditional areas of the energy sector — like discom revival and stressed assets — where reforms have been long pending. “To give a further boost to the non-conventional energy sector, I propose to provide an additional infusion of Rs 1,000 crore to SECI and Rs 1,500 crore to IREDA,” Finance Minister Nirmala Sitharaman said in her Budget speech in Parliament. Sha also said a National Hydrogen Mission will be launched in 2021-22 for generating Hydrogen from green power sources. As part of the larger focus on ensuring clean air and environment, the budget provides for Rs 2,217 crore allocation for 42 urban centres with population of over 1 million. This year’s budget also provides additional resources to address the ailing power discoms as part of a new package worth around Rs 3.5 lakh crore. Sitharaman said the revamped result-linked scheme with Rs 3.05 lakh crore outlay will be launched for implementation over 5 years. The budget also focusses on rapid expansion of the national programme on smart metering and separation of agricultural feeders — key initiatives to address the issues of the distribution sector. “Power distribution companies are currently monopolies, whether public or private. There is a need to provide choice to consumers. There should be a framework to give consumers alternative of more than one discom,” Sitharaman said. Two other significant announcements of this year’s budget with implications for the energy sector were focus on disinvestment, with the FM setting a target for 2021-22 at Rs 1.75 lakh crore and stating BPCL disinvestment will be completed this year, and monetisation of public sector assets. “A National Monetization Pipeline of potential brownfield infrastructure assets will be launched, for monetizing operating public infra assets,” Sitharaman said. The initiative will cover the assets of Powergrid Corporation (PGCIL), Dedicated Freight Corridor Corporation (DFCC), National Highways Authority (NHAI) etc. The Budget also lays focus on the Oil & Gas sector with increased outlay for the expansion of the City Gas Distribution (CGD) network and Ujjwala beneficiaries. “Ujjwala scheme being expanded to cover over 1 crore more families will ensure India will have 100% blue fame coverage of all willing household access to clean cooking fuel, up from 55% households with access in 2014. This is a phenomenal story of energy access,” said Debasish Mishra, Partner, Leader – Energy, Resources and Industrial Products, Deloitte India. On the lines of a Power system operation corporation (POSOCO) in power sector, this year’s budget also provides for setting up an Independent Gas transmission system operator for the gas sector. It is expected to ensure indiscriminate open access for buyers and sellers of gas and also facilitate operation of the gas exchange.
Budget 2021: Independent operator for common carrier gas pipelines
The government is planning to set up an independent operator to manage common carrier capacity for all natural gas pipelines, which would give all gas marketers a level playing field going forward. “An independent gas transport system operator will be set up for facilitation and coordination of booking of common carrier capacity in all natural gas pipelines on a non-discriminatory, open-access basis,” finance minister Nirmala Sitharaman said in her budget speech. ET was the first to report on December 28 that the government was planning to set up such an independent operator to meet the longstanding demand from industry to separate content and carriage and therefore remove the advantage that state-run gas marketer GAIL enjoys due to its overwhelming control of the country’s gas pipelines. With the establishment of an independent operator, all gas marketers will have equal and transparent access to the common carrier part of the gas pipelines and will be able to book capacity depending on its availability. Most gas pipelines are mandated to permit a part of their capacity for common usage. The government also plans to monetise three oil and gas pipelines owned by GAIL, Indian Oil, and Hindustan Petroleum, Sitharaman said. She also announced the extension of the Ujjwala scheme to 10 million more households. Eighty million households have already benefited under the scheme, which offers free cooking gas connections to poor women. The government also plans to add 100 additional districts to the city gas distribution network in the next three years. City gas licenses distributed in recent years already cover about 70% of the country’s population. A natural gas pipeline project will also be taken up in the Union territory of Jammu & Kashmir, Sitharaman said.
Economic Survey: India’s oil production falls by 6%, gas by 5% in FY 20
India saw its oil production fall by 6% and natural gas production drop by 5% in 2020 on the back of Covid-19 pandemic, said the Economic Survey. The third-largest energy consumer in the world after the USA and China, India’s indigenous crude oil production declined to 32.17 Million Metric Tonnes (MMT) in FY20 as against 34.20 million metric tonnes in FY19. “The decline in production is mainly on account of the spread of Covid-19. Therefore, production is expected to return to normalcy given the economic recovery,” said the Economic Survey. The Indian energy consumption basket is primarily dominated by Coal and Crude Oil. Of the total crude oil and condensate production, 64.1% was from Oil and Natural Gas Corporation, 9.7% from Oil India Ltd and 26.2% from the Production Share Contract (PSC) regime. Natural Gas production on the other hand saw a drop of 5% during FY20, at 31.18 Billion Cubic Meters (BCM) as against 32.87 BCM in FY19. “Of the total production of natural gas, 76.1% was from ONGC, 8.6% from Oil India and 15.3% from the PSC regime. During April-December 2020, gas production was 21.13 billion cubic metres which was 11.3% lower than the production during the same period in FY20,” the Survey said. In the April-December period of FY 2021, overall consumption of all petroleum products has fallen by 12.6% but has recovered to 87.2% of the consumption, which was prevalent during the same period last year, said Care Ratings in a report, adding that consumption of petroleum products has been increasing as the economy has been easing restrictions and opening up. Production of refinery products/petro products has fallen by 13.5% during April-December FY21. With the outbreak of the Covid-19 pandemic across the world and consecutive nationwide lockdown imposed in the country, Indian refineries have been operating at reduced capacities. Fall in demand has led to refiners trimming their capacity utilisation in order to remain afloat and protect their margins. On Friday, state-run Indian Oil Corp Ltd said its profit more than doubled for the third quarter, at ₹49.17 billion against ₹23.39 billion a years ago. This was helped by an increase in the value of its inventory due to a jump in crude oil prices.