Hit by pandemic & rising fuel rates, transporters seek relief in Budget
Transporters are expecting a reduction in fuel prices in the February 1 Union budget as a measure to help them tide over the losses running into crores of rupees because of the Covid-19 pandemic. Kultran Singh Atwal, president of the All India Motor Transport Congress, said, “Road transport is a key link of the supply chain and the pending demands related to the sector should be fulfilled in the Budget. Petrol and diesel should be brought under the ambit of the Goods and Service Tax (GST). This will ensure uniform pricing of fuel (see box) across the country. The government should also announce cuts in the excise duty to reduce the impact of the rising fuel prices.” He said, “The transport sector get the ‘specific segment’ status. Also, the GST on third party premium on commercial vehicles carrying goods and passengers should be zero.” In Pune, most transporters said relief from the rising fuel prices and tax exemption on their vehicles were xpected in the Budget. “Only 70% of the transport vehicles are operational across the country and business recovery is slow. The rising prices of fuel are adding to our problems. If fuel is brought under GST, it will be free from VAT or excise duty. This can ensure uniform pricing,” Baba Shinde, president of the Maharashtra State Vahan Chalak Malak Pratinidhi Sanghatna, told TOI. Kiran Desai, secretary of the Pune Bus Owners Association, said, “Be it the price of fuel or spares, our woes have not ended. There has to be a favourable atmosphere for us to do business and stay afloat.” Balasaheb Khedekar, president of the Pune district luxury bus association, said, “Of the registered 8,000 luxury buses, only 60 are operational. We cannot increase the fares to tide over the rising fuel prices. Besides, we are not getting a large number of passengers.”
Global oil demand to rise, boosted by vaccine distribution and economy
Global oil demand is expected to rise by nearly 7% this year, boosted by quicker vaccine distribution and a better economic outlook, consultancy Wood Mackenzie said on Thursday. Total liquids demand is expected to average 96.7 million barrels per day (bpd) in 2021, 6.3 million bpd higher than last year when the Covid-19 pandemic caused an unprecedented oil demand shock. “Our short-term forecast assumes vaccine distribution accelerating through 2021 and is underpinned by 5% expected growth in global GDP, according to our macroeconomic outlook, following the global economy’s 5.4% contraction last year,” said the consultancy’s vice president Ann-Louise Kittle. “The pace and strength of the global liquids demand recovery will depend on the pace of Covid-19 vaccine distribution and global economic recovery.” In terms of supply, WoodMac expects oil output from the U.S. Lower 48 states to reduce by about 500,000 bpd this year, moderating from last year’s decline. Rig activity is expected to continue to rise but much of the recovery rate will be dependent on oil prices and the industry’s willingness to spend on volume growth again, WoodMac said. It added that decisions by the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+, will be a huge uncertainty. “Can OPEC+ negotiate deals each month and remain committed to production restraint? Some production restraint is needed in 2021 for market balance, but compliance could wane with demand recovery,” Kittle said. Still, despite the potential increase in oil demand, refinery utilisation this year is expected to remain low, amid the ongoing pandemic, OPEC+ production cuts and new capacity additions, WoodMac said. Over one million bpd of refining capacity will be completed this year in the Middle East and Asia, which could threaten further refinery rationalisation. Refineries under the threat of closure could repurpose the facilities to produce liquid renewables instead of converting into a terminal, which could help oil companies’ aim of achieving carbon neutrality.
Flaming petrol prices to fuel CNG vehicles adoption: Report
Elevated prices of petrol due to a steep increase in taxes in the recent past is set to increase the adoption of compressed natural gas (CNG)-driven vehicles, Crisil Research said. Accordingly, the last time petrol prices had crossed the Rs 80 per litre mark was in October 2018, when Brent crude had surged to $80.5 per barrel. In contrast, the price has now touched an all-time high of Rs 85.2 per litre in New Delhi even though Brent has slid to $55 per barrel. The increase is due to higher excise duty, which rose by Rs 13 to Rs 32.98 per litre in 2020 and value-added tax. “Tax now accounts for over 60 per cent of the retail selling price of petrol, compared with 47 per cent in 2019,” said Hetal Gandhi, Director, CRISIL Research. “Given that the government has to find the money to ramp up public spending – and is also promoting usage of cleaner fuels – it is unlikely that the tax on petrol will come down to previous levels anytime soon.” In the current fiscal, the government is expected to earn incremental revenue of Rs 1.4 lakh crore because of higher excise duty – despite petrol and diesel sales volume likely declining 10-16 per cent. Besides, in 2021, Crisil Research expects Brent crude to rise 23 per cent on-year to an average $50-55 per barrel from $42.3 per barrel in 2020, riding on a gradual recovery in economic activity globally. “That would mean a 4 per cent increase over the average closing price of December 2020.” “In comparison, domestic gas prices are expected to rise over 20 per cent to $2.5-3.5 per million British thermal unit (mBbtu) in calendar 2021 from $2.45 in 2020.” Furthermore, the percentage increase in domestic gas prices is similar, the differential between petrol and CNG retail prices will remain wide because of higher taxes on the former. Parallelly, the government is ramping up city gas distribution (CGD) networks, which would also drive up CNG consumption. “Within CGD, the CNG segment – accounting for 40 per cent of CGD demand is expected to log a compound annual growth rate of 25 per cent between fiscals 2021 and 2023.” At present, CNG vehicles account for only 5 per cent of the passenger vehicles sold in the country annually. “With the implementation of Bharat Stage VI standards, prices of diesel vehicles have risen sharply, pushing most commercial players towards CNG.” “The price competitiveness of CNG is evident in consumption volumes, which have logged a CAGR of 11 per cent over the past three years.” About 1.8 lakh CNG cars and passenger vehicles were sold last fiscal versus 1.4 lakh in fiscal 2015. “CNG was always cheaper than petrol, but the price differential between the two has widened rapidly in the past two years,” said Mayur Patil, Associate Director, Crisil Research. “Today, the cost of running a CNG car is 44 per cent less than a petrol variant, if you consider the CNG price of Rs 42.7 per kg in New Delhi.” According to report, the ramp up in the share of natural gas in India’s energy mix is expected to take place via the trunk gas pipelines which are being laid, and deeper penetration of the CGD network. “A total of 136 ‘geographical areas’ have been awarded under Rounds 9 and 10 of CGD, which are expected to cover 71 per cent of the cumulative population.” “While growth in CNG vending outlets has more than doubled to 2,434 between 2015 and 2020, it is still significantly fewer than petrol outlets. The expansion of CGD network and increasing adoption of CNG as a fuel for personal vehicles will ensure this number increases faster than before.”
Global gas demand likely to grow by 2.8 per cent this year: IEA
Global gas demand is expected to grow by 2.8% this year, or about 110 billion cubic metres (bcm), recovering towards 2019 levels, a senior analyst from the International Energy Agency (IEA) said at the European Gas conference on Tuesday. Global gas markets posted their largest drop on record last year, with consumption falling by an estimated 100 bcm as milder weather at the start of the year and the COVID-19 pandemic slammed energy demand, the IEA’s senior natural gas analyst Jean-Baptiste Dubreuil told the virtual conference. Still, gas demand proved more resilient than that for other energy sources such as oil, he added. Record low LNG spot prices due to the pandemic have rebounded to record highs this year, supported by freezing temperatures and supply issues. “Natural gas demand is more temperature sensitive than other fuels,” said Dubreuil. He added that while global gas demand is expected to recover this year, no major rebound is expected and more mature markets will see only a gradual recovery, with some still not returning to their 2019 levels. He also said he expected new opportunities and challenges against a backdrop of uncertain medium-term LNG demand, with about one third of active LNG contracts due to expire by 2025, while liquefaction capacity is set to grow by 20%, quadrupling the amount of current uncontracted volumes.
Japan’s petroleum industry calls on utilities to keep using oil-fired power plants
Japan’s petroleum industry called on utilities to keep using oil-fired power plants as backups after the nation’s power market faced a supply crunch amid cold weather, the head of the Petroleum Association of Japan (PAJ) said on Thursday. Japan’s wholesale electricity prices have risen sharply since late last month amid the worst power crunch since the Fukushima disaster nearly a decade ago, sending power companies scrambling for extra supplies, especially liquefied natural gas (LNG), to fuel power stations. “The electricity industry has requested our industry to provide excess oil and we have done as much as possible,” Tsutomu Sugimori, president of the PAJ, told a news conference. “But we could not take all the requests, especially from the utilities which have no contracts with us, as it was difficult to quickly prepare tanks, arrange ships, find staff and so on,” said Sugimori, who is also chairman of Eneos Holdings Inc . The petroleum industry has been asking utilities to keep using oil-fired power plants as backup sources for any emergency cases since before the power crunch, but the decision would be up to the utilities and the government, Sugimori said. In light of soaring heating demand amid cold weather, Eneos expects kerosene demand to rise by 25% in January from a year earlier, he said. Demand for oil used by utilities, mainly low sulfur fuel oil, will also rise in January from a year earlier, but Eneos has no plan to increase output of those oil to generate power in February and March just with an assumption of higher demand continuing, Sugimori said. Japanese power companies have been backing out of crude oil and fuel oil due to higher cost compared with coal and LNG.
BPCL plans to maintain high refinery run rates
India’s state-controlled refiner Bharat Petroleum (BPCL) plans to keep its run rates at capacity to meet increased domestic oil products’ demand, the company’s general manager of crude trading, Shelly Abraham told Argus in an interview. “BPCL refineries are all running at slightly over 100pc of capacity. We started increasing run rates around the middle of November, and in December and January we are still running above 100pc. We expect to continue at this level for the next few months,” Abraham said. “Around October-early November, we were operating at 70-80pc of capacity. And in April-May, during the low demand period, we were running as low as around 50pc of capacity.” Indian refiners boosted throughput of crude by around 1pc in December from a year earlier as demand for some oil products returned to pre-pandemic levels. India’s crude runs rose by 1pc to 4.97mn b/d in December from 4.93mn b/d a year earlier but fell from 5.08mn b/d in November, according to preliminary oil ministry data. India’s crude imports also rebounded in December from a year earlier, rising by more than 3.5pc as refinery runs increased, after falling on the year for eight straight months. BPCL has increased its purchases of light sweet crude over the past year, to take advantage of the narrower price premium of lighter, sweeter crudes relative to the heavier sour grades. “Almost all Indian refineries are designed to run mainly heavy, high-sulphur crude, but recently we have seen more light sweet crudes coming into the market and in terms of the price, the spread between light crudes and heavy crudes has narrowed significantly, and inverted in some cases. Ultimately, refineries go by the valuation and margins, so the percentage of light sweet crudes in our BPCL system has increased,” Abraham said. “In general, in the last year or so, our intake of light, low-sulphur crude has gone up by maybe 15-20pc from earlier levels. This would include US WTI, west African crudes and Mediterranean grades like Azeri and Saharan Blend. If tomorrow the price spread of light crudes to heavy goes back to previous wide levels, we are ready to buy and process more of the heavier grades,” he said.
Govt may not reduce excise duty on fuel soon: Official
The retail inflation, as measured by the Consumer Price Index (CPI), was at a 77-month high at 7.6% in October. Although it softened a bit to 6.9% in November, it was still above the Reserve Bank of India’s medium-term target of 4%, with a band of plus or minus 2%. The Centre is not in a position to forgo easy revenues at a time when it needs huge funds to fight the pandemic and revive the economy, a government official said on Tuesday, a remark that came against the backdrop of growing demands to reduce taxes in order to provide relief to consumers. On Tuesday, petrol price crossed Rs.85 a litre in Delhi, hitting a new high for the fifth time in less than two weeks since January 7 even as India’s average crude oil import price softened a bit, according to official data. “Now, there is no pressure of inflation as retail inflation eased to a 15-month low, at 4.59%. Hence the government would like to wait till budget on reducing excise duty on fuel. However, a final decision will be taken by the competent authority,” the official added, requesting anonymity. The retail inflation, as measured by the Consumer Price Index (CPI), was at a 77-month high at 7.6% in October. Although it softened a bit to 6.9% in November, it was still above the Reserve Bank of India’s medium-term target of 4%, with a band of plus or minus 2%. Retail inflation fell sharply to 4.59% in December, mainly due to declining food prices. Petrol and diesel became costlier by 25 paise per litre on Tuesday in the Capital, taking pump rates in Delhi to Rs.85.20 a litre— a new all-time high—and Rs.75.38 a litre, respectively. Diesel surged to a record Rs.82.13 per litre in Mumbai, according to state-run Indian Oil Corporation (IOC). Petrol was sold at Rs.91.80 a litre on Mumbai. Retail rates of the two auto fuels vary across the country because of differences in local levies. According to IOC, the largest fuel retailer in the country, petrol and diesel rates have been revised upward by Re.1 a litre each after January 7 in four small doses of 25 paise each on January 13, January 14, January 18 and January 19. Official data showed that India’s average crude oil import price was Rs.3,977.18 per barrel on January 7, when petrol price in Delhi, at Rs.84.2 per litre, jumped to an all-time high for the first time after about 27 months. Its previous record was Rs.84 a litre on October 4, 2018. Even as the current price of Indian basket of crude is Rs.3,972.74 a barrel, marginally lower than the January 7 figure, the retail prices of automobile fuels were raised. The price of Indian basket of crude oil represents actual average import cost that also factors in the rupee-dollar exchange rate. India, which imports more than 80% of crude oil it processes, pays the import bill in dollars. Requesting anonymity, a second government official said oil marketing companies enjoy pricing freedom. They align pump prices of auto fuels daily with their respective international benchmarks, which may not necessarily move in tandem with international crude oil prices. According to Indian refiners, crude constitute about 90% of the refining costs. State-run oil marketing companies – IOC, Bharat Petroleum Corporation Ltd (BPCL) and Hindustan petroleum Corporation Ltd (HPCL) — did not respond to email queries. The three companies enjoy monopoly in fuel retail.
Price dispute shrinks Russia oil pipeline exports
Exports of Russian Urals oil via the Druzhba pipeline have dropped this month as sellers opt for the sea route instead, following disagreements over pricing with European refiners, four sources told Reuters on Wednesday. The Soviet-built Druzhba pipeline, named after the Russian word for friendship, links Russian oilfields to European refineries and has the capacity to pump 1 million barrels per day (bpd). Since the start of January some 70 per cent of that capacity is being used, two sources familiar with daily Russian oil export data told Reuters on condition of anonymity. Urals exports via Druzhba have fallen by 10 per cent and 20 per cent compared to December and January 2020 respectively, Reuters estimates based on data provided by the sources show. At the same time, Urals oil exports from Russia’s Baltic ports rose by 35 per cent. Lower seaborne transportation costs for Russian flagship Urals crude in 2020 made exports via the pipeline less profitable compared to shipping oil by sea. In response, the sellers sought to increase prices, but refiners, who have suffered from poor margins have resisted. Russia’s major oil exporter Rosneft has yet to agree on supply terms with Poland for 2021, two trade sources said. The country’s two main refiners – Grupa Lotos, which owns Gdansk refinery, and PKN Orlen, owner of a refinery in Plock, are disputing the price, they added. Rosneft’s supply agreement with Grupa Lotos expired on Dec. 31, 2020, and the contract with PKN Orlen expires on Jan. 31, the sources said. “Poland’s refiners are always tough to agree with as they have the alternative of seaborne supplies,” one of the trade sources said. Rosneft also needs to reach agreement with Total about supplies to its Leuna refinery in Germany before the end of March when a contract expires. At the end of last year, Total failed to agree with another major Russian oil supplier, Surgutneftegaz, which then diverted its oil to Baltic sea ports. Rosneft, Grupa Lotos, PKN Orlen and Total did not immediately answer Reuters’ requests for comment.
Norway awards oil and gas exploration rights to 30 firms
Norway awarded 61 offshore exploration blocks to 30 oil firms in its latest pre-defined areas (APA) licensing round as it seeks to find more resources close to existing fields, Energy Minister Tina Bru said on Tuesday. Norway, which began to extract oil and gas from its offshore continental shelf 50 years ago, believes it has still only pumped about half of its available resources. Firms that won stakes in the licences included Equinor , Shell, Aker BP, ConocoPhillips , Total, Lundin Energy and Eni’s Vaar Energi. “These companies have shown great interest in gaining access to new exploration acreage, illustrating the industry’s confidence in continued profitability from exploration on the Norwegian continental shelf,” Bru said. APA rounds cover areas with known geology or near existing infrastructure. “The broad interest shows that companies still believe in the Norwegian continental shelf and in the future profitability of exploration,” said Anniken Hauglie, who heads the Norwegian Oil and Gas Association, an industry group. Sweden’s Lundin received stakes in 19 licences, followed by Equinor with stakes in 17 licences, while Aker BP and DNO each got 10. ConocoPhillips received stakes in four licences, Total in three and Shell in one. Vaar Energi will operate all three licences awarded in the Arctic Barents Sea. Three companies on the original list of applicants did not win any acreage, including RN Nordic Oil, which is a unit of Russia’s Rosneft, and Horisont Energi, a firm dedicated to hydrogen, ammonia and carbon storage solutions. The third company left off the list of awards, Japan’s Idemitsu, recently sold much of its oil and gas business in Norway to Lundin Energy. Norway has also invited oil firms to submit applications by Feb. 23 for 136 exploration blocks in frontier areas in the Barents Sea and the Norwegian Sea. Last December, the country’s top court dismissed a lawsuit by environmental groups against oil exploration in Arctic waters. Norway is western Europe’s largest oil and gas producer, with a daily output of around 4 million barrels of oil equivalent.
ONGC offers stakes to ExxonMobil in multiple offshore blocks
ONGC has recently approached the US super major about the possibility of the latter taking interests in six exploration tracts, according to a media report in India. “ONGC recently wrote to ExxonMobil, asking if it would like to be a joint venture partner in exploration acreages in Cauvery basin and Mumbai offshore,” leading Indian business news daily, The Economic Times, reported on Tuesday. The US giant is said to be presently studying the geological data involving the offshore blocks, following which it is likely to take a decision at a later stage. ONGC is expected to offer a significant minority stake to ExxonMobil in the six offshore blocks and is looking at partnering with ExxonMobil in some of its difficult producing fields, reports added. India’s Petroleum Minister Dharmendra Pradhan said last month that ExxonMobil is in talks to buy stakes in producing oil and gas fields in state-owned oil companies. “ExxonMobil is in active discussion with some of our companies to participate in some of our producing fields,” Pradhan had said. ONGC in 2019 signed an agreement with ExxonMobil to carry out joint technical studies, co-operate in offshore blocks and together bid for upcoming licensing rounds in India.