Domestic gas prices may rise as govt explores floor price mechanism
CNG and piped natural gas prices could face an increase this festive season if the government implements a new floor price mechanism for gas produced from domestic fields by companies such as Oil and Natural Gas Corporation (ONGC). Sources said the petroleum ministry is considering a proposal under which domestic gas will have a floor pricing that would prevent fuel prices from crashing below an identified threshold in the current subdued market conditions and insulate oil and gas explorers like ONGC from a tariff crash. Talks are on to link gas prices with price Japan-Korea Marker, a benchmark index used to determine LNG tariff in North Asia with a discount. With JKM prices hovering over $ 5 million British thermal units (mmBtu) even with day $ 1 mmBtu discount, the Indian gas floor price under this formula will be close to $ 4 mmBtu. This is much higher than the government administered price of $ 2.39 mmBtu for the April-October, 2020 period. And if implemented, it could increase the cost for all gas consumers. “Nothing has been finalised on having a gas floor price as of now. A panel in the petroleum ministry is looking at various options and the best course would be adopted that has little impact on consumers but also supports oil and gas companies with remunerative and sustainable gas prices.” The average cost of gas production for the country’s largest public sector oil company ONGC is about $3.7/mmBtu, much higher than the current regulated price of natural gas at $2.39/mmBtu. This is expected to fall further to about $1.9/mmBtu for the next six months beginning October 1 under the current formula, sources said. Lower gas prices is bad news for ONGC as it would mean further suppressed margins and losses. The company is set to lose close to Rs 6,000 crore on low gas prices this year, brokerages have said. Brokerages have put ONGC’s FY22E gas price at US$3.6-4.2/mmbtu depending on discount to JKM price if the new floor price is implemented. With Low L NG liquefaction capacity addition ahead, JKM spot futures for FY22-FY26E are expected at US$5.2-5.8/mmbtu vs US$4.7-4.1/mmbtu in FY20-FY21E. Oil minister Dharmendra Pradhan had said earlier that India will phase out price controls in natural gas and make it market-linked soon.
Oil heavyweights Saudi Arabia and Russia look ready for a showdown
Exporting Countries have both resumed cutting their forecasts for this year’s oil demand. In the past two months, the IEA has trimmed its forecast by 400,000 barrels a day, while OPEC has reduced its own by 500,000 barrels.By Julian Lee Oil producers could be set for another showdown before the end of the year, with heavyweights Saudi Arabia and Russia holding different views on how to approach the halting recovery in oil demand. Renewed restrictions on travel and social gatherings across Europe, along with the tapering of state support packages for companies, are having a chilling effect on demand for crude, just as the OPEC+ group of oil producers, who cut production by a record 9.7 million barrels a day in May, begin to contemplate the next easing of limits on their output. We should all remember what happened last time they couldn’t agree on what to do. The International Energy Agency and the Organization of Petroleum Exporting Countries have both resumed cutting their forecasts for this year’s oil demand. In the past two months, the IEA has trimmed its forecast by 400,000 barrels a day, while OPEC has reduced its own by 500,000 barrels. And they may have further yet to fall. Neil Atkinson, the IEA’s Head of Oil Industry and Markets Division, said at a Bloomberg event on Thursday that the agency is “more likely to make a downgrade than an upgrade” to demand forecasts in its next monthly report. The biggest headwind to oil demand comes from reduced trade, weakened economies and the knock-on effects of business closings and job losses, Standard Chartered analysts, including Emily Ashford and Paul Horsnell, said in a report last week. At a time when oil demand was meant to be recovering, it now seems to be going into reverse again. A new round of work-from-home advice and restrictions on social activities, triggered by a rise in virus infections in Europe, are set to collide with a reduction in economic support measures. U.S. oil consumption faces similar obstacles, with government support under the Coronavirus Aid, Relief, and Economic Security Act coming to an end on September 30. Even Asia isn’t immune, with Thailand the only country that’s close to seeing a V-shaped recovery in oil demand, according to Standard Chartered. Of course, it’s not all about demand. The room available for additional supply from the OPEC+ countries also depends on how much oil is coming from elsewhere. And there is at least as much uncertainty on this front as there is with demand. There are fears — or hopes, if you’re a rival oil producer — that output from U.S. shale deposits is set for another big drop in the coming weeks and months. Well completions in the U.S. are now so low that large monthly declines in production may be imminent, Emily Ashford warned last week. More robust monthly data from the U.S. Energy Information Administration show that this year’s drop in domestic crude production has been both steeper and deeper than their preliminary weekly data suggested. Another drop in U.S. production would leave more room for the OPEC+ group to raise its own output. But there are problems within the group itself, as I wrote here. While overall compliance with the promised output cuts has been unusually good — thanks in part to the no-nonsense attitude of Saudi Arabian energy minister Prince Abdulaziz Bin Salman — a few countries are still struggling to implement their cuts in full. And then there’s Libya, which remains outside the group’s supply deal and is creating another big source of uncertainty. The political truce in the OPEC member’s long-running civil war could allow it to boost exports, adding to global supply at an inconvenient time for the rest of the group. The state oil company is predicting supply could quickly rise to 260,000 barrels per day from about a third of that level. Goldman Sachs reckons exports could reach double that by the year’s end. Even the world’s biggest oil traders — including Vitol Group, Trafigura Group and Mercuria Energy Group — don’t have a united view on the outlook for oil over the coming months. Mercuria co-founder and CEO Marco Durnand says “we do not need the extra oil” that the OPEC+ group is planning to pump from January. Trafigura executives are also downbeat. But Vitol has a starkly more bullish view than its rivals. With so much uncertainty, it’s little surprise that tensions are emerging within the OPEC+ group. Saudi Arabia wants, above all, to prevent oil prices from slipping, and its energy minister says the OPEC+ producer group will be “proactive and preemptive” to stop supply from running ahead of demand. He wants to make oil traders “as jumpy as possible.”
A match made in Houston: United States has energy resources, India has a huge market
India’s quest for energy security offers limitless possibilities to U.S. companies and has the potential to oil the engines of economic growth in both India and the United States. As we slowly move toward opening up, the partnership has the potential to play an important role in economic recovery. The energy market in India is vast and growing rapidly. It is the world’s third-largest producer of electricity and set to be the largest energy market before 2030. The IEA’s World Energy Investment 2019 report highlights that among major markets, energy investments in India have grown the most over the past three years, with an investment of $85 billion. India offers a huge market; the United States is abound in energy resources and leading technologies including in natural gas and solar — the complementarities and synergies are striking. Numbers speak for themselves. There has been an increase of 93 percent in the hydrocarbons trade between India and the United States in the last two years; it reached $9.2 billion in 2019 and 2020. India is now the fourth largest international market for U.S. crude oil and the fifth largest for U.S. liquefied natural gas. Indian firms have concluded several contracts for sourcing crude from the United States and are expanding their investments in the U.S. energy sector, creating jobs and economic opportunities. While crude oil and liquified natural gas transactions have been impressive, it is important to note that these comprise only one of the four pillars of U.S.-India energy cooperation. The other pillars — power and energy efficiency, renewable energy and sustainable growth — are equally critical. Underlying all of these is innovation. Indian and U.S. entities are also working together to advance cooperation in civil nuclear energy. Cooperation with the United States in the natural gas sector is a priority for India. As India evolves into an increasingly gas-based economy, natural gas infrastructure — pipeline networks, city gas distribution grids and LNG terminals — is being ramped up across the country. Significant opportunities exist for the U.S. companies in LNG bunkering, container development, petrochemicals and biofuels.India is primed for investment of $118 billion in oil and gas exploration, and natural gas infrastructure, including urban consumer gas distribution networks over the coming five years. For U.S. investors and energy companies with their global footprint, India is the new frontier. Under the U.S.-India Gas Task Force, several partnerships have been underway. Notable ones include collaboration between the respective regulatory entities on information exchange, between Bloom Energy and Indian Oil on fuel cell technology, and among ExxonMobil, Chart Industries and IOCL on stimulating LNG demand. Indraprastha Gas Limited and Agility Fuel Solutions LLC and Gasway USA Inc. have agreed to explore the viability of advanced clean fuel systems. ExxonMobil and GAIL are now engaged in commercial dialogue to enhance India’s natural gas access to advance LNG as fuel in heavy vehicles. The list continues to expand. As India builds strategic petroleum reserves at home, India is also looking to lease crude storage capacities in the United States. An agreement for cooperation in this area was signed in July 2020. For clean energy, India is the new home. Buoyed up by the current progress, India is well on the target to create 175 gigawatt capacity from renewables by 2022. The United States and India are working to strengthen power grids and distribution utilities for clean, affordable and reliable energy access. Under the ‘Ujjwala Yojana’ (the Hindi word ‘ujjwal’ denotes brightness or optimism) over 80 million economically underprivileged families have been provided subsidized cooking gas cylinder connections over the past four years. This program has had a positive ecological impact and provided preventive health benefits to homemakers, many of them women. India and the United States are collaborating on several R & D initiatives. This focuses on smart grids and energy storage, so as to enhance efficiency and reliability of the electric grid. Other areas of collaborative research encompass advanced coal technologies for power generation and hydrogen production, including carbon capture, use and storage The U.S. Development Finance Corporation’s $600 million financing facility announced for renewable energy projects in India is bound to spur growth in the sector. In an uncertain world, the key to effective partnerships between nations is reliability, trust and long-term commitment. The India-U.S. strategic energy partnership touches all three aspects. The pandemic has only reminded us of the need for more focused and expeditious action to galvanize economic growth through mutually beneficial collaborations.
Oil minister Dharmendra Pradhan wants tourist towns to run on clean fuel
Oil minister Dharmendra Pradhan on Sunday proposed to make major tourist destinations switch completely to clean fuels with a view to weaving sustainability into tourism. Addressing a function organised to mark the World Tourism Day, Pradhan said switching 100 per cent clean fuels will further help protect monuments and ensure a cleaner environment for the tourists. Pradhan’s proposal build on his ministry’s ongoing efforts to expand city gas (CNG and PNG) network in 400 districts, which will wean public transport away from diesel to clean-burning natural gas. The government recently launched plans to fully power Konarak, which hosts the famous sun temple in Pradhan’s home state Odisha, with solar power.
Govt notifies norms for alternative fuels to promote sustainable transportation
The Road Transport and Highways Ministry has notified regulations for various alternative fuels to further promote sustainable transportation, Union Minister Nitin Gadkari said on Sunday. “After testing use of H-CNG (18 per cent mix of hydrogen) as compared to neat CNG for emission reduction, the Bureau of Indian Standards has developed specifications of hydrogen-enriched compressed natural gas (H-CNG) for automotive purposes as a fuel,” the Road Transport, Highways and MSME Minister said in a tweet. The notification for amendments to the Central Motor Vehicles Rules 1989, for inclusion of H-CNG as an automotive fuel has been published, the minister tweeted. It is a step toward an alternative clean fuel for transportation, he added.
Licensing rounds: No takers for hydrocarbon exploration permit
No company has expressed interest for a hydrocarbon exploration permit in the latest licensing rounds in the country. The sixth and seventh licensing rounds, which ran between December and July, attracted no explorer as the pandemic clouded prospects for the oil sector, restricted mobility, and kept oil company executives busy with their operational challenges. “The pandemic didn’t permit much focus on acquiring new acreages. Once this settles down, we would again look at it,” said an executive at a state-run oil company. Even before the onset of the pandemic, private players were shy of seeking exploration acreages in India. A revamped licensing policy launched in 2018 did attract some private sector attention initially but the charm faded quickly. In the fourth and fifth rounds, there has barely been any contest with just two state-run firms – ONGC and Oil India – dominating bids. In the fifth round, where the government is in the process of awarding blocks, 12 bids were received for 11 blocks on offer, effectively reducing the contest to just one block. The bids included seven by ONGC, four by Oil India and one by Invenire Petrodyne ltd. Similarly, in the fourth round, a total of eight bids were received, including seven from ONGC and one from Oil India. Of the total blocks awarded in the first four rounds, Vedanta has 51 blocks, the highest for any company. Two other private players, Hindustan Oil Exploration Company and the joint venture of Reliance Industries and BP also have one block each. ONGC and Oil India have won 17 and 21 blocks, respectively, in the first four rounds. Other state firms—Indian Oil, BPRL and GAIL—too have one block each.
Dharmendra Pradhan invites US companies to engage in developing gas infrastructure in India
Union Minister of Petroleum and Natural Gas and Minister of Steel Dharmendra Pradhan on Thursday discussed ‘Strategic Energy Partnership’ during video conferencing with Kenneth Juster, the US Ambassador to India, and invited the US companies to engage more intensely in developing the gas infrastructure in India. Informing about the same in series of tweets, the Ministry of Petroleum and Natural Gas said that, the Minister also reviewed the strategic petroleum reserves’ cooperation initiated in June this year. “Minister of Petroleum & Natural Gas and Minister of Steel Dharmendra Pradhan had a discussion through VC with Kenneth Juster, the US Ambassador to India on India-US Strategic Energy Partnership. The US Ambassador to India recognized that the energy component is emerging as a key constituent of the India-US strategic partnership,” tweeted the Ministry. “Minister Dharmendra Pradhan invited US companies to engage more intensely in developing the gas infrastructure in the country and reviewed the strategic petroleum reserves’ cooperation initiated in June this year,” it said in another tweet.
Indian Oil Corp seeks petrol after BPCL’s post-hiatus purchase
Indian Oil Corp is seeking gasoline, a tender document showed, making it the second refiner from the country looking to plug a gap caused by low crude runs to curb inflating supplies of diesel and jet fuel, industry sources said. IOC, which does not typically comment on its spot deals, is looking to import 30,000 tonnes of gasoline for Oct. 10-11 arrival at Chennai and Kochi through a tender closing on Sept. 29. This comes after Bharat Petroleum Corp Ltd bought gasoline from an oil major last week for Oct. 7-11 arrival at Kandla, its first purchase this year. India went on a buying spree in 2019 as refineries upgraded to produce cleaner fuels, causing the country’s monthly gasoline imports to hit an all-time high of about 410,000 tonnes in September last year, official data showed. However, coronavirus lockdowns wiped out most of the demand earlier this year, with India’s August 2020 gasoline imports seen at 30,000 tonnes. “Indian demand for gasoline is (now) super strong. Current (refinery) runs are not adequate and will require some cargoes to be imported in October,” said one of the sources. But Indian refiners are under pressure to keep output low due to persistent weak demand and bad refining margins for diesel and jet fuel, the source added.
China on course for record LNG imports as industries recover, expand
China’s imports of liquefied natural gas will likely grow 10 per cent to new highs this year as companies scoop up cheap supplies to cover increasing industrial use and robust residential demand. With its total natural gas use likely expanding at 4-6 per cent this year, China is the only major bright spot on the world gas market, where demand is set to fall by about 4 per cent as the global economy contracts due to coronavirus lockdowns. LNG imports are set to hit a record 65-67 million tonnes this year, analysts and Chinese traders estimate, a tenth more than 2019’s total and at a growth rate that could see China overtake Japan as the world’s top buyer by 2022. Some analysts believe China’s economy is now pretty much back to its pre-virus growth path. “After taking a brief hit earlier this year due to the COVID-19 pandemic, China’s gas demand recovered faster than expected, driven mostly by the industrial sector that has recovered to 2019 levels since May, ” said Alicia Wee, analyst at FGE. Companies booked more super-chilled gas from Qatar, Russia and Australia, taking advantage of record-low prices earlier in the year as demand sagged elsewhere. To accommodate higher LNG imports, top gas importer PetroChina reduced costlier pipeline supplies from central Asia, mainly Kazakhstan, using contract tolerances, said a Beijing-based PetroChina official. “(Fourth-quarter)imports will remain robust…as LNG is both more competitive and flexible versus pipeline gas, despite a recent spot price spike,” Lu Xiao, senior analyst at IHS Markit. January-August imports of LNG rose 10.3 per cent over the same year-ago period to 42.2 million tonnes, while piped gas fell 7.4 per cent, Chinese customs data showed. China sees natural gas as a bridge fuel on its long journey to reach carbon neutral by 2060, and since 2016 has switched millions of homes and thousands of factories to gas from coal. The gasification pace slowed along with the economy since 2019, but new pockets of industrial demand have emerged in manufacturing hubs like south China’s Guangdong and east China’s Shandong provinces. In Guangdong, China’s first region to import LNG, authorities are pushing ceramic and glass makers to burn gas instead of coal, which will likely generate up to 8 billion cubic metres of fresh gas demand this year, or 2.6 per cent of the national total, according to a report carried this week by the Shanghai Oil and Gas Exchange. Guangdong, the top gas power generator by province and second-largest gas consumer after Jiangsu, added 3 gigawatts of capacity in the first eight months to raise its total to 26 GW, more than a quarter of China’s total, said IHS Markit’s Lu. Residential demand also continues to grow, accounting for roughly 30 per cent of total demand, said independent gas distributor ENN Energy Holdings and China Resources Gas Group Ltd , which each connected over one million households to their pipeline network in the first half of 2020. WINTER COVERAGE Despite the growth in demand, China is not expected to suffer supply shortages during the cold winter months when demand peaks. Domestic gas production has also expanded. It is up nearly 9 per cent in the first eight months versus a year ago as PetroChina and CNOOC Ltd stepped up domestic drilling to meet national supply obligations. Companies have also filled underground storages with total effective working capacity of 14 billion cubic metres. “Sufficient supplies and flexible demand make gas shortage a remote possibility,” said Huang Miaoru, senior manager at Wood Mackenzie.
BPCL sale may be delayed to next fiscal year, worsening federal deficit woes
India’s efforts to privatise refiner Bharat Petroleum Corp. Ltd. could spill over into the next fiscal year, according to a government document and sources, hurting New Delhi’s efforts to rein in a ballooning fiscal deficit. The privatisation of key companies, including BPCL, is a key part of government plans to pare the fiscal deficit, which has breached its target level just four months into the current fiscal year. Industry sources last year estimated the government’s 53.29% stake in BPCL could fetch $8 billion to $10 billion. With India’s economy contracting by a record 23.9% in the June quarter due to COVID-19, a delayed sale of BPCL could hinder the government’s ability to generate funds for stimulus efforts aimed at restoring growth. New Delhi’s plan to sell its stake in BPCL was first announced in November 2019, and is part of a broader program to spin off or sell stakes in dozens of state-owned companies. The sale has been targeted for completion in the current fiscal year at end-March, but the deadline for initial expressions of interest was pushed out by two months due to pandemic-related movement restrictions that have prevented potential buyers from inspecting the facility. A sale status report issued last month and reviewed by Reuters showed the sale was only due to complete the third step of a 25-step process established for government divestments this month. The document suggests it could take as long as another 21 months for the sale to be completed, although some stages could be carried out concurrently. Potential buyers still needed to attain security clearance, conduct valuation assessments and agree financial terms. “This looks challenging. But we are doing our best to complete the transaction in this financial year,” a senior government official familiar with the sale told Reuters. A second official said the process could take at least 7-8 months more, which would delay completion until at least the end of April, and mean that the proceeds of any sale would only hit government coffers next fiscal year, which begins on April 1 “It may not be possible for overseas companies to do due diligence as air travel is restricted,” added a third official involved in the privatisation process. All three officials declined to be named because of the sensitivity of the issue. The sale also faces domestic opposition. The state government of Kerala, where BPCL’s 310,000 barrels per day Kochi refinery is located, fears job losses and plans to challenge the privatisation in the Supreme Court, its industry minister EP Jayarajan told Reuters. Companies including Saudi Aramco and Rosneft have indicated they would look at BPCL since the privatisation plan was announced. BPCL shares have fallen more than 20% since November last year. Interest may be dampened as the industry looks to shift to greener energy investments. The government had budgeted collections of over $27 billion from privatisations and minority stake sales of state-owned companies this fiscal year, but had raised only about $775 million after the first 6 months.