Aramco seeks 20 per cent cut in Reliance’s O2C business valuation; deal hits roadblock
Reliance Industries’ planned sale of a fifth of its oil-to-chemical business to Aramco has stalled after the Saudi company sought at least 20 per cent cut in $75 billion valuation billionaire Mukesh Ambani’s firm was seeking. Sources privy to negotiations said Saudi Aramco had right from the beginning resisted the $15 billion price tag Reliance had put for the 20 per cent stake in O2C business, which comprises of the company’s twin refineries at Jamnagar in Gujarat, petrochemical plants and 51 per cent in fuel retailing venture. And with crude oil prices plunging due to the pandemic, it sought a complete re-evaluation, putting a price tag of no more than $57-60 billion for the business ($11-12 billion for 20 per cent stake), they said. Aramco felt the business would need substantial investment to convert oil to valuable chemicals and not produce substantial quantities of petrol, diesel, and ATF as Jamnagar refineries currently do. And the slump in crude prices has squeezed refinery margins, requiring reworking of the valuations for the business, it felt. Aramco also had reservations on the debt Reliance had loaded on the O2C business. The sources said Reliance resisted any move to reopen the valuation or to resize the debt. With both sides holding on to their positions, Ambani at Reliance’s annual general meeting on Wednesday said the Aramco deal was delayed due to “unforeseen circumstances in the energy market and the COVID-19 situation”. He neither said if the deal was on track nor gave any fresh timelines for its completion. Reliance did not immediately reply to an email sent seeking comments. Bernstein in its comments on the issue said: “The sell-down of a 20 per cent stake in the refinery and chemical business to Aramco for $15 billion has not progressed as planned given changes in market conditions. We believe a deal is still possible although at a lower valuation closer to our estimate of $57 billion gross”. Ambani had in August last year announced talks to sell a 20 per cent in O2C business to Aramco for an asking of $15 billion. He at that time stated that the deal would conclude by March 2020. But the talks have dragged on. “Reliance is working to complete the contours of a strategic partnership with Saudi Aramco,” Ambani had said in the firm’s latest annual report without giving timelines. The partnership with Aramco would give Jamnagar refineries “access to a wide portfolio of value-accretive crude grades and enhanced feedstock security for higher oil-to-chemicals conversion,” he had said in the annual report released last month. Aramco is a significant supplier of crude oil to Jamnagar refineries and Ambani at the AGM on Wednesday said the company value “two-decade relationship” and is “committed to a long-term partnership”. To facilitate the deal, Reliance had earlier this year decided to spin off the O2C business into a separate subsidiary, and Ambani on Wednesday said that process would continue and is likely to be completed by early 2021. But for him, the urgency of the deal has diminished after Reliance amassed over Rs 2.12 lakh crore from sale of nearly 33 per cent stake in the conglomerate’s digital arm Jio Platforms, rights issue and selling 49 per cent stake in fuel retail business to BP. This money helped the oil-telecom-to-retail conglomerate to become a zero net debt company nine months ahead of the target. “Our equity requirements have already been met,” Ambani said on Wednesday. With a stake, Aramco would not just have a share in one of the world’s best refineries and the largest integrated petrochemical complex but also access to one of the fastest-growing markets — a ready-made market for 5 lakh barrels per day of its Arabian crude and a potentially bigger downstream role in future. Antique Stock Broking Ltd said the partnership with Aramco appears uncertain. “The sudden outbreak of COVID-19 has adversely impacted petroleum markets globally with financial ramification for petroleum majors, including Saudi Aramco”. Axis Capital said while COVID-19 delayed the Aramco deal, RIL continues to draw interest from global players for the strategic partnership of its petrochemicals business. “Saudi Aramco stake sale unlikely to happen any time soon, but given large stake sales, the balance sheet has materially de-leveraged,” JP Morgan said. It said its net debt numbers are higher than Rs 1.61 lakh crore estimates of Reliance after including spectrum dues, capex creditors, and other statutory dues. However, “the balance sheet has materially de-leveraged post the stake sales and hence even as the Aramco deal timelines are unknown at this point, the balance sheet is not impacted”.
Global methane emissions rising due to oil and gas, agriculture: Studies
U.S. oil and gas drilling along with agricultural production worldwide are driving up global emissions of methane, a potent greenhouse gas, two new studies show. That marks a shift from the 2000s, when methane output from human activity came mostly from coal mines. But from 2007 through 2017, methane emissions have climbed on leaks from fossil fuel operations and on food production as people around the world eat more meat. In the United States, now the world’s top oil and gas producer, increased drilling by the industry contributed most to the rise. In South Asia, South America and Africa, growing agricultural activities such as livestock operations and farm waste caused methane levels in those regions to spike, both studies showed. A rise over China was attributed to both agriculture and fossil fuels. “It’s more robust evidence that fossil fuels and agriculture are both equally contributing to the increase of methane contributions in the atmosphere,” said co-author Ben Paulter, and environmental scientist at NASA Goddard. The two studies – published in the journals Earth System Science Data and Environmental Research Letters – update global knowledge on both natural and human-driven methane sources, or what is known as the Global Methane Budget. The last update was in 2016, and accounted for emissions up to 2012. Methane, an invisible gas, is more efficient in trapping heat than carbon dioxide. But it lingers for less time in the atmosphere, so reducing methane emissions could help to prevent the worst impacts from climate change. The only region shown to have lowered emissions between 2000 and 2017 was Europe. This was likely due to lower meat consumption and stricter regulations on landfills, where decomposing garbage releases methane, said Euan Nisbet, an Earth scientist at Royal Holloway, University of London, who did not contribute to the reports. “There are huge, juicy targets for mitigating emissions,” Nisbet said. The studies used several ways of measuring emissions, including both ground and satellite observations as well as consumption and production trends, which are good at capturing large point sources. Harder to assess are the emissions from thousands of small farms, rice paddies and more than 1 billion head of cattle. Identifying sources of methane is an important first step in figuring out how to bring emissions down. For example, covering landfills and better managing methane-belching cattle could have a big effect, Nesbit said. Even just spreading manure around over a field, rather than having it piled up, can help fight the formation of methane. “There’s a lot policymakers and companies can do to cut methane emissions. But in most places around the world, we aren’t doing them,” said environmental scientist Rob Jackson at Stanford University, a co-author on one of the new studies and chair of the Global Carbon Project. U.S. President Donald Trump last year proposed rolled back methane regulations to help the drilling companies cut costs. While the example of Europe cutting emissions gives some scientists hope the region can serve as a blueprint for others, the reports also serve as a warning. “Given that these reports show that methane emissions are currently increasing globally, it does not encourage me that we will be able to reverse the trend and achieve the necessary reductions within the next decade,” said one study co-author Thomas Weber, at the University of Rochester in New York.
Russia’s Rosneft LNG ambitions in Arctic being held up by ministries: Kommersant
Russian oil giant Rosneft is having difficulty in acquiring three gas fields on the Taymyr peninsula, with government ministries fearing competition with Gazprom’s gas exports via pipelines, the Kommersant daily reported on Wednesday. The economic situation in target markets needs to be taken into account, the Natural Resources Minister Dmitry Kobylkin wrote in a letter to Deputy Prime Minister Victoria Abramchenko. Gazprom, which has a monopoly on gas pipeline exports, previously prevented Rosneft from undertaking a similar project, Pechora LNG, in 2016. Rosneft is seeking to transport LNG through the Northern Sea Route from the Deryabinskoye, Turkovskoye and Kazantsevskoye fields in Russia’s Arctic. Gazprom has long been arguing that LNG currently exported by Novatek, and Rosneft’s LNG plans may harm its positions on gas shipped to Europe and China via pipelines. Gazprom is also exporting LNG as a top shareholder at the Sakhalin-2 project.
Fuel-tax hikes are putting brakes on India’s recovery
Dilip Lamba, who owns a transport company in Jodhpur, has had more than three-quarters of his fleet of 50 trucks idling for months. Dharampal Nambardar, a farmer who grows wheat and mustard seed in Haryana, is worried he might not make any profit this year. The main source of their anxiety is not Covid-19, however, but rather a surge in fuel prices. The Central government has hiked import and excise taxes twice this year even as it imposed the world’s biggest coronavirus lockdown. Retail prices for diesel — the lifeblood of Indias economy — in New Delhi have jumped 30 per cent since the end of April, while gasoline has risen 16 per cent. “Diesel makes up almost 70 per cent of our operating costs,” said Lamba, whose company carries everything from cotton to cement to leather goods all over India. “Higher diesel prices means higher freight charges. But customers aren’t ready for it and we can’t absorb the costs.” The Central government raised levies on diesel and gasoline in March and then again in early May, as the coronavirus battered the economy. There’s been a staggering five-fold increase in taxes on diesel since 2014, when Prime Minister Narendra Modi came to power, while those on gasoline have more than doubled. State governments also impose fuel levies, which in Delhi account for around a quarter of the retail prices. Taxes on the two fuels now account for almost two-thirds of what Indians pay at the pump, making Indian retail prices among the highest in Asia and almost double that in Pakistan. The recovery in global crude prices, meanwhile, has boosted Indian fuel costs even further in the last few months. The high prices are adding another headwind to an economy facing the biggest contraction in four decades. Diesel powers India’s trucking fleet, which carries two-third of the country’s freight, and is also essential for construction and agriculture. Gasoline, meanwhile, fills the tanks of millions of motorbikes ridden by lower-income Indians. “While pump prices across the world have mostly followed the drop in oil prices since last year, India is an exception,” said Senthil Kumaran, a senior oil analyst at industry consultant FGE. “It’s unusual to see such a steep increase in the taxes on diesel, as the fuel is deemed to be a driver of economic growth, especially in rural areas.” There appears to be little chance that Modi will take steps to curb the rising diesel and gasoline prices even as global crude prices recover. This year’s fuel levy increases are expected to generate about $30 billion a year in revenue for the government, according to Bloomberg Intelligence, at a time when coffers are being squeezed by less income and sales tax and higher spending on welfare programmes. “The tax hike in early May is turning into a wider cost-push supply shock, reinforced by a rebound in global crude oil prices,” Abhishek Gupta, India economist at Bloomberg Economics, said in a note. “That’s likely to push up inflation over the next few months,” he said. With industrial production still fragile as Covid-19 continues to spread in India, Oil Minister Dharmendra Pradhan’s prediction last month that fuel demand will be back to pre-virus levels by September is looking tough to achieve. There’s already evidence that the high prices are curbing demand. Provisional fuel sales in June show that while Indias overall consumption of petroleum products was 8 per cent lower than a year earlier, diesel and gasoline consumption were down 15 per cent and 14 per cent, respectively. The cost of operations has increased exorbitantly and small truck operators are unable to pass it on to the consumers because demand is low, said Kultaran Singh Atwal, chairman of the All India Motor Transport Congress, the largest such grouping in the country. Almost half of India’s truck fleet is still idle, he said.
Centre to earn Rs 2250 billion more from new petrol, diesel taxes
Centre will earn an additional Rs 2250 billion from new taxes on petrol, diesel and other fuels imposed since lockdown began. This is despite global crude prices touching record lows. Experts suggest the government and the oil marketing companies are technically gaining about Rs 7.30 billion a day because of higher prices for the past month and a half. Bloomberg Intelligence says annual gains for the government would be $30 billion (Rs 2250 billion). Last fiscal, Centre and state governments’ overall tax collection from the petroleum sector in FY20 stood at Rs 5500 billion, the Petroleum Planning & Analysis Cell data suggests. The additional levies are expected to help Centre tide over economic loss due to coronavirus-infused lockdown, which has squeezed its income from taxes amid higher spending on welfare programmes for poor and migrants. Centre has increased excise duty by Rs 13 per litre on diesel and Rs 10 per litre on petrol in May, which catapulted India as the country with highest taxes (around 69 per cent) on fuel, placing it among the countries like France, Germany, Italy and Britain. The government also increased road cess on fuel by Rs 8 per litre. State governments have also increased their value added taxes on fuel to make up for revenue loss amid the COVID-19 crisis. States like Delhi, Andhra, Assam and West Bengal reported over 90 per cent fall in revenue due to the coronavirus lockdown. The increase in duty had simply subsumed the headroom left by a major fall in crude oil prices in April.
PNGRB draft regulation caps individual stake in gas exchange to 15%
No shareholder can have more than 15% stake in a natural gas exchange, as per the draft regulations by the Petroleum and Natural Gas Regulatory Board (PNGRB). The draft, hosted on the PNGRB’s website, is the maiden attempt by India to build a regulatory framework for a gas exchange that would trade physical contracts. The draft lays out in detail the regulations regarding the setting up and operation of an exchange, membership, shareholding and settlement of trades. Anybody wanting to set up an exchange would require an approval from the PNGRB, which would have the power to regulate an exchange, call for information, order investigation and cancel authorisation if needed. “No person, other than a member of an authorised gas exchange, shall at any time, directly or indirectly, either individually or together with persons acting in concert, acquire or hold more than fifteen (15) percent of the paid-up equity share capital in an authorised gas exchange,” the draft says. For a member of the exchange, the shareholding has been restricted to 5% of the equity share capital, as per the draft, which caps the aggregate shareholding at 49% for all members. At least 51% equity capital of an authorised clearing corporation shall always be held by one or more gas exchanges. But no clearing corporation can hold any stake or interest of any nature in the gas exchange, as per the draft.
Come back and innovate in India, Pradhan tells overseas students
As the government pushes for a self-reliant India — ‘Atmanirbhar Bharat’ — Union Petroleum and Natural Gas Minister Dharmendra Pradhan has appealed to the Indian students enrolled in global universities to come back and innovate in their own country. Speaking at an e-meet or a video conference with India students across the world, regarding self-reliance in the oil and gas sector, the minister noted that Prime Minister Narendra Modi has set a target for reduction of 10 per cent in energy import dependency by 2022. In this regard, the government has taken several policy as well as administrative measures to augment domestic oil and gas production and reduce dependency on imports for meeting the energy requirements of the country, he added. He said that the Prime Minister has envisioned a clear road map for India’s energy future which rests on five key enablers of energy availability and accessibility for all, energy affordability to the poorest of the poor, efficiency in energy use, energy sustainability for combating climate change and energy security for mitigating global uncertainties. “India has made its presence felt in the global energy map. We are engaging with OPEC, IEA, IEF and all other major voices in the world energy discussions. India has engaged with the US, Russia, Saudi Arabia, the UAE and all major energy producers, under a policy of diversification of supply sources,” he said. On the ongoing pandemic, Pradhan said that the country is in the midst of an outbreak of the Covid-19 pandemic that challenges the fundamental assumptions of people’s lives. “While the immediate economic impact may slow us down, we are presented with an opportunity to pause, rethink, and redesign,” the minister told the students.
Oil & gas companies hedge bets with investments in green energy
With an eye on revenue diversification, future-readiness, and pre-empting potential government regulation on carbon emissions, oil & gas companies — both Indian and global — are increasing investments in green energy. While British Petroleum has invested $700 million in India’s Green Growth Equity Fund, Shell India has taken a 20 per cent stake in Bengaluru-based solar energy firm Orb Energy as part of its effort to provide reliable green energy to 100 million people in the developing world. In December 2019, India’s largest oil marketing company, Indian Oil Corporation (IOC), announced plans to invest Rs 25 billion in green energy over the next five to seven years. Besides this, IOC and Hindustan Petroleum have launched electric vehicle (EV) charging stations, while Bharat Petroleum Corporation Ltd and IOC have launched EV battery swapping stations for electric-powered three-wheelers. Industry analysts noted that the move by OMCs to invest in EV charging infrastructure was a step towards long-term efforts to retain market share in powering vehicles, as EVs become more popular. If you look at the EV charging infrastructure, you could argue that it is not relevant now, but for any energy retailer, it is going to be relevant in the next decade,” said Vivekanand Subbaraman, analyst at Ambit Capital. He added the three state-owned OMCs, which account for over 90 per cent of fuel retailing, were investing in EV charging infrastructure not only to promote clean energy but also to “ensure their role in powering EVs in the future”. Another expert said it was clear that OMCs were looking to diversify into powering EVs and might invest in wind and solar energy for power generation to supply EV charging stations. IOC plans to scale up its solar and wind power portfolio to 260 MW by the end of 2020 from 216 MW in 2019, which includes 167 MW of wind and 49 MW of solar power generation capacity. ONGC is also planning to significantly increase its renewable energy capacity from a portfolio of 176 MW to 5-10 GW by 2040, according to its energy strategy for 2040. The expert quoted above said investments in wind and solar energy were driven by efforts to compensate for high carbon emissions than to diversify revenue sources for firms such as ONGC. Subbaraman noted that moves by both upstream and downstream players in the oil & gas segment could be aimed at pre-empting regulation from the government. “Our government is very serious about curbing carbon emissions. If an industry doesn’t take care to make investments to curb emissions, the government would have to bring in some checks and balances, which may be like having an internal system of carbon credits,” he said. By 2030, India has committed to reducing the emission intensity of economic activity by 33-35 per cent, compared to its 2005 levels. Emission intensity is the level of pollutants emitted per unit of GDP.
India outpaced China in Oil demand growth in May; IEA report
India registered an increase in oil demand in the month of May by 1.1 million barrel per day on a month-on-month basis against the Chinese growth of 0.7 mb/d, according to the latest IEA Oil Market Report of International Energy Agency. The report, which is one of the world’s most authoritative and timely sources of data, forecasts and analysis on the global oil market, has however projected the global demand to decline sharply by 7.9 mb/d in the current calendar year due to the intensified pandemic. The demand recovery to the extent of 5.3 mb/d can happen in 2021. The report has also suggested that the global supply could fall by 7.1 mb/d in 2020 before seeing a modest recovery of 1.7 mb/d next year. This indicates that the oil price, which has seen the worst ever decline in the month of April-2020 when it slided into the negative territory, may rise considerably in the next calendar year. While the price rationalisation will help Indian companies like Oil & Natural Gas Corporation (ONGC), Cairn India, Oil India to rebound strongly in the next fiscal, the oil marketing companies like IOC, HPCL and BPCL may continue to face it tough, says an analyst of India Gas Foundation. Global oil supply fell by 2.4 mb/d in June, to a nine-year low of 86.9 mb/d due to the demand destruction as well as steep production cut by OPEC countries, Russia, Canada and the United States. The world output has been cut by nearly 14 mb/d since April, the Report stated. For refiners, any benefit from improving demand is likely to be offset by expectations of much tighter feedstock markets ahead. Refining margins will also be challenged by a major product stocks overhang from the very weak 2Q20. Global refinery runs are forecast to fall by 6.4 mb/d in 2020 to 75.1 mb/d and increase by 4.7 mb/d in 2021. However, the report has maintained that the outlook may go haywire as Covid-19 is still “casting a shadow” forcing fresh lockdowns in major cities.
Karnataka: Farmers near Chamundi Hills asked to supply cow dug to biogas plant
Cow dung, which was being wasted by releasing it into underground drainage lines, will now be a means of earning money for dairy farmers who live at the foot of Chamundi Hills. The farmers will supply cow dung to a biogas unit which will generate energy from cattle and organic waste. The biogas plant has been planned at Hosahundi village near the APMC market, under the Galvanizing Organic Bio-Agro Resources Dhan (GOBAR-DHAN) scheme. Hosahundi gram panchayat member G B Lokesh said that the farmers are assured to get Rs 2 per kilogram of cow dung supplied to the plant. There are nearly 2,500 houses in Bandipalya, 157 houses in Gudemadanahalli, 150 houses in Yeligehundi, 750 houses in Uttanahalli and around 2,500 houses in Hosahundi villages, which will supply the cow dung generated in their village to the unit. “After LPG cylinders were supplied to the villages, most of the cow dung was released into UGDs by villagers. The biogas plant which generates gas will supply it to the five villages for cooking and other purposes for a cheaper rate than LPG cylinders. The villagers will earn money from supplying the cow dung and save money by paying less for the biogas,” he said. The authorities have identified nearly two acres near the BSNL office for the plant. “As the plant will be close to Hosahundi village, we have requested the biogas to be supplied first to Hosahundi village. The project was delayed due to the lockdown,” Lokesh said. Zilla panchayat president B C Parimala Shyam said that two places, Hosahundi village in Mysuru taluk and Devanuru village in Nanjangud taluk, were identified for setting up the biogas plant. “However, the project was finalised at Hosahundi village. Organisations like The National Institute of Engineering (NIE) Trust, RP Associates and Bhageeratha have expressed their interest in establishing the plant,” she said.